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Payment Terms in Import/Export


International trade is an unavoidable part of each country’s economy. The development of Information and Communication Technologies (ICT) has resulted in converting the whole World into a Global Village, where the distance is not a barrier for trading. To succeed in today’s global marketplace and win sales against foreign competitors, exporters must offer their customers attractive sales terms supported by the appropriate payment methods. Because being paid in full and on time is the ultimate goal for each export sale, a suitable payment method should be selected circumspectly to reduce the payment risk while also accommodating the needs of the buyer.

TT Payment/ Advance Payment

A bank transfer, otherwise called telegraphic transfer or telex transfer (“T/T”) is the electronic transfer of funds from a buyer/importer to a seller/exporter, via a bank or a similar institution. It is also called Advance payment.

Advance Payment is a payment done by an importer to the exporter before shipment. This is the most easiest process for both. This need only some documents.

This method is most beneficial from exporter perspective as he receives funds in advance. The payment may be received either as soon as the order is confirmed or any time before shipment. The exporter may be willing to impose the term as a pre-condition only when he knows that the goods are in overwhelming demand and the goods are of rare-nature. Advance payments may be also used to negotiate a reduced price or to cover initial supply costs.

However with a buyer’s point of view, advance payment carries little risk, as he advances payment before dispatch of goods.

Letter Of Credit

A letter of credit, or “credit letter” is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility.

Click Here to know Letter of credit in details.

Documents against Payments (D/P)

Documents against Payment – DP/DAP is a term of payment in international trade. It relies on an instrument generally used in international trade called a bill of exchange or draft.

In this term, the documents under consignment are delivered to buyer/importer only after collecting payment of goods by buyer’s bank. The exporter ships the goods and submits Shipping documents to importers Bank with their instructions to discharge documents to the importer against payment, where the importer needs to pay the exporter when the documents being released from the Bank. The collecting bank hands over the shipping documents including the document of title only when the importer has paid the bill.

Simply, D/P is an arrangement in which a seller directs the presenting bank to release shipping and title documents to the buyer only if the importer completely pays the accompanying bill of exchange or draft.

Documents against Acceptance (D/A)

Documents against Acceptance are another term of payment in international payment.

The Documents against Acceptance (D/A), depend on an instrument broadly used in international trade called a bill of exchange or draft. Under this, transaction utilizes a time draft or Usance (It is the allowable timeframe, allowed by custom, between the date of the bill and its payment) i.e, the Exporter allows credit to Importer. The importer is required to accept the bill to make a signed promise to pay the bill at a set date later on. When he has signed the bill in acceptance, he can take the documents and clear his goods.

Simply, D/A is an arrangement in which an exporter instructs a bank to discharge shipping and title documents to an importer only if the importer accepts the accompanying bill of exchange or draft by signing it. In this case, the documents required to take possession of the goods are released by the clearing bank only after the buyer accepts a time draft drawn upon him.

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