THE PAYMENT METHODS IN INTERNATIONAL TRADE

In foreign trade, payment transactions can be carried out in various ways depending on the agreement between the trading parties. Here are the commonly used payment methods in international trade:

Cash in Advance: The exporter requests full payment from the buyer before sending the goods or services. This provides payment security for the exporter but may impact cash flow for the buyer.

Open Account: The exporter ships the goods or services, and the buyer makes payment at a later date within a specified period. This method is suitable for established and trusted business relationships, but it carries payment risk for the exporter.

Documentary Collection: In this method, payments are made with the assistance of banks and supported by documents. Documents are delivered to the buyer before the goods or services are provided, and payment is made upon acceptance of the documents.

Open Letter of Credit: A bank agreed upon by the exporter and the buyer guarantees payment within a specified period. The exporter receives payment by presenting the documents.

Confirmed Letter of Credit: It is a letter of credit verified by the exporter's bank instead of the buyer's bank. This can be useful when there are concerns about the reliability of the buyer's bank.

Advance Payment: The exporter requests payment from the buyer during the production or preparation process of the goods or services. This method provides security for the buyer but may be less attractive to the exporter.

Currency Swap Agreement: The exporter and the buyer use different currencies during the trade transaction. A currency swap agreement is used for currency exchange operations.

Barter Agreement: Two parties exchange goods or services. This method is particularly useful for trading specialized goods or services.

Partial Payment: The exporter and the buyer can agree on a specific amount or installment payments. This is commonly used for large projects or heavy equipment trade.

Factoring: The exporter can enter into an agreement with a factoring company to quickly convert receivables into cash. The factoring company purchases the exporter's receivables and provides fast payment.

The choice of payment method can vary depending on factors such as the nature of the trade, the reliability of the parties, and market conditions. Before conducting a transaction, thorough research should be done, and when necessary, trade consultants or legal experts should be consulted.