INTERNATIONAL PAYMENT TERMS

export, import, logistics

The methods of payment used in foreign trade, by combining the requirements and risks of making international trade in general, contain methods that can be selected depending on the agreement between the exporter and importer companies.

In general, each exporter prefers to work against the goods with the payment plan, which will accommodate a longer term if the importer, if possible with the advance payment. At this point, there are many factors such as mutual trust of companies, sectoral structure, supply-demand balance, financial structure of companies, financial risk policies.

- The most guaranteed payment methods for exporters are prepayment and letter of credit.
- For the importer, it is against the goods and documents.

PAYMENT TYPES IN FOREIGN TRADE

There are 4 basic kind of payment terms


a) Advance Payment (Cash / Advance Payment)

In the form of this payment, the buyer, ie the importer, pays the cost of the goods in advance during the order or before shipment. If the start of production of the goods is subject to payment and a future calendar is given for the shipment, the importing company may be financed by the importing company. 

This payment entails serious risks for the merchant importer. If the production and delivery programs are delayed, even if the material is not dispatched or the material is faulty, poor quality or incomplete, the importer will not have any assurance since he / she makes the payment from the beginning.

Prefinancing: In this method, which is called as guaranteed cash exchange, the importer's bank asks for the guarantee from the exporter's bank when transferring to the exporter on behalf of the exporter, that the goods are not sent on time or the money will be sent back to the importer with the interest of the forward exchange if the money is not returned. This is called prefinance. At this point, the guarantor requests a letter of guarantee before the bank delivers the money sent by the importer to the exporter.

b) Cash Against Goods

The most risky form of payment for the exporter. The exporter shall deliver the goods to the company which will make the shipment without any payment, the official documents which are necessary for the customs clearance of the goods in the importer's country, if the goods are going by road or airway, if the goods are going by sea, it is sent to the importer by mail or courier. The importer makes the cost of the goods at the end of a term determined on the invoice, either when the material reaches him / her or according to the agreement between them.

In contrast to the advance payment, this time the exporter finances the importer and takes all the risks on himself, despite the possibility of not paying the price of the goods.

Before such a trade, the exporter may follow the following ways to determine the financial status of the importer company and to guarantee the corresponding sales price:
- Receive reports from the information companies about the importer,
- The importer may be required to provide a guarantee letter from a bank for payment.
- Eximbank can work with companies such as export insurance by guaranteeing the delivery cost
- In exchange for a certain commission, the amount of the goods can be collected from the bank after the expenses of the goods are deducted to the factoring banks.

Type of Payment for Goods in the Bank's Audit: The transfer of the documents in the exports in which goods are paid against the goods can be reconciled with the bank, and the transfer of the documents can be made through certain banks, the legislation of one of the countries subject to trade may require this. It should be kept in mind that banks are only responsible for the delivery of documents and do not have any obligations about payment. Deliver the documents to the buyer without requesting any payment receipt.

Acceptance Credit Payment (Policy payment): In this form of payment, the importer bank gives an irrevocable commitment that the exporter will pay the invoice amount at a certain maturity period at the end of the trade against goods. The maturity is determined by the policy from the bills of exchange and the only difference from the other policies is the irrevocable commitment of a bank to pay the policy price.

c) Cash Against Documents

After the shipment, the exporter delivers the original set of documents to his bank to forward it to the bank that the importer has previously reported.

The exporter bank sends the original documents to the bank of the importer, namely the correspondent bank ir remittance letter ev. In this letter, there is an instruction that the fee will not be delivered without paying the amount of the goods. Thus, since the importer cannot obtain the original documents from the bank without paying the cost of goods, he cannot withdraw the goods from the customs.

The exporter is assured that the goods cannot be withdrawn from the customs of the importer's country without payment; If the trade breaks down from this trade based on a problem, the exporters can take two-way freight and port / warehouse / warehouse etc. to cover the costs and damage of the goods depending on the nature of the export goods.

We can explain the parties involved in the payment.
Amir (principal): Exporting company to the bank for the collection process.
Exporter's Bank: (Remitting Bank):
Contactee (Drawee): The buyer is the buyer, in which Vesaik is presented for collection and acceptance.
Collecting Bank: The bank that mediates the collection process.

d) Letter of Credit (L / C)

This form of payment protects both the exporter and the importer and is very preferred because it includes a control process by the banks regarding the fulfillment of special requirements, special requirements and agreements.

At the beginning of the letter of credit, the exporter and importer companies must give a copy of the details of the trade to their own bank, as agreed before. In order to open letter of credit, banks also require proforma invoice prepared by the exporter. If the importer is not present on the proforma before opening the letter of credit, he / she should also take the exporter's bank details.


In the simplest way, we can define the letter of credit as a "conditional transfer". In the letter of credit, the amount of the invoice, the period of validity of the letter of credit, the final loading date for the shipment, the delivery address, the list of the original documents required in the customs operations, as well as the quality documents required by the importer, etc. indicated.

Before the importer's bank opens the letter of credit, the exporter must necessarily ask for a draft text and in this way he / she should request a correction in his / her own credit or if an item which is not available under the current conditions is added. 

For example, even a simple error in the port of loading on the letter of credit will result in the exporter not being able to print this incorrect name on the bill of lading and to determine the reserve by determining this error in the control of the banks and to give the importer the right to hold the payment or not to make the payment by refusing the goods.

Letters of credit:
- Letter of Credit Officer (Aplicant, Orderer, Principal): Importer
Opening Bank, Issuing Bank: The bank of the importer
- Bank of Advising: Exporter's Bank
- Beneficiary: Exporter

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