| Method |
Usual
Time of Payment |
Goods
Available To Buyer |
Risk To
Seller |
Risk to
Buyer |
Comments |
| CASH IN
ADVANCE |
Before
shipment |
After
payment |
None |
Complete
– relies on seller to ship exactly the goods expected, as quoted and ordered. |
Seller’s
goods must be special in one way or another, or special circumstances prevail over normal
trade practices (example, goods manufactured to buyer –only specification.) |
| LETTER
OF CREDIT
(See next two items.) |
 |
|
Commercial
Invoice must match the Letter of Credit exactly. Dates must be carefully headed –
"State" documents are unacceptable for collection. |
|
Letters of
Credit require total accuracy in conforming to terms, conditions and documentation.
Consult your United Shipping Associate member for determining feasibility of terms and
conditions. |
| Confirmed
Irrevocable Credit |
After
shipment is made, documents presented to the Bank. |
After
payment |
Gives the
seller a double assurance of payment – Depends on the letter of credit. |
Assures
shipment is made but exporter to ship goods as described in documents. Terms may be
negotiated prior to letter of credit agreement, alleviating buyer’s degree of risk. |
The
inclusion of a second assurance of payment (usually a U.S Bank) prevents surprises, adds
assurance that issuing bank has been deemed acceptable by confirming Bank. Adds cost and
an additional requirement to seller. |
| Unconfirmed
Irrevocable Credit |
Same as
above. |
Same as
above. |
Seller has
single bank assurance of payment and seller remains dependent on foreign bank.
Seller should contact his banker to determine whether of not the issuing bank has
sufficient assets to cover the amount. |
Same as
above. |
Credit
can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open
account with buyer’s bank as collection agent. Foreign bank may have problems making
payment in sum or timeliness. |
| DRAFTS:
(See next two items.) |
Remittance
time from buyer’s bank to seller’s bank may still take one week to one month. |
|
Drafts by
design should contain terms and conditions mutually agreed upon. |
|
A draft may
be written with virtually any term or condition agreeable to both parties. When
determining draft tenor (terms and conditions) consult with your banker and freight
forwarder to determine the most desirable means of doing business in a given country. |
| Sight
Drafts (with documents against acceptance) |
|
After
payment to buyer’s bank |
If draft
not honoured, goods must be returned or resold. Storage, handling, return freight expenses
may be incurred. |
Assures
shipment but not content, unless inspection or check-in is allowed before payment. |
A
draft can be a collection instrument used to exchange possession and title to goods for
payment. Seller is essentially drawing a check against the bank account of the buyer.
Buyer’s bank must have pre-approval, or seek approval of the buyer
prior to honouring the check. Payable upon presentation
of documents. |
| Time Drafts
(with documents against acceptance) |
On maturity
of the draft. |
Before
payment, after acceptance |
Relies on
buyer to honour draft upon presentation |
Assures
shipment but not content, time of maturity allows for adjustments, if agreed to by seller. |
Payable
based upon the acceptance of an obligation to pay the seller at a specified time. Although
a time draft has more collection leverage than an invoice, it remains only a promissory
note, with conditions. |
| OPEN
ACCOUNT |
As agreed
usually by invoice. |
Before
payment |
Relies
completely on buyer to pay account as agreed |
None
|
All terms
of payments, including extra charges and terms should be mutually understood and agreed
upon prior to open account initiation. Companies conducting on-going business are
candidates for open account terms of payment. Seller must measure not only buyer’s
credit reliability but the country’s as well. |
| Method |
Usual
Time of Payment |
Goods
Available To Buyer |
Risk To
Seller |
Risk to
Buyer |
Comments |
