Global Trade & Logistics FAQ's

What are the five common methods for getting paid for Exports?

a) Cash in advance

Cash in advance is the most preferred method for an exporter however it could be a risky option for importer and if the exporter insists upon cash in advance, he may loose business to the competition that offer other payment options.

b) Letters of Credit (LC)

A Letter of credit is a committment on behalf of the foreign buyer that the exporter will be paid when the terms and conditions stated in the letter of credit have been met, as evidenced by the presentation of specified documenrts. The more secure letters of credit are irrevocable, meaning that it cannot be changed without the agreement of both parties.

c) Documentary Collections

Sight draft is another name for Documentary collections. This method delegates the collection of payment to the exporter's bank, which sends documents to the foreign buyer's bank with instructions to release the documents to the buyer in exchange for payment. Documentary collections can either be paid on sight, or on a specified date. Both the exporter's and the importer's banks act as facilitators of documentary collections, but it is less secure than other methods and there is limited recourse in the event of non payment.

d) Open Account

Open accounts are advantageous for the importer and can be a viable method of payment for foreign buyers who are well established, have a proven track record of favorable payment or have been thoroughly checked for credit worthiness. Open accounts are often used in highly competative markets, particularly if there is strong competition from local suppliers.

e) Consignment

Consignment, often used for heavy equipment and machinery, is a form of an open account where goods are shipped to a foreign distributor who pays only for those goods that are sold. Unsold goods may be returned to the exporter after a specified time period. While consignment is clearly very risky, it may enhance an exporter's competative position and reduce the direct costs of managing inventory.

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