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What’s the most rewarding, and sometimes frustrating, aspect of being an exporter for you? For many, it’s simply getting paid on time and in the correct amount. The rewarding part is self-explanatory—obviously, we need to be able to earn a living!—but the frustrating part is worth considering.
Take a look at these 10 terms and see if they can help you better understand the payment process (so you can make a profit sooner!).
Methods of Payment in International Trade
In a global marketplace, it’s more important than ever for exporters to offer their customers attractive sales terms supported by the appropriate payment methods. Here’s a look at the five primary methods of payment, from least risk to the exporter to most risk. More information about the risks and benefit of each method of payment is available here.
Consignment
Consignment is a variation of open account in which payment is sent to the exporter after the goods have been sold by the foreign distributor to the end customer. It is the riskiest of the most common methods of payment.
Open Account (O/A)
An open account transaction in international trade is a sale where the goods are shipped and delivered before payment is due, which is typically in 30, 60, or 90 days. Open accounts are risky for exporters; however, from your client's perspective, this is the preferred method of payment in terms of costs and risks. Find out more about open account terms here.
Collections
Also called a documentary collection, this method of payment involves using banking channels for more than handling the movement of funds for your payment. With a documentary collection, you’re relying on the bank to control your product until payment is made. Your bank (the remitting bank) sends documents to the importer’s bank (the collecting bank) along with instructions for payment. The funds are received from the importer and remitted to you in exchange for the documents. The most significant risk is your buyer saying they changed their mind and no longer want the product that was shipped. Export.gov has a helpful chapter on documentary collections on its website. The usefulness of documentary collections is summed up well in this article.
Letter of Credit (L/C)
International letters of credit are a commitment by a bank on behalf of the foreign buyer that payment will be made to the beneficiary (exporter) provided the terms and conditions stated in the L/C have been met, as evidenced by the presentation of specified documents. It is one of the most secure methods of payment for an exporter.
| Product Model | Inside Diameter | Outside Diameter | Thickness |
| HMK4530 NTN | 45 | 55 | 30 |
| BK4012 NTN | 40 | 47 | 12 |