Being paid on time as an exporter is everyone’s dream. But, to understand how the payment structure works, you’ll want to know some of the words and jargon associated with exports.
Methods of Payment in International Trade
In the global market keeping your customer satisfied and satisfied with your product is the most important factor for success. So, when you can guarantee this, you are more likely to get a higher sales volume. I’ll teach you 10 terms you need to know to get paid for your exports.
1.Consignment
Consignment. It’s a collection of related goods or services that is shipped to the same destination with a common destination. It is usually done by the same shipper but sometimes different ones are involved.
e.g. A person who receives goods needs to pay the money to the consigner, while the person who picks goods is paying the consignee.
2.Open Account (O/A)
In international trade, an open account is a cash account held at the exporter’s bank. They are more useful to ship goods because they can be used to make payments without having to contact the importer directly. It is usually used for small shipments.
3.Letter of Credit (L/C)
A letter of credit is a type of payment that allows exporters to get paid for their exports even before the goods have been shipped. It’s a promissory note (I’ll pay you an amount of money) that specifies the maximum amount and terms of payment. L/C is an insurance policy for exporters.
4.Bank Draft and Transmittal Letter
Bank Draft is a payment order means that you give to the bank and they will send money to you. It’s also called ATM transfer. You can use this to make a payment.
Transmittal Letter. It’s a document that permits a bank to pay the money to the other party. Some banks send it through email, while others require you to print it and fax it.
5.Uniform Customs and Practice for Documentary Credits
The Uniform Customs and Practice for Documentary Credits (UCP) is an international statement that was meant to define a uniform system in which the exporter/importer must use to make payment.
6.Cash in Advance
It means that the importer pays the exporter before the shipment is even delivered. This is usually used for large quantities of goods and for companies that are already known and have a good reputation.
7.Telegraphic Transfer
It is a payment method that replaces the letter of credit. The UCP states that a note must be issued to each party and it must specify details such as the date, amount, name, and address of all parties involved in the transaction (the importer and exporter). It’s an electronic way to make payment.
8.EXIM Bank
The Export-Import Bank of the United States (EXIM) is an independent U.S. government agency that offers credit and financing to foreign buyers of U.S. products. It’s also a bank for exporters that helps them to get paid for their exports faster than usual.
9.Uniform Customs and Practice for Documentary Credits
The UCP is an international statement that was meant to define a uniform system which the exporter/importer must use to make payment.
10.Arbitration
Where a third party determines whether the importer has satisfied his obligation to pay. It’s important because it is one of the methods that can reduce friction and delays in payment.