While international trade can offer fantastic opportunities, dealing with overseas partners also has its challenges. This means finding a payment method that is acceptable to you and your supplier.
As an importer you will want to minimise costs, defer payment for as long as possible and receive and examine the goods before committing to payment.
Suppliers will want the highest price for their goods, expect payment as soon as possible (preferably before manufacture and shipment) and to maintain control over the goods until payment is received.
In your negotiations with your supplier, these constraints and the risks involved need to be balanced. There are several solutions to help you arrive at a fair and acceptable commercial compromise.
Clean payment/open account
You make a clean payment to your supplier by telegraphic remittance or by purchasing a bank draft.
An open account transaction is a negotiated agreement between you and your supplier, with terms specifying how much you can order, when and how you’ll make payment.
A documentary collection consists of a bill of exchange and various shipping documents – e.g. invoice, transport document, insurance policy – which you need to take delivery. These documents are released to you in exchange for on-the-spot payment or your endorsement of the bill of exchange, as a promise to make payment at a future date.
A documentary credit is a bank guarantee of payment to your supplier. Payment is made immediately when your supplier presents the relevant shipping documents and meets other conditions as negotiated with you and stipulated within the documentary credit.
An international money transfer is a quick and secure means for importers and exporters to settle trade debts. The importