Ies405 PDF Eng

IES405
FN-453-E
Rev. 7/2010
International Payment Methods
By international payment methods we mean the various types of instruments that are used to
settle debts arising from international trade.
In actual fact, there are no payment methods that are used exclusively for cross-border trade;
however, some that are commonly used in international transactions are rarely used in
domestic transactions.
Main Payment Methods Used Internationally

− Personal check
− Cashier’s check (or banker’s draft)
− Credit transfer
− Clean collection
− Documentary collection
− E-payments
− Letter of credit
Personal Check and Cashier’s Check

Personal checks are used to pay the exporter with funds held by the importer in its bank
account in another country.
The exporter sends the goods, along with the shipping and title documents, directly to the
importer and waits for the importer to send a check in payment.
Once the exporter receives the check, he pays it into his bank. If the exporter is a regular
customer, the bank will credit the exporter’s account for the amount of the check; if not, it
will send the check for collection.
This technical note was prepared by Professor Jorge Soley. July 1998. Revised in July 2010.
Copyright © 1998 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to iesep@iesep.com,
send a fax to +34 932 534 343 or call +34 932 534 200.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any
form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IESE.
Last edited: 12/1/10

0-298-086 1
This document is authorized for use only in Lia Linares Calderón's Operaciones Financieras Internacionales (2021-I) at Universidad Peruana de Ciencias Aplicadas (UPC) from Apr 2021 to Jul
2021.
FN-453-E International Payment Methods
The exporter’s bank forwards the check to the importer’s bank, which, if the check is in order,
will debit the amount to the importer’s account and pay the exporter’s bank.
The exporter may use this payment method for various reasons:
a) Because there is an ongoing relationship of trust between the parties.
b) Because, under the export agreement, the exporter has sufficient guarantees from the
importer.
The use of personal checks for export payments entails a considerable risk for the exporter,
who sends the goods and must then wait for the importer to pay, with no certainty that the
check will be honored.
The exporter’s bank may offer a credit facility, whereby it makes a cash advance against
payments by personal check.
Receiving payment for exports and services by cashier’s check is essentially the same as with
a personal check.
The exporter presents the cashier’s check at its bank, which will assess the solvency of the
importer’s bank and country, before paying the money into the exporter’s account.
Credit Transfer
For an exporter, a credit transfer has clear advantages over a check: it is cheaper, faster (a
transfer is credited on receipt) and less risky (whereas a check can be lost, stolen or faulty).
Clean Collection
Clean collection is where the exporter sends trade bills (bills of exchange, promissory notes,
invoices, etc.), so as to receive payment through a bank. In clean collection, the exporter
sends financial documents, unaccompanied by commercial or shipping documents, for
acceptance or payment by the drawee (buyer-payer).
Clean collection entails a major risk for the exporter, who relinquishes possession of the
goods and receives, at most, an accepted bill, with no certainty of collection at maturity. To
overcome this drawback, the exporter can request that the drawee’s acceptance be
accompanied by a guarantee issued by the importer’s bank.
Clean collection may simply involve sending a bill for collection, or the exporter’s bank may
advance the funds.
Documentary Collection
a) Documents against payment (D/P): The exporter sends shipping and title documents
through a bank in order to receive payment for exported goods.
2 IESE Business School-University of Navarra
2021.
International Payment Methods FN-453-E
The commercial documents instruct the importer’s bank to release the exporter’s
goods only when payment has been made.
b) Documents against acceptance (D/A): The exporter sends the shipping and title
documents with one or more trade bills (usually bills of exchange) attached, so as to
receive payment for exported goods through its bank on a deferred basis.
The documents instruct the importer’s bank to release the exporter’s goods only when
the bill has been accepted.
If the importer does not accept the bill, the exporter may sell the goods to another
customer or repatriate them, albeit bearing the cost of storage, transportation,
insurance, etc.
If the bill is accepted but is dishonored at maturity, the exporter’s only recourse is
legal action.
Documentary collection is only advisable in countries where bank instructions are strictly
followed. Elsewhere, it is better to use an irrevocable letter of credit.
Irrevocable Letter of Credit (see Exhibit 1)

An irrevocable letter of credit is an arrangement whereby a bank (issuing bank), at the
request and in accordance with the instructions of its customer (importer/ applicant),
undertakes irrevocably to pay a third party (exporter/ beneficiary) a certain sum of money
against presentation of the documents and compliance of terms and conditions stipulated in
the arrangement, through the seller’s bank (which may act as adviser, payer or confirmer).
In a letter of credit, the foreign bank (issuer) notifies the exporter’s bank, usually via Swift,
that a letter has been opened in the exporter’s favor. The exporter’s bank (advising bank)
notifies the exporter, who checks that the terms of the letter (amount, delivery,
documentation, etc.) match the terms agreed with the importer.
By this means the exporter (beneficiary) has assurance that it will receive payment if it
presents compliant documents, while the importer (applicant) has assurance that it will
receive the goods on the agreed terms.
Normally, the advising bank also acts as paying bank.
When the exporter’s bank makes an irrevocable commitment to pay, the letter of credit is
said to be “confirmed”, providing an even stronger guarantee for the beneficiary. A letter of
credit may also be confirmed by a third bank, which thus acts as co-guarantor.
Like other international payment methods, export letters of credit may be considered simply
as a means of payment or as collateral for a credit facility.
E-payments
Both invoices and domiciled bills may be paid online, debiting the importer’s account and so
avoiding having to send physical documents.
IESE Business School-University of Navarra 3
2021.
Following the adoption of Regulation (EC) No 2560/2001 of the European Parliament on

