General

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

Although we all know which foreign trade payment methods are better for us in foreign trade negotiations, it is usually difficult for customers to accept our payment plan in actual negotiations. Therefore, we need to learn more about the characteristics of each payment method. Below is a summary of some commonly used foreign trade payment methods in international trade.

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

Generally, it refers to a written document issued by a bank to the exporter (seller) at the request of the importer (buyer) to guarantee payment responsibility.

This method is currently a commonly used payment method in foreign trade. L/T is a conditional payment commitment from a bank, and the issuing bank provides a written guarantee document to the exporter (seller) at the request of the applicant. As long as the exporter (seller) issues documents and letter of credit to the issuing bank within a certain period and specified amount. The bank will make the payment.

2、 T/T wire transfer

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

Pre TT (pre 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 can be flexibly adjusted according to different situations.

The second method is post TT (post T/T) payment. The payment method of post TT (post T/T) is defined in the bank as, after the goods are shipped, the buyer pays the remaining amount. So how did the buyer pay the balance? In general, post TT (post T/T) is based on a copy of the B/L (BL) bill of lading to pay the remaining balance. The post TT (post T/T) mode is also relatively flexible.

Comparison between T/T and L/C

1. T/T is simpler and more flexible to operate than L/C. For example, tight delivery times, changing packaging, etc., as long as the customer agrees, it doesn't matter. If it is a letter of credit, it is quite troublesome. It is necessary to modify the letter of credit, otherwise it will cause discrepancies and the customer can refuse payment.

Another characteristic of T/T is that its cost is lower than L/C. Bank charges are relatively low, usually in the tens of dollars. And letters of credit can sometimes amount to several hundred dollars. So some factories offer T/T prices slightly lower than L/C. However, generally speaking, if the documents of the letter of credit are well prepared, it is more reliable than T/T, and the payment 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 small. However, countries with poor bank credit or strict foreign exchange controls, such as India, face significant letter of credit risks.

3. T/T and L/C each have their own advantages and disadvantages. If T/T and L/C are combined, it would be more secure. 30% T/T is 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 in full before handing over commercial (freight) documents to the importer. D/A refers to a foreign trade payment method in which the collecting bank delivers documents to the importer after accepting the usance draft. The exporter shall issue a long-term bill of exchange after shipping the goods, and entrust the bank with the collection along with the shipping documents. The bank shall be clearly instructed that the importer can receive the full set of shipping documents after accepting them on the bill of exchange, and the payment for the goods shall be made in full on the expiration date of the bill of exchange. O/A can also be said to be a credit sale.

Advantages: The buyer has no financial pressure. Disadvantage: Poor safety

Huacheng Chuangzhi Foreign Trade Software reminds everyone that each of the above payment methods has its own advantages, some are convenient and fast, some are relatively safe, and some are charged cheaply. So, which foreign trade payment method to choose depends on your actual situation.