When it comes to trading of commercial goods, there is always a certain

level of risk and trust involved. Whether you’re a buyer or seller, you are
bound to be exposed to some risk when dealing with international
transactions. In large part, the amount of risk involved highly depends on
the method of payment you use.

When it comes to cross-border payments, buyers tend to prioritize

the cheapest and most straightforward payment method. In other
words, anything that can help reduces cost. Another priority is ensuring
they receive the goods specified.

While buyers prefer paying as late in the transaction process as

possible, sellers will want to be paid in full, as quickly as possible,
and via a secure option. Sellers who offer attractive payment terms and
varying methods will have an advantage over those who limit themselves.

To succeed in today’s global marketplace and win sales against foreign

competitors, exporters must offer their customers attractive sales terms
supported by the appropriate payment methods. Because getting paid in full
and on time is the ultimate goal for each export sale, an appropriate payment
method must be chosen carefully to minimize the payment risk while also
accommodating the needs of the buyer

International payment

They connect companies, individuals, banks, and settlement institutions operating in at least two
different countries with different currencies that need to be paid.any payment made by one
country to another and the market in which national currencies are bought and sold by
those who require them for such payments is called internatonal payment.
Cash in payment ( secured for exporter)
The exporter requests the customer to provide payment in advance before shipment of
the goods take place. The buyer which is the importer completes the
payment and pays the seller (exporter) in full before the merchandise is
delivered and shipped off to the buyer. The disadvantage of this method
to the buyer is that there is a Risk of not receiving shipment or receiving
damaged shipment. In the part of the seller, the advantage of this to them is Secure
full payment before shipment. The disadvantage for the exporter is Foreign buyers
are also concerned that the goods may not be sent if payment is made in advance.
Thus, exporters who insist on this payment method as their sole manner of doing
business may lose to competitors who offer more attractive payment terms. . Exporters
may insist on cash in advance to secure their balance sheets. As a result, however,
their sales and potential growth may suffer if customers seek out vendors with more
flexible payment terms.

Other cash in advance methods include:

 Debit card payment

 Telegraphic transfer
 International cheque
 etc.

letters of credit
A Letter of Credit is one of the most secure international payment
methods for the importer and exporter as it involves the assistance of
established financial institutions such as banks as an intermediary and a
certain level of commitment from both parties.

The letter of credit is a document that operates as a guarantee by the bank saying it will pay the
exporter for the goods once certain terms and conditions are fulfilled. A letter of credit is a
document in which the importer’s bank essentially promises to pay the exporter if the importer
does not pay.

It is used if the importer has not established credit with the exporter, but the
exporter is comfortable with the importer’s bank. 
Letters of credit guarantee payment from one bank to another on behalf of the buyer and seller.
The buyer’s bank releases payment to the exporter as soon as it receives proof that all of the
terms and conditions of the transaction have been satisfied by both buyer and seller.
The good thing of this kind of payment method for the buyer is that payment made after goods
are received. And for the seller, low risk of default because the sale is secured by the buyer’s
bank

Documentary Collection
Documentary collection is a very balanced payment term that provides almost equal risk
exposure for exporter and importer. This method is completed exclusively between
banks acting on behalf of both parties. The process starts when the exporter ships the
goods and sends documents needed to claim the goods to the importer. These
documents usually include the Bill of Lading. The importer also lodges payment with
their bank with the instruction that payment should be made upon confirmation of the
documents. Once the documents are confirmed, the documents will be released to the
importer, enabling him to claim the documents.
The importer may obtain possession of goods if the importer has the
shipping documents.
The documents are only released to the buyer after payment has been
made.
This can be done in two ways.

Once it has received the documents sent by the exporter, the presenting bank follows the
letter of instruction given by the exporter.
- It can give the documents to the importer in exchange for payment. This type of
transaction is called ‘documents against payment’ or d/p.
- It can give the documents to the importer in exchange for a signature on a draft.
This type of transaction is called ‘documents against acceptance’ or D/A.
A draft is a promissory note (also called a bill of exchange) with which the importer promises
to pay the exporter within a defined timeframe. This means payment is not received immediately,
but on a date agreed between the parties.
Open Account
This is one of the most advantageous options to the importer, but it is a
higher-risk option for an exporter.
An open account transaction is a sale where the goods are shipped and delivered before
payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is
one of the most advantageous options to the importer in terms of cash flow and cost, but it is
consequently one of the highest risk options for an exporter.

This payment term involves a trade deal where the exporter agrees to deliver the goods
to the importer without receiving payment until a later date. Payment usually falls due
after an agreed period, typically 30, 60, or 90 days after delivery. Therefore, the
importer essentially receives the goods on credit, with payment to follow at a later date.
Clearly, this payment method favors the importer, since they enjoy the position of taking delivery
of the goods without making payment. The advantage of this to the seller is it can attract
customers in competitive markets. While the good thing of this payment method for the
buyer, the buyer is able to receive the goods before payment is due. Open account terms
can help to maximize potential sales volume because it is most advantageous and convenient
to the customer

Consignment

Consignment is similar to an open account in some ways, but payment is

sent to the exporter only after the goods have been sold by the importer
and distributor to the end customer. You can often see this payment term being
used by exporters who have distributors or third-party agents in foreign countries.
Perhaps it may be rarer to find this situation in normal seller-buyer relationships

Consignment payment is a method of credit in some international trade. It

refers that the importer provides the good to distributors and they sell to their
customers; after selling, the importer finishes the payment to the exporters.
Usually, importers cannot ensure the payment because the goods are in the
hands of distributors.
This method is beneficial for importers and lowers their costs as well as risks.
Exporters have to find reliable distributors and logistics suppliers to make the
payment and transaction on the rails.

This is a very low-risk method of trade for the international buyer, but highly risky for the
seller.

Pros Cons

→ Payment is due only after final sale of → May have large inventory to
Buye
goods to end consumer manage
r
→ Quick receipt of goods → Minimal

→ Payment not guaranteed until

→ Lower storage fees
Selle end sale
→ Less inventory management
r → Lack of access to and
→ More competitive
management of merchandise