Inglés para los

Negocios III

Tema 12:  Methods of payment in international business

Escuela de Negocios
Logro de Aprendizaje N°12:
Distingue los diferentes métodos de pago,
a través de casos prácticos, determinando
el más adecuado en consideración a las
características de cada transacción.
TEMA 12:
Methods of payment in international business

SUBTEMAS:
• Cash in Advance
• Open account
• Documentary collection
• Letter of credit
Inglés para los Negocios III

Methods of Payment

• What is a letter of credit?

• Define advising bank
• Define issuing bank

Fuente: Stukalina, Y. (2014). Professional English for students of Logistics .

Recuperado de https://www.academia.edu/31333722/Yulia_Stukalina_PROFESSIONAL_ENGLISH_FOR_STUDENTS_OF_LOGISTICS
Inglés para los Negocios III

Methods of Payment
Cash-in-Advance is a pre-payment method utilized for paying for goods for
export. With cash-in-advance payment terms, the exporter can eliminate credit
risk, since payment is received before the ownership of the goods is transferred.
Open account, is the least secure method of trading for the exporter, but the
most attractive for buyers. Goods are shipped, and documents are sent directly
to the buyer, with a request for payment at the appropriate time.
Documentary Collection, is an important bank payment method, when the sale
transaction is performed by the bank through an exchange of documents. 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.

Fuente: Stukalina, Y. (2014). Professional English for students of Logistics .

Recuperado de https://www.academia.edu/31333722/Yulia_Stukalina_PROFESSIONAL_ENGLISH_FOR_STUDENTS_OF_LOGISTICS
Inglés para los Negocios III

Match the payment methods (1-6) with the definitions (a-f)

a. Customer pays inmediately on receiving the goods. This service is
usually provided by the post office. ( )
1. advance payment b. Used to cover financial risk in international transactions e.g. if a
buyer does not pay.
2. cash on delivery
c. The exporter supplies the goods and the importer/customer pays
3. open account for them at an agreed date in the future.
d. Involves the buyer’s and the seller’s bank. It is a promise made by
4. documents against payment the opening bank that payment will be made on receiving
5. documentary credit documents that comply with the terms agreed.
e. Also called cash against documents (CAD) it means that the
6. bank guarantee exporter has full control over the documents until payment has
been made by the exporter.
f. Customer / Importer has to pay for the goods before they are
shipped.

Fuente: Marion Grussendorf (2009). English for logistics (1st. ed.).

Recuperado de: https://es.scribd.com/document/428650485/Oxford-Business-English-English-for-Logistics-pdf
Inglés para los Negocios III

Here are some sentences. Match the begining of the sentences (1-8) with the endings (a-h)

1. We enclose your statement of a. …credit transfer through our bank for the amount of
2. Our bank informs us that they have $.20,000.
received the documents and will b. …our invoice for order Nro. 9089 in duplicate.
transfer c. …your draft for invoice Nro. SR-5602.
3. Thank you for sending d. …account as of 30 September.
4. We are pleased to inform you that e. …been credited to our account today.
we have arranged for a f. …to the following account.
5. Please find enclose our bank draft g. …payment on proforma invoice Nro. 08/5643.
for £13,468.40 as h. …the amount of £8,670 to your account.
6. We would like to inform you that
the amount of £2,657.89 has
7. Please transfer the amount of
$.2,200
8. As agreed, we are sending you

Fuente: Stukalina, Y. (2014). Professional English for students of Logistics .

Recuperado de https://www.academia.edu/31333722/Yulia_Stukalina_PROFESSIONAL_ENGLISH_FOR_STUDENTS_OF_LOGISTICS
Inglés para los Negocios III

Three people are talking about payment methods in their companies, complete the
table.

Fuente: Marion Grussendorf (2009). English for logistics (1st. ed.).

Recuperado de: https://es.scribd.com/document/428650485/Oxford-Business-English-English-for-Logistics-pdf
Inglés para los Negocios III

Complete the paragraph below with with words in the box.

credit - types - beneficiary - importers - documents - payment - goods - buyer
A Letter of Credit guarantees 1) _________ of a specified sum in a specified currency. The
seller must meet precisely-defined conditions and submit the prescribed 2) _________
within a fixed timeframe. These documents almost always include a clean bill of lading,
commercial invoice, and certificate of origin. To establish a letter of credit in favour of the
seller or exporter called the 3) _________, the buyer either pays the specified sum (plus
service charges). A letter of credit substitutes the creditworthiness of a bank for the
creditworthiness of the 4) ________. The international banking system acts as an
intermediary between exporters and 5) _________. However, the banking system does not
take on any responsibility for the quality of 6) ________, genuineness of documents, or
any other provision in the contract of sale. Unlike a bill of exchange, a letter of 7)
_________ is a non-negotiable instrument but may be transferable. Although letters of
credit come in numerous 8)_________, the two most basic ones are revocable letter of
credit and irrevocable letter of credit (confirmed irrevocable letter of credit or not-
confirmed irrevocable letter of credit).

Fuente: Stukalina, Y. (2014). Professional English for students of Logistics .

Recuperado de https://www.academia.edu/31333722/Yulia_Stukalina_PROFESSIONAL_ENGLISH_FOR_STUDENTS_OF_LOGISTICS
Activity – Read the text in the next slide and answer
these questions
1.What are the main financial risks in foreign trade
mentioned in this article?
2.How can traders reduce their financial risks?
3.Does your company export or import goods? If yes, do
you know what methods of payment are used?
4.Have you ever heard about payment or credit problems
with customers?
Fuente: Marion Grussendorf (2009). English for logistics (1st. ed.).
Recuperado de: https://es.scribd.com/document/428650485/Oxford-Business-English-English-for-Logistics-pdf
 Inglés para los Negocios III

Handling financial risks in International trade

What are the main financial risks for companies doing busines overseas?
The first risk area obviously has to do with the customer’s credit rating and status. There’s always the danger that the customer does not pay for
the goods you have supplied. But there are quite a lot of other country-related trade risks which need to be considered.
Could you give some examples?
Well, this could be anyting that delays or stops trade or payment e.g. some unexpected economic measures, political unrest, import bans, or
breakdown of banking systems in the country you are doing business with.
What can traders do to minimize financial risks?
Before doing business abroad, it is essential to investigate both customer and target country carefully. Check whether the potential customer is
solvent, then study your target country’s acccounting and credit practices and learn something about import and export procedures. To reduce the
risk of non-payment, you can take out an export credit insurance policy.
What payment methods would you recommend for exporing goods?
That’s a difficult question to answer. The exporter should, of course, always try to minimize financial risk by choosing a secure payment method
e.g. advance payment or a confirmed, irrevocable letter of credit. On the other hand, that’s not always posible or even desirable.
Why is that?
Well, if you want to do business in a country or market, you have to see what payment facilities your competitors are offering and offer something
similar – even if that is not what you really want. And sometimes exporters may decide against secure payment methods such as letter of credit
because the bank charges are high and eat up their profits.
Thank you!