General

In the foreign trade industry, negotiating with customers on product prices and payment methods is a big test for foreign trade salesmen, as it is a decisive factor that directly determines whether an order can be concluded to a certain extent, and also directly affects their own profit and risk control.

Although we all know in foreign trade negotiations which foreign trade payment methods are better for us, in actual negotiations, it is often difficult for customers to accept our payment plans. Therefore, we need to learn more about the characteristics of each foreign trade payment method. The following summarizes some commonly used foreign trade payment methods in international trade.

1、 L/T is also known as letter of credit

Generally, it refers to a written certificate issued by a bank to the exporter (seller) at the request of the importer (buyer) to ensure that it bears the responsibility for payment of goods.

This method is currently commonly used as a foreign trade payment method. L/T is a conditional payment commitment issued by a bank to the exporter (seller) at the request of the applicant. As long as the exporter (seller) issues the documents and letter of credit to the issuing bank within a specified period and amount. The bank will pay.

2、 T/T wire transfer

One is called pre TT (pre T/T). In the international trade industry, when the shipper pays 100% of the payment before shipping, it is called pre TT (pre T/T). This payment method is the safest trade method in international trade compared to the seller, because the seller does not need to bear any risk. As long as the seller receives the money, he will ship the goods, and if he does not receive the money, he will not ship the goods.

Front TT (front T/T) can also be divided into many flexible methods, with a deposit of 20% to 40% first and a full payment of 80% to 60% before shipment. The specific proportion is flexible according to different situations.

Second: Post TT (Post T/T) payment method. "Post TT (Post T/T) payment method is defined in the line as: After the shipment is completed, the buyer pays the balance.". How did the buyer pay off the balance? Generally, the balance is paid off based on a copy of the B/L (BL) bill of lading after TT (after T/T). The post TT (post T/T) mode is also relatively flexible.

T/T vs. L/C

1. T/T is simpler and more flexible than L/C. For example, tight delivery times, changing packaging, and so on, as long as the customer agrees, it doesn't matter. "If it is a letter of credit, it is quite troublesome, and it is necessary to modify the letter of credit. Otherwise, if there is a discrepancy, the customer can refuse to pay.".

Another characteristic of T/T is that its cost is lower than L/C. Bank deductions are relatively small, usually in the tens of dollars. Letters of credit can sometimes amount to hundreds of dollars. Therefore, some factories offer T/T prices lower than L/C. However, generally speaking, if the documents of the letter of credit are well prepared, they are more reliable than T/T. The collection is guaranteed by the bank. With the letter of credit, you can go to the bank to package the loan, and the financial pressure is very low. However, in countries with poor bank credit or strict foreign exchange controls, letter of credit risks are high, such as India.

3. T/T and L/C each have their advantages and disadvantages. If T/T and L/C are combined, it is more safe, 30% T/T, The balance L/C.

3、 Collection and payment include D/P, D/A, O/A

D/P refers to a settlement method in which the collecting bank must pay the importer for the goods before handing over the commercial (shipping) documents to the importer. D/A refers to a method by which the collecting bank delivers documents to the importer after accepting the usance bill. It is pointed out that the exporter shall issue a usance draft after shipping the goods, entrust the bank with collection along with the shipping documents, and clearly instruct the bank that the importer can receive a full set of shipping documents after accepting the draft. The payment for the goods will be made in full on the due date of the draft. O/A can also be said to be a credit sale.

Advantages: The buyer has no financial pressure. Disadvantages: Poor security

Each of the above foreign trade payment methods has its own advantages, some are convenient and fast, some are relatively safe, and some charge cheap. Therefore, which payment method to choose depends on your actual situation.