Which is the best method of payment in an export trade? What type of terms of payment I can adopt under an Export business?
Under any kind of sales, obviously advance payment is the best option of payment.
Ok, now the terms of payments are concerned, you are very happy if you get payment in advance. Right? Yes, the 100% safe business in any business especially in export business is nothing but receiving advance payment. However, in this present competitive world, you do not expect advance payment from the buyer in all cases unless your product attracts some specific reasons to pay you advance payment by your buyer.
Next option of payment term under export sales could be a combination of advance payment and on credit basis. Here, the seller/exporter receives amount of his invoice partly by advance and balance with a credit period of some time mutually agreed between buyer and seller.
Opening a Letter of Credit at sight is also a safe mode of payment after the option of advance payment, as the exporter receives amount immediately up on receipt of shipping documents at buyer’s bank. The mechanism of movement of documents from seller to buyer has been explained in a couple of articles in same website. You may kindly go through the same to have a good and clear idea on the subject.
Opening a Letter of credit with a credit period of say 30 days, 60 days, 90 days etc. also can be opted as payment terms under export trade. Here, the seller/exporter gets his invoice value of goods from buyer’s bank on maturity date agreed between exporter/seller and importer/buyer.
I can say, DP terms of payment also can be included up to some extend as safe mode of payment in international trade. However, some of the buyers/importers do not accept documents from their bank immediately up on receipt of shipping documents at their bank. These buyers/importers prolong to accept shipping documents till arrival of cargo at final destination
.