I hope the presentation will provide you good knowledge about Payment Terms in International Trade !

1. Presented By :
Altamash AhmadPGDM 2014-2016

2. Introduction
• In today’s global marketplace and win sales against foreign competitors,
exporters must offer their customers attractive sales terms supported by
appropriate payment methods. Because getting paid in full and on time
is the ultimate goal for each export sale, an appropriate payment
method must be chosen carefully to minimize the payment risk while
also accommodating the needs of the buyer.
• For exporters, any sale is a gift until payment is received.
• For importers, any payment is a donation until the goods are received.
• Therefore, importers want to receive the goods as soon as possible but
to delay payment as long as possible, preferably until after the goods are
resold to generate enough income to pay the exporter.

3. Presentation Outline
• Cash - in - Advance
• Letters of Credit (L/C)
• Documentary Collections
• Open Account

4. Cash - In - Advance
• Buyer pays before shipment.
• Used in new relationship.
• Transactions are small and buyer has no choice.
• Maximum security to sellers.
• No guarantee that goods are shipped.

5. Letters of Credit
• What is L/C?
– A document issued by a bank stating its commitment to
pay someone (seller or exporter) a stated amount provided
the seller or exporter meets specific terms and conditions.
• Also called the documentary letters of credit.
• Most common payment method in international trade.
• Also protects the buyer because no payment obligation arises
until the goods have been shipped or delivered as promised.

6. Documentary Collections
• A documentary collection (D/C) is a transaction whereby the exporter
entrusts the collection of a payment to the remitting bank (exporter’s
bank), which sends documents to a collecting bank (importer’s bank),
along with instructions for payment.
• Funds are received from the importer and remitted to the exporter
through the banks involved in the collection in exchange for those
documents.
• D/Cs involve using a draft that requires the importer to pay the face
amount either at sight (document against payment) or on a specified
date (document against acceptance). The draft gives instructions that
specify the documents required for the transfer of title to the goods.
• Drafts are generally less expensive than LCs.

7. Seller Buyer
Seller’s Bank Buyer’s Bank
Documents
$
Documents Documents$ $
Documentary Collection

8. Two types of DC
• Documents against Payment (D/P)
Buyer may only receives the title and other
documents after paying for the goods.
• Documents against Acceptance (D/A)
The buyer may receive the title and other
documents after signing a time draft promising to
pay at a later date.

9. Documentary Collection - D/P
Time of Payment
 On presentation of sight draft by a bank to buyer
Goods Available to Buyer
– After payment
Risks to Seller
– Buyer’s non-acceptance of shipment
– Payment delays due to unavailability of foreign
exchange in buyer’s country
– Payment blocked due to political actions in
buyer’s country

10. Documentary Collections - D/A
Time of Payment
 At maturity of accepted draft
Goods Available to Buyer
 Before payment
Risks to Seller
– Buyer’s default on payment obligation
– Delays in availability of foreign exchange and
transferring of funds from buyer’s country
– Payment blocked due to political events in
buyer’s country

11. Open Account
• Time of Payment
– As agreed; i.e. 30 days
• Goods Available to Buyer
– Before Payment
• Risks to Seller
– Buyer defaults on payment obligation
– Delays in availability of foreign exchange and
transferring of funds from buyer’s country

12. Open Account
• When Appropriate
– Seller has absolute trust that buyer will accept
shipment and pay at agreed time.
– Seller is confident that importing country will not
impose regulations deferring or blocking transfer of
payment.
• Exporter can offer competitive open account terms while
substantially mitigating the risk of non-payment by using
of one or more of the appropriate trade finance
techniques, such as export credit insurance(ECGC).

13. Payment Risk

14. Thank You !