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Source: Mushroom Trade Mushroom Trade

International Payment Terms

Published: 18 Apr 2013 00:29:23 PST
MethodUsual Time of PaymentGoods Available To BuyerRisk to SellerRisk to BuyerComments
CASH IN ADVANCEBefore shipmentAfter paymentNoneComplete - relies on seller to ship exactly the goods expected, as quoted and orderedSeller's goods must be special in one way or another, or special circumstances prevail over normal trade practices (example, goods manufactured to buyer-only specification).
CASH AGAINST DOCUMENTSAfter shipmentAfter paymentIf payment not honored, goods must be returned or resold. Storage, handling, return freight expenses may be incurredAssures shipment but not content, unless inspection or check-in is allowed before paymentSecurity to the seller is assured if the transfer of funds is confirmed prior to buyer taking possession of the goods.
LETTER OF CREDIT (See next two items.)  Commercial Invoice must match the Letter of Credit exactly. Dates must be carefully headed - "Stale" documents are unacceptable for collection. Letters of Credit require total accuracy in conforming to terms, conditions, and documentation.
Confirmed Irrevocable CreditAfter shipment is made, documents presented to the BankAfter paymentGives the seller a double assurance of payments - Depends on the terms of the letter of credit.Assures shipment is made but relies on exporter to ship goods as described in documents. Terms may be negotiated prior to letter of credit agreement, alleviating buyer's degree of risk.The inclusion of a second assurance of payment (usually a "reputable" Bank) prevents surprises, adds assurance that issuing bank has been deemed acceptable by confirming bank. Adds cost and an additional requirement to seller.
Unconfirmed Irrevocable CreditSame as aboveSame as aboveSeller has single bank assurance of payment and seller remains dependent on foreign bank. Seller should contact his banker to determine whether or not the issuing bank has sufficient assets to cover the amount.Same as aboveCredit can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open account with buyer's bank as collection agent. Foreign bank may have problems making payment in sum or timeliness.
DRAFTS/ BILLS OF EXCHANGE (See next two items.)Remittance time from buyer's bank to seller's bank may still take one week to one month Drafts, by design, should contain terms and conditions mutually agreed upon A draft may be written with virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions) consult with your banker and freight forwarder to determine the most desirable means of doing business in a given country.
Sight Draft (with documents against acceptance)On presentation of draft to buyer.After payment to buyer's bank.If draft not honoured, goods must be returned or resold. Storage, handling, return freight expenses may be incurred.Assures shipment but not content, unless inspection or check-in is allowed before payment.A draft can be a collection instrument used to exchange possession and title to goods for payment. Seller is essentially drawing a check against the bank account of the buyer. Buyer's bank must have pre-approval, or seek approval of the buyer prior to honouring the check. Payable upon presentation of documents.
Time Drafts (with documents against acceptance)On maturity of the draftBefore payment, after acceptanceRelies on buyer to honour draft upon presentation.Assures shipment but not content, time of maturity allows for adjustments, if agreed to by seller.Payable based upon the acceptance of an obligation to pay the seller at a specified time. Although a time draft has more collection leverage than an invoice, it remains only a promissory note, with conditions.
OPEN ACCOUNTAs agreed, usually by invoiceBefore paymentRelies completely on buyer to pay account as agreedNoneAll terms of payment, including extra charges and terms should be mutually understood and agreed upon prior to open account initiation. Companies conducting on-going business are candidates for open account terms of payment. Seller must measure not only buyer's credit reliability but the country's as well.
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