Importers and exporters often ask, "What is the best method of payment for international shipments?
Many bankers answer, "Letters of credit." This is a self-serving answer. Of all the methods, letters of credit generate the most fee income for a bank.
The correct answer is: "The one that allows the transaction to be completed to the satisfaction of both parties—the buyer and the seller." If both parties can't agree on a perfect method of payment, they must agree upon one with which they both can live.
What choices, then, does one have? The four basic payments are cash in advance, letters of credit (LC), collections, and open account (OA). (For more information about these four payment options, read the article, Getting Paid for Your Exports: Payment Options for International Transactions.)
The exporter’s risk it minimal with cash in advance, while the risk to the importer is maximum. At the other end of the spectrum, the exporter’s risk is high with open account while the importer’s is low.
An exporter should ask seven questions before agreeing to a specific payment term:
Is the relationship with the buyer new or established?
Is the order custom-made or standard?
Is the political situation stable or unstable?
Is the economic situation stable or unstable?
Are competitors offering terms?
Is there a risk of price changes?
Is there a need to control cash flow?
Choosing the Correct Export Payment Term
The decision tool below will assist in matching these questions with the correct payment term:
By answering these questions, the exporter will be better qualified to select the right payment option for each transaction. However, not all seven questions carry equal weight. For example, extended payment terms (see #5 above) may carry more weight.
One exporter stated that his sale terms remained confirmed letters of credit. Period. It didn’t matter if major British, German or Japanese banks issued the letters of credit, his needed confirmation. The company set a very restrictive policy for international payments.
Proactive exporters will probably use all four methods of payment depending on the circumstances of their international business.
( Melissa )02 May,2018BRIEF
INTRODUCTION
Cnbearing
is the No.1 bearing inquiry system and information service in
China, dedicated to helping all bearing users and sellers throughout
the world.
Cnbearing is supported by China National Bearing Industry Association,
whose operation online is charged by China Bearing Unisun Tech.
Co., Ltd.
China Bearing Unisun Tech. Co., Ltd owns all the rights. Since
2000, over 3,000 companies have been registered and enjoyed
the company' s complete skillful service, which ranking many
aspects in bearing industry at home and abroad with the most
authority practical devices in China.