Payment Methods In

International Trade
Presented by,
Libin Johnson
5 types of payment methods available in international
trade :


Cash-In-Advance
 Open Account
 Documentary Collections
 Documentary Credits (Letters of Credit)
 Bank Payment Obligation.
1. Cash In Advance

 Cash in advance is a payment method in international trade in which

an order is not processed until full payment is received by the supplier
in advance.
 Sometimes cash in advance is called cash with order.
 Please always keep in mind that under the cash in advance payment,
the funds received by the exporters before the ownership of the goods
is transferred to the importers.
 Cash in advance posses highest risk to the importer, lowest risk to the
exporter.
2. Open Account

 Open account means that buyers pay the cost of the goods after
goods have been shipped by the supplier.

 In an international trade transaction open account defines as a sale

where the goods are shipped and/or delivered before payment is
due, which is usually in 30 or 60 days.

 Open account posses highest risk to the exporter, lowest risk to the
importer.
 3. Documentary Collection
 International trade procedure in which a bank in the
importer’s country acts on behalf of an exporter for collecting
and remitting payment for a shipment.
 The exporter presents the shipping and collection documents
to his or her bank (in own country) which sends them to its
correspondent bank in the importer’s country.
 A documentary collection (D/C) is a transaction whereby the
exporter entrusts the collection of a payment to the remitting
bank (exporter’s bank), which sends documents to a
collecting bank (importer’s bank), along with instructions for
payment.
 4. Documentary Credits

Documentary credits, also known as letters of credit, are
one of the payment methods in international trade.
 A letter of credit is a letter from a bank guaranteeing that a
buyer’s payment to a seller will be received on time and for
the correct amount. If the buyer fails to make the payment
on the goods purchased, the bank will be required to cover
the full or remaining amount of the purchase.
 The reliability of the L/C depends on the reputation of the
buyer’s bank
5. Bank Payment Obligation

 Bank payment obligation is a new payment method in

international trade.

 Bank payment obligation (BPO) is an irrevocable

undertaking given by an Obligor Bank (typically buyer’s
bank) to a Recipient Bank (usually seller’s bank) to pay a
specified amount on a agreed date under the condition of
successful electronic matching of data according to an
industry-wide set of rules adopted by ICC.

Thankyou…