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International Terms of Payment

Method Usual Time of Payment Goods Available To Buyer Risk to Seller Risk to Buyer Comments Seller's goods must be special in one way or another, or special circumstances prevail over normal trade practices (e.g., goods manufactured to buyer-only specification). Letters of Credit require total accuracy in conforming to terms, conditions, and documentaion. Consult your United Shipping Associate member for determining feasibility of terms and conditions. The inclusion of a second assurance of payment (usually a U.S. Bank) prevents surprises, and adds assurance that issuing bank has been deemed acceptable by confirming bank. Adds cost and an additional requirement to seller.

CASH IN ADVANCE

Before shipment

After payment

None

Complete. Relies on seller to ship exactly the goods expected, as quoted and ordered

LETTER OF CREDIT (L/C) (See next two items.)

Commerical Invoice must match the L/C exactly. Dates must be carefully headed. "Stale" documents are unacceptable for collection. Assures shipment is made but relies on exporter to Gives the seller a ship goods as double assurance described in of payments. documents. Depends on the Terms may be terms of the letter negotiated prior of credit. to L/C agreement, alleviating buyer's degree of risk. Seller has single bank assurance of payment and seller remains dependent on foreign bank. Seller should contact his Same as above banker to determine whether the issuing bank has sufficient assests to cover the amount.

CONFIRED IRREVOCABLE CREDIT

After shipment is made, documents presented to the bank.

After payment

UNCONFIRMED IRREVOCABLE CREDIT

Same as above

Same as above

Credit can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open account with buyer's bank as collection agent. Foreign bank may have problems making payment in sum or timeliness.

DRAFTS (See next two items.)

Remittance time from buyer's bank to seller's bank may still take one week to one month.

Drafts, by design, should contain terms and conditions mutually agreed upon.

A draft may be written with virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions), consult with your banker and freight forwarder to determine the most desirable means of doing business in a given country. A draft can be a collection instrument used to exchange possession and title to goods for payment. Seller is essentially drawing a check against the bank account of the buyer. Buyer's bank must have pre-approval, or seek approval of the buyer prior to honoring the check. Payble upon presentation of documents.

On SIGHT DRAFT presentation (with documents of draft to against acceptance) buyer.

If draft not honored, goods must be returned After or resold. payment to Storage, buyer's handling, and bank. return freight expenses may be incurred.

Assures shipment but not content, unless inspection or check-in is allowed before payment.

TIME DRAFTS On maturity (with documents of the draft against acceptance)

Before payment, after acceptance

Relies on buyer to honor draft upon presentation.

Payable based upon the acceptance of an Assures obligation to pay the shipment but seller at a specified not content. time. Although a time Time of draft has more maturity allows collection leverage for adjustments, than an invoice, it if agreed to by remains only a seller. promissory note, with conditions. All terms of payment, including extra charges and terms should be mutually understood and agreed upon prior to open account initiation. Companies conducting ongoing business are candidates for open account terms of payment. Seller must measure not only buyer's credit

OPEN ACCOUNT As agreed, usually by invoice

Before payment

Relies None completely on buyer to pay account as agreed

reliability but the country's as well. Terms Ranked from LEAST RISK to MOST RISK for the Seller When establishing international terms of payment, please consult your banker and your shipper to determine the method most beneficial to you. Table of Contents

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Invoice payment terms

Net monthly account Net 7 Net 10 Net 30 Net 60 Net 90 EOM 21 MFI 1 per cent 10 Net 30 COD Cash account Letter of credit Bill of exchange CND CBS CIA CWO 1MD 2MD Contra Stage payment

Payment due on last day of the month following the one in which the invoice is dated Payment seven days after invoice Payment ten days after invoice Payment 30 days after invoice Payment 60 days after invoice Payment 90 days after invoice End of month 21st of the month following invoice 1 per cent discount if payment received within ten days otherwise payment 30 days after invoice Cash on delivery Account conducted on a cash basis, no credit A documentary credit confirmed by a bank, often used for export A promise to pay at a later date, usually supported by a bank Cash next delivery Cash before shipment Cash in advance Cash with order Monthly credit payment of a full month's supply As above plus an extra calendar month Payment from the customer offset against the value of supplies purchased from the customer Payment of agreed amounts at stages