General

What are the commonly used payment methods for foreign trade? Foreign trade payment methods are a concern for many export sellers. Let's take a look at what types of foreign trade payment methods are available? What are their advantages, disadvantages, and potential risks. At present, international trade mainly adopts three types of payment methods: remittance, letter of credit, and collection.

1、 Telegraphic transfer

Remittance is divided into pre delivery telegraphic transfer and post delivery telegraphic transfer. Before delivery, telegraphic transfer is mainly used as a deposit, advance payment, etc; Post delivery wire transfer refers to the transfer of all or part of the remaining payment after the delivery is completed to complete the payment.

Its advantages are convenience, speed, and flexibility. The disadvantage is commercial credit, which is less secure than a letter of credit.

2、 Letter of Credit

At present, letters of credit generally adopt irrevocable, confirmed, and documentary letters of credit. A letter of credit is a payment commitment made by the issuing bank to the beneficiary, providing the beneficiary with a guarantee of payment, and therefore is a favorable foreign trade payment method for the beneficiary. But the beneficiary can only receive payment when they provide the documents required by the letter of credit in accordance with the provisions of the letter of credit. Therefore, a letter of credit is a conditional payment commitment from a bank.

The letter of credit business is relatively complex, and the existing format is generally applied with slight modifications according to the specific situation. After the signing of the foreign trade contract, it is necessary to immediately urge exporters to strictly and reasonably open valid letters of credit in accordance with the contract terms.

Immediately prepare the goods or sign a domestic purchase contract with the factory as soon as a valid letter of credit is obtained; If the company experiences a shortage of funds and the conditions are met, it can take a valid letter of credit to the bank to package the loan, or apply for export documentary credit from the bank after obtaining all the documents specified in the letter of credit.

Its advantage is that it is relatively safe. The disadvantage is that the requirements for documents are relatively strict, and the bank fees are higher, which takes up more of the buyer's funds.

3、 Collection

Collection includes D/A against acceptance and D/P against payment. There is also trust business under forward payment documents, where the importer obtains the shipping documents from the bank with a trust receipt and represents the bank to pick up the goods at the dock.

D/A acceptance and payment of documents: verification and refund of taxes. The difference between logistics freight forwarder D/P and D/A is that D/P must pay for the bill of lading, pay the money first, and then submit the bill of lading. If the bank releases the bill of lading without authorization, the responsibility lies with the bank; The D/A importer can collect the bill of lading after XX days of acceptance of the payment on the bill of lading. If the payment is not made on time, the bank is not responsible.

D/P documents against payment: It is a method of delivering documents under the documentary collection method, indicating that the exporter's delivery is conditional on the importer's payment, that is, the importer can only collect the documents from the collecting bank after payment. Divided into D/P Sight, it indicates that the exporter issues a sight draft, and the collecting bank prompts the importer to make payment upon sight. When the payment is fully paid, the importer obtains the shipping documents.

Its advantage is that the buyer is more convenient in terms of funds. The disadvantage is that the seller's collection security is poor.

The above are three commonly used payment methods for foreign trade, hoping to be helpful to all export sellers.