Introduction

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 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. 

Whether selling to or buying from overseas markets, it’s critical to use appropriate payment methods that are favorable for both parties to ensure timely buyer payments and good trade relationships.

Methods of Payment in International Trade

1. Cash in Advance - The buyer pays for the goods before shipment.
2. Letters of Credit - A bank guarantee ensures payment upon fulfillment of specified conditions.
3. Documentary Collection - The seller’s bank collects payment from the buyer’s bank on behalf of the seller.
4. Open Account - The buyer pays after receiving the goods, based on agreed credit terms.
5. Consignment - The seller ships goods to the buyer, who pays only after selling the goods to end customers.
6. Bank Draft - A guaranteed payment method where the buyer’s bank issues a draft to the seller.
7. Telegraphic Transfer - An electronic funds transfer method for fast and secure payments.

Types of payment terms in exports

The following are some key payment terms used in international trade and exports:

1. Cash-in-advance

With cash-in-advance terms of payment in international trade, exporters can eliminate the credit risk because payment is received before the products are shipped to the customer. For international sales, wire transfers and credit cards are the most commonly used cash in advance export payment method.

2. Letters of credit

This is one of the safest and most commonly opted modes of payment in international trade. In this, the customer’s bank gives a written commitment to the exporter, which is called a letter of credit (LC). It states a commitment by the bank on behalf of the importer that the payment will be settled to the exporter as per the timeline mentioned and will be subject to agreed terms and conditions.

3. Documentary collection

In this method, both parties involve their respective banks to complete the payment. The remitting bank represents the exporter while the collecting bank works on behalf of the customer or importer. Once the exporter ships products to the importer, they need to submit the shipping documents and collect orders to the remitting bank. Documents are sent from the remitting bank to the collecting bank along with instructions of payment. This is then passed to the buyer on which the payment from the collecting bank is transferred to the remitting bank. Finally, the exporter receives the amount from the remitting bank.

4. Open Account

An open account payment method in international trade is where the goods are shipped to the importer before the payment is due. Payment is agreed on the fixed credit period which can extend typically to 30, 60 or 90 days.

5. Consignments

The consignment mode of payment in international trade is a variation of open account in which the payment is sent to the exporter after the products have been sold by the foreign or third-party distributor to the end customer. An international consignment transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells goods to the exporter who retains title to the goods until they are sold.

How to choose the right payment method for international trade?

Here are some factors to consider while choosing a payment model for international trade:

1. Cash flow availability and needs: Consider the importer’s availability and cash flow. For instance, understand if they will be able to pay right away or need time.

2. Legalities and import/export regulations of the destination country: Consider international trading conditions of the importer’s country such as import licenses, subsidies, tariffs and quotas etc.
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3. Type of product: Is the product in high demand in the importing country? If yes, then the buyer might be willing to be more flexible with payment terms.

4. Creditworthiness of exporter and importer: If the importer or the exporter’s creditworthiness is poor, then the mutual agreement will suffer. It is important to know the credibility of both the parties for successful business.

5. Competitors’ offering: Research well to understand what other competitive businesses are offering in terms of export payment methods.

With e-commerce exports, you can reach international customers and receive payments seamlessly. For instance, exporters using Transfi’s Bizpay can sell on global markets and receive payments in desired currency directly in their bank account. For more support on international payments, you can explore the tools and services offered by Transfi. 

Why is Transfi best for payments across the globe?

1. Low Fees and Transparent Pricing
   Other payment methods often charge high fees for international transactions to freelancers or any other parties.Fintech platforms like Transfi, on the other hand, offer reduced fees and transparent exchange rates.

2. Real-Time Global Access
   Many fintech platforms offer robust mobile apps that let you manage your funds on the go. Whether you’re traveling or working remotely, you can check balances, transfer money, and convert currencies in seconds.

3. Integration with Payment Platforms
   Modern payment methods often integrate with popular payment systems like Transfi, PayPal, Stripe, or Apple Pay, simplifying global payments for businesses and freelancers.

When choosing the right platform for international trade and other finance operations, users should consider factors such as integration compatibility, processing fees, supported payment methods, security features, and the reliability of customer support. The best platform for you will depend on your specific requirements, such as the volume and frequency of transactions, the countries you're dealing with, and your budget. Checkout Transfi’s Bizpay for easier transactions, faster payouts and collections and simplified transfers.

Conclusion

The shipping industry is becoming competitive. Therefore, it is essential to choose the right payment method to stay ahead of the competition. The ideal payment method ensures seamless transactions and builds trust between importers and exporters. Therefore, always start by understanding the different payment methods used in international trade and how their terms can influence your business.

If you are confused and looking for a credible payment solution you can rely on, look no further than Transfi. The platform makes the payment process for global trade hassle-free, quick and reliable. 

With Transfi’s Bizpay, you can trade globally with a variety of currencies and payment methods. Moreover, this platform ensures that the payment methods you use are safe and provides favourable terms for both parties: the importer and the exporter.

Frequently asked questions (FAQs)

1. What are the methods of payment in international trade?

• Cash in Advance
• Letters of credit
• Documentary collection
• Open account
• Consignment 
• Bank draft
• Telegraphic transfer

2. Why is Transfi the best medium for payments in international trade?

• Easy scheduling and managing 
• Low fees and transparent pricing
• Realtime global access
• Integration with payment platforms

3. How to choose the right payment method in international trade?

• Cash flow availability and needs
• Legalities and import/export regulations of the destination country
• Type of product
• Creditworthiness of exporter and importer
• Competitors’ offering

4. How does cash-in-advance work?

With cash-in-advance terms of payment in international trade, exporters can eliminate the credit risk because payment is received before the products are shipped to the customer. For international sales, wire transfers and credit cards are the most commonly used cash in advance export payment method.

5. How does documentary collection as a method of international payment work?

In this method, both parties involve their respective banks to complete the payment. The remitting bank represents the exporter while the collecting bank works on behalf of the customer or importer. Once the exporter ships products to the importer, they need to submit the shipping documents and collect orders to the remitting bank. Documents are sent from the remitting bank to the collecting bank along with instructions of payment. This is then passed to the buyer on which the payment from the collecting bank is transferred to the remitting bank. Finally, the exporter receives the amount from the remitting bank.