Comparison of Payment Methods

Compare Payment Methods

Four key ways to make payments

The main difference between these payment methods is the level of risk faced by the importer
and exporter:

1. Payment in Advance - before goods are shipped

2. Documentary Credits - payment is guaranteed by a bank subject to the fulfilment of certain terms and conditions by the
importer and exporter

3. Documentary Collections - payment is handled by banks acting as agents for the importer and exporter

4. Open Account Payment - after goods are shipped or received

Quick Guide to choosing a Payment Method

Payment in Documentary Open Account

Documentary Credit
Advance Collection Payment
Exporter has
Payment risk Exporter is
concerns over the Payment is guaranteed
Payment unchanged but comfortable with
ability and by issuing bank if
Risk mitigated by control the reliability of the
willingness of terms of credit are met
over goods importer to pay
importer to pay
Importer wants to Importer wants to Importer wants to
Importer has a good
delay cash outflow delay cash outflow delay cash outflow
Cash cash position
Exporter's cash flow Exporter's cash flow Exporter's cash flow
Flow Exporter needs cash
must be able to must be able to must be able to
as early as possible
support the delay support the delay support the delay
Price may be lower in
Importer may be Effect on price Importer may pay a
exchange for added
Price able to negotiate a depends on collection premium for
security of bank
discount terms supplier credit
guarantee