If we do not go in detail about definition and deep parameters, I will call this slogan – ‘ Business is money’. Although business man enjoy his day to day life in trade, if a loss occurs in business, everything collapse. So payment of any sales proceeds plays a very important role than any other roles in business.
Most of the beginners of exports may worry about the terms of payment. Because, unlike other domestic business, you are dealing with a buyer who situates thousands of miles away from your place crossing borders of your country. You may or may not know the financial condition or credit worthiness of your buyer. You may not be meeting the buyer personally at initial stage, may not be aware of the specific policy of trade of buyer’s country, no idea about political status or natural calamity chances of the region etc.etc.
Payment term in any business is a major part of sales contract. Terms of payment in exports and imports plays an important role in international business. What are the different types of mode of payment in exports and imports?
Let us discuss different type of terms of payment in international trade.
The Major ways of making payment in export and import are given below:
How to make payment to overseas seller in International trade of exports and imports?
Advance payment
With a seller’s point of view, an advance payment is the safe mode of payment for any business including export business. Receiving amount of sales in advance helps exporter in various ways to plan his financial activities smoothly. However with a buyer’s point of view, advance payment carries little risk, as he advances payment before dispatch of goods. Advance payment of term in exports and imports is opted by a buyer only when he knows the seller in details on genuineness as a seller.
Letter of credit.( L.C.)
Letter of credit is another type of payment term opted by importers and exporters. I have explained in detail about Letter of credit and its mechanism in a couple of articles in same website. The details about letter of credit includes advantages of LC to an exporter, advantages of LC to an importer Disadvantages of Letter of credit to an exporter, disadvantage of letter of credit to an importer, different types of letter of credit etc.. You may read the same to have a clear knowledge on Letter of credit. Although letter of credit has some advantages and disadvantages, it is a safe mode of payment in international trade for both exporter and importer. So LC is one of the safe types of mode of payment in international trade.
D.A.P or D/P basis - Documents against Payments
Documents against Payment – DP/DAP is another term of payment in international trade. The documents under consignment are delivered to buyer/importer only after collecting payment of goods by buyer’s bank. A detailed article has been written in same website about DP/DAP terms of payment. You may go through the same to know more about DP/DAP terms of payment in exports and imports.
D.A terms means Documents against Acceptance
Documents against Acceptance are another term of payment in international payment. I have written a detailed article about DA terms of payment in same website. You may go through the same for further read.
Can a Buyer (Importer) make part payment in Advance and balance on credit basis in exports and imports?
Yes, In an international trade, a Buyer can effect part payment as advance and balance amount with a credit period or under DP terms
.