cross-border payments in euro and the development of the Single Euro Payments Area
(SEPA), cross-border direct debits between EU Member States are now possible.
What Is the Best Payment Method in any Given Situation?

The choice will depend on numerous factors, such as:
− The solvency of the buyer

− The solvency of the importer’s home country
− The costs of the transaction
The simpler payment methods (check, credit transfer, clean collection) are naturally cheaper
than documentary collection (bills for collection and letter of credit), as the latter require
greater bank involvement to verify the documents.
Banks thus play a vital role in foreign trade, as they not only issue the means of payment but
also process the whole transaction through to the crediting of the exporter’s account.
They often also bridge the initial distrust between exporter and importer.
2021.
Exhibit 1
Documentary Credit - Examples
March – April 2010.
1) Issue of a documentary credit

By Payment (Pagadero N/Cajas)
Mensaje MT 700 ISSUE OF A DOCUMENTARY CREDIT

Cabecera mensaje F 01 CAIXESBBAXXX 8801 320784
Cabecera aplicación I 700 ICBKCNBJXXX N 8801 320784 100225 0953
Message User Reference 108 00001

Sequence of Total 27 1/1
Form Documentary Credit 40A IRREVOCABLE
Doc. Credit Number 20 CI00273100036694
Date of Issue 31C 100225
Application Rules 40E UCP LATEST VERSION
Date and Place of Expir. 31D 100330 BARCELONA
Applicant 50 08205 SABADELL
SPAIN
Beneficiary 59 /1202090109814012139
IMPORTS AND EXPORTS CO., LTDC // YAQIAN
TOWN, ZHEJIANG P.C. 311209 CHINA.
Currency/Transac. Amount 32B USD 20840
Perc. Credit Amount Tol. 39A 10/10
Available With… By… 41A CAIXESBBXXX
BY PAYMENT
Partial Shipments 43P NOT ALLOWED
Transhipment 43T NOT ALLOWED
Port Loading/Airport De 44E
SHANGHAI
Port Disc./Airport Dest 44F
BARCELONA
Latest date of Shipment 44C 100315
Descrip. Goods or servic. 45A
“GOODS OR SERVICES”
Documents required 46A

- SIGNED COMMERCIAL INVOICE.
- DETAILED PACKING LIST.
- FULL SET OF ON BOARD MARINE BILL OF LADING.
- CERTIFICATE OF ORIGIN.
- BENEFICIARY CERTIFICATE SHOWING THAT A COPY OF
DOCUMENTS HAS BEEN SENT TO APPLICANT BY FAX.
- TECHNICAL SPECIFICATIONS SHEET DULY SIGNED AND
STAMPED.
2021.
Exhibit 1 (continued)
Charges 71B ALL COMMISSIONS AND CHARGES

OUTSIDE OF SPAIN ARE FOR ACCOUNT
OF THE BENEFICIARY
Period for presentation 48 15 DAYS
Confirmation instruction 49 WITHOUT
Instruction to the Bank 78
WE SHALL COVER YOU AT MATURITY ACCORDING YOUR
INSTRUCTIONS.
“Advise Through” Bank 57A ICBKCNBJHZU
2) Acknowledgment
Mensaje MT 730 ACKNOWLEDGEMENT
Cabecera mensaje F 01 CAIXESBBAXXX 8802 295786 RECIBIDO
Cabecera aplicación O 730 1516 10026 ICBKCNBJAZJP (*) 9998 873217 100226 0816 N
Sender’s Ref. 20 A332061000550

Receiver’s Ref. 21 CI00273100036694
Acknowled. Message 30 100225
Sender to Receiver Info. 72 ADVISER ON 2010.02.26 WITHOUT
ADDING OUR CONFIRMATION
MAC 00000000
CHK 3F91B5C6A116
(*): Industrial and Commercial Bank of China.
3) Cover Letter
Envío de documentos –utilización-
COVERING SCHEDULE
INDUSTRIAL & COMM’l BANK OF CHINA
HANGZHOU BRANCH
90 QINGCHUN ROAD, HANOZHOU CHINA
TEL. +86 571 87227000
TO:
La Caixa
OUR REF. N.: BP332061002428

INVOICE N.: HZZD2010-044
PRINCIPAL AMOUNT: USD 21,461.04
TOTAL AMOUNT CLAIMED: USD 21,461.04
TENOR: SIGHT
LC N.: CI00273100036694
ISSUING BANK: La Caixa
2021.
DEAR SIRS.
WITH REFERENCE TO THE A/M CREDIT WE ENCLOSE THE FOLLOWING DOCUMENTS:
DOCUMENT DOCUMENT
COMM’L INVOICE PACKING LIST
ORIGINAL B/L PHOTOCOPY B/L
CERT OF ORIGIN TECHNICAL SPECIFICATIONS SHEET
FAX REPORT BENE.’S CERT
PAYMENT INSTRUCTIONS:
• PLEASE REMIT THE PROCEEDS TO DEUTSCHE BANK TRUST COMPANY AMERICAS, NEW
YORK (SWIFT: BKTRUS33. ABA N. 0103) FOR CREDIT OF US (OUR SWIFT: ICBKCNBIJP,
CHIPS UID 307911) UNDER YOUR CABLE ADVICE TO US. SPECIFYING YOUR CHARGES
BREAKDOWN, IF APPLICABLE, AND QUOTING OUR ABOVE REF. BP332061002428.
REMARKS: WE CONFIRM THAT THIS DRAWING HAS BEEN ENDORSED ON THE REVERSE OF THE
ORIGINAL CREDIT.
SUBJECT TO UCP LATEST VERSION.

IF YOU HAVE ANY FURTHER QUERIES, PLEASE DO NOT HESITATE TO CONTACT US ON THE ABOVE
MENTIONED NUMBER.
4) Advice of refusal
Mensaje MT 734 ADVICE OF REFUSAL
Cabecera aplicación I 734 ICBKCNBJZJP N 8857 812428 100420 0109

Sender’s TNRN 20 CI00273100036694
Present. Bank’s Ref. 21 BP332061002428
Value Dat-Currency Amount 32A 100412 USD 21461,04
Discrepancies 77J + THE CREDIT HAS EXPIRED
+ LATE SHIPMENT
+ LATE PRESENTATION OF DOCUMENTS
+ MISSING DOCUMENTS ACCORDING WITH REQUESTED.
+ COMMERCIAL INVOICE NOT IN COMPLIANCE WITH REQUEST.
Disposal of documents 77B /NOTIFY/
MAC 00000000
CHK 5E6DC881C8B4
2021.
5) Advice of discharge
Mensaje MT 732 ADVICE OF DISCHARGE

Sender’s TNRN 20 CI00273100036694
Date of Advice 30 100412
Utilization amount 32B USD 21461,04
Sender to Receiver Info. 72 PLEASE BE INFORMED THAT
DISCREPANCIES HAVE BEEN TAKEN UP
MAC 00000000
CHK 8F79BE570A9D
6) Advice of reimbursement of payment

Mensaje MT 756 ADVICE OF REIMBURSEMENT OR PAYMENT

Sender’s Reference 20 CI00273100036694
Total Amount Claim. 32B USD 20387,99
Amount Reimb. / Paid 33A 100422 USD 20227,37
Sender to Receiver Info. 72 OUR COMMISSIONS AND CHARGES MAKE
AN AMOUNT OF USD160,62
MAC 00000000
CHK 8F79BE570A9D
7) General financial institution transfer

Mensaje MT 202 GENERAL FINANCIAL INSTITUTION TRANSFER
Cabecera aplicación I 202 BKTRUS33XXX N 8859 834753 100422 0404

Reference / Number 20 CI00273100036694
Original Reference 21 BP332061002428
Value Dat-Currency-Amount 32A 100422 USD 20227,37
Beneficiary Institution 58A ICBKCNBJZJP
Sender to Receiver Info. 72 /BNF/YOUR L/C REF.BP332061002428
MAC 00000000
CHK CEEE6892626C
2021.

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IES405

International Payment Methods

Main Payment Methods Used Internationally

Personal Check and Cashier’s Check

Last edited: 12/1/10

a) Because there is an ongoing relationship of trust between the parties.

2 IESE Business School-University of Navarra

Irrevocable Letter of Credit (see Exhibit 1)

Normally, the advising bank also acts as paying bank.

IESE Business School-University of Navarra 3

Following the adoption of Regulation (EC) No 2560/2001 of the European Parliament on

What Is the Best Payment Method in any Given Situation?

− The solvency of the buyer

4 IESE Business School-University of Navarra

1) Issue of a documentary credit

Mensaje MT 700 ISSUE OF A DOCUMENTARY CREDIT

Message User Reference 108 00001

Documents required 46A

IESE Business School-University of Navarra 5

Charges 71B ALL COMMISSIONS AND CHARGES

Sender’s Ref. 20 A332061000550

(*): Industrial and Commercial Bank of China.

OUR REF. N.: BP332061002428

6 IESE Business School-University of Navarra

SUBJECT TO UCP LATEST VERSION.

Message User Reference 108 4

IESE Business School-University of Navarra 7

Message User Reference 108 00005

6) Advice of reimbursement of payment

Message User Reference 108 00006

7) General financial institution transfer

Message User Reference 108 7

8 IESE Business School-University of Navarra

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