International trade  terms and  payment methods

Payment  method in International  trade

Cash in advance

Buyer makes payment before the goods
are shipped

Open Account

Seller dispatches the goods as per the
sales contract or the purchase order .

Payment is done as per the po terms and
condition against invoice on the reciept
of goods . These transaction are done on long
and trusted  relationships of buyer and seller .

Banks does n' t comes in transaction other than
transferring funds.

Documentary  collection
Payment is done against documents .

Seller ships the goods and simultaneously  sends  document  directly or through  his bank to  the importer s bank .
Document  against payment : Buyer gets the documents and he then presents it to the shipping line to get the
delivery order

Documents against acceptance method is used where seller offers credit facility to the buyer in terms of bill of
exchange or promisory note .

Documentary credit

Irrevocable  undertaking  is issued  by  bank to accept /pay documents upon presentation provided  that  the terms  
of the letter credit are complied with .

Aval   &  Guarantees

n some countries  a bank or other party can guarantee payment of draft or promissory note by giving its ""äval"". By
signing  the note in this way on the back , the bank or the other organisation commits itself unconditionally to pay
should the maker  or drawee default

CAD : Cash against Documents
Payment is  made to  bank to get documents ,Normally vendors prefer  this kind of payment as it ensures the
payment prior  to actual deliver of consignment .Please ensure that documents are endorsed by bank and shipper  
as this is most important  conditions for shipping line .

L/C : Letter of Credit
A letter of credit is a document issued mostly by a financial institution which usually provides an irrevocable payment
undertaking (it can also be revocable, confirmed,unconfirmed, transferable or others e.g. back to back:
revolving but is most commonly irrevocable/confirmed)to a beneficiary against complying documents as stated in
the Letter of Credit. Letter of Credit is abbreviated as an LC or L/C, and often is referred to as a documentary credit,
abbreviated as DC or D/C, documentary letter of credit, or simply as credit .Once the beneficiary or a presenting bank
acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the
LC,comprising documents complying with the terms and conditions of the LC,  . In other words, the obligation to
honour(usually payment) is shifted from the applicant to the issuing bank or confirming bank, if any. Non- banks can
alsoissue letters of credit however parties must balance potential risks.

The LC can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the
letter of credit. Letters of credit are used nowadays primarily in international trade transactions of significant value, for
deals between a supplier in one country and a wholesale customer in another. They are also used in the land
development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be
built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom
the applicant is a client, and the advising bank of whom the beneficiary is a client. Since nowadays almost all letters of
credit are irrevocable, (i.e. cannot be amended or cancelled without prior agreement of the beneficiary, the issuing
bank and the confirming bank, if any). However, the applicant is not a party to the letter of credit. In executing a
transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents
a beneficiary has to present in order to avail himself of the credit, are commercial invoice, bill of lading, insurance
documents. However, the list and form of documents is open to imagination and negotiation and might contain
requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped.


Bill  of lading

This document has  details of port of discharge , port of loading   , vessel name  , material description,  bill of lading
no , qty  , weight ,container  this document has to be in 3 original ( first original , second  and third original with 3
copies of  non - negotiable  bill of lading ).This document  is surrendered to shipping line  mentioned in bill of lading
for tittle of  consignment .

Consignment can be claimed by issuing bank guarantee to shipping line  against   deposit of  original document .
Later submitting the documents to claim the bank guarantee.

Certificate of origin

This declares  the origin of material  from where  it has originated .It is certified either govt agencies in some countries
or by chambers of commerce .

1original + 3 copies are to be submitted

Packing list

Here supplier  declares  the qty , weights and no of boxes  which are  loaded in container

1 original + 3 copies

Bill issued for  payment  is made as per the contract or  purchase order  value .
1 original+ 3 copies

Delivery order

Issued by shipping companies  to consignee after submission of original of bill of lading for collection .The deivery
consists of validity period against which material has to be lifted .

Required for   exemption of duty .Govts  provided exemption to certain manufacturers benefit on imported goods.
Legalisation are either done from banks or through govt agencies .

Custom duty

Levy govt charges on goods imported from other country . It varies from country to country and items to items .

more on import documents and glossary

Custom Search