As your sourcing efforts expand internationally, you will discover that the typical credit card transaction or invoice/payment within 30 days arrangement is less common.

In fact, if you are not only buying internationally but also selling internationally, you should plan to be much more cautious in extending credit than you may be when dealing within your own country. For the record, that caution is not a demonstration of being anti-global or a show of prejudice against business people from other countries; we advise caution because it is so much more difficult to negotiate, arbitrate or pursue legal action across international borders. It is much smarter to avoid a payment problem than be faced with solving a payment problem.

There are several widely used methods for international payment. Below we have provided a chart that summarises the major payment methods along with risks and benefits.

MethodUsual Time of PaymentGoods Available to BuyerRisk to ExporterRisk to Importer
Cash in AdvanceBefore shipmentAfter paymentNoneCompletely relies on exporter to ship goods as ordered.
Letter of Credit / Confirmed / SightWhen shipment is madeAfter paymentCredit Risk with Confirming Bank and Documentary Risk.Completely relies on exporter to ship goods as ordered.
Letter of Credit / Confirmed / TimeOn maturity of draftBefore paymentCredit Risk with Confirming Bank and Documentary Risk.Completely relies on exporter to ship goods as ordered.
Letter of Credit / Unconfirmed / SightWhen shipment is madeBefore paymentCredit risk with Issuing Bank and Documentary Risk.Is assured shipment made but relies on exporter to ship goods described in documents.
Letter of Credit / Unconfirmed / Time of draftOn maturityBefore paymentCredit risk with Issuing Bank and Documentary Risk.Is assured shipment made but relies on exporter to ship goods described in documents.
Sight draft, documents against paymentOn presentation of draft to buyer – often a verbal notification receipt by the collecting to the buyerAfter paymentDisposition of goods if shipment not accepted. Involves many side risks such as exchange availability.Is assured shipment made but relies on exporter to ship goods described in documents unless he can inspect goods before payment.
Time draft, documents against acceptanceOn maturity of draftBefore paymentDisposition of goods if shipment not accepted. Relies on buyer to pay draft at maturity.Is assured shipment made but relies on exporter to ship goods described in documents unless he can inspect goods before payment.
Open accountAs agreedBefore paymentRelies completely on buyer to pay his account as agreed upon.None

In future articles we will discuss each of these payment mechanisms in more detail so that you can select the transaction method that best meets your needs. We will also include use of the escrow account, an important option for eBay sellers.

Please note that if you are placing an initial sample order, you should confine that order to the smallest amount required to evaluate the supplier and you should expect to pay in advance since you and the supplier do not yet have a relationship and small quantities are not worth the paperwork involved in one of the more cautionary approaches.

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