Trade Finance Guide

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METHODS OF PAYMENT ININTERNATIONAL TRADEIntroductionMethods of Paymentin International TradeCash-in-AdvanceDocumentary CollectionsOpen AccountExport Working CapitalFinancingExport Credit InsuranceSVB’s Asset PurchaseProgram (APP)ForfaitingLetters of CreditThe Export-ImportBank Working CapitalProgramsGovernment AssistedForeign Buyer FinancingIn the competitive global marketplace, it’s essential forexporters to offer their customers attractive sales termssupported by the appropriate payment method. In order tobe paid in full and on time, appropriate payment methodsmust be selected carefully to minimize the payment riskwhile also accommodating the needs of the buyer. There arefour primary methods of payment for international transactions.You and your customer should agree upon the method that ismutually advantageous for both parties during or before contractnegotiations.Payment Risk DiagramOpen AccountDocumentCollectionsLetters of CreditCash-In-AdvanceLeastSecureExporterImporterMostSecureCash-In-AdvanceLetters of CreditDocumentCollectionsOpen AccountTrade Finance Guide 4
METHODS OF PAYMENT ININTERNATIONAL TRADEIntroductionMethods of Paymentin International TradeCash-in-AdvanceDocumentary CollectionsOpen AccountExport Working CapitalFinancingExport Credit InsuranceSVB’s Asset PurchaseProgram (APP)ForfaitingLetters of CreditThe Export-ImportBank Working CapitalProgramsGovernment AssistedForeign Buyer FinancingKey Points° International trade presents a spectrum of risk, causing uncertaintyover the timing of payments between the exporter (seller) andimporter (foreign buyer).° To exporters, any sale is a gift until payment is received.° Therefore, the exporter wants payment as soon as possible,preferably as soon as an order is placed or before the goods aresent to the importer.° To importers, any payment is a donation until the goods arereceived.° Therefore, the importer wants to receive the goods as soon aspossible, but to delay payment as long as possible, preferablyuntil after the goods are resold to generate enough income tomake payment to the exporter.Cash-in-AdvanceWith this payment method, the exporter can avoid credit risk, sincepayment is received prior to the transfer of ownership of the goods.Wire transfers and credit cards are the most commonly used cash-inadvanceoptions available to exporters. However, requiring paymentin advance is the least attractive option for the buyer, as this methodcreates cash flow problems. Foreign buyers are also concerned thatthe goods may not be sent if payment is made in advance. Thus,exporters that insist on this method of payment as their sole methodof doing business may find themselves losing out to competitorswho may be willing to offer more attractive payment terms.Letters of CreditLetters of credit (LCs) are among the most secure instrumentsavailable to international traders. An LC is a commitment by a bankon behalf of the buyer that payment will be made to the exporterprovided that the terms and conditions have been met, as verifiedthrough the presentation of all required documents. The buyer paysits bank to render this service. An LC is useful when reliable creditinformation about a foreign buyer is difficult to obtain, but you aresatisfied with the creditworthiness of your buyer’s foreign bank. AnLC also protects the buyer since no payment obligation arises untilthe goods have been shipped or delivered as promised.Documentary CollectionsA documentary collection is a transaction whereby the exporterentrusts the collection of a payment to the remitting bank (exporter’sbank), which sends documents to a collecting bank (importer’sbank), along with instructions for payment. Funds are received fromTrade Finance Guide 5
Page 1 and 2: Trade Finance GuideA guide and over
Page 3: INTRODUCTIONIntroductionMethods of
Page 7 and 8: CASH-IN-ADVANCEIntroductionMethods
Page 9 and 10: CASH-IN-ADVANCEIntroductionMethods
Page 11 and 12: LETTERS OF CREDITIntroductionMethod
Page 13 and 14: DOCUMENTARYCOLLECTIONSIntroductionM
Page 15 and 16: DOCUMENTARYCOLLECTIONSIntroductionM
Page 17 and 18: OPEN ACCOUNTIntroductionMethods of
Page 19 and 20: EXPORT WORKING CAPITALFINANCINGIntr
Page 21 and 22: THE EXPORT-IMPORTBANK WORKING CAPIT
Page 23 and 24: THE EXPORT-IMPORTBANK WORKING CAPIT
Page 25 and 26: EXPORT CREDITINSURANCEIntroductionM
Page 27 and 28: SVB’s Asset PurchaseProgram (APP)
Page 29 and 30: FORFAITINGIntroductionMethods of Pa
Page 31 and 32: FORFAITINGIntroductionMethods of Pa
Page 33 and 34: GOVERNMENT ASSISTEDFOREIGN BUYERFIN
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Trade Finance Guide

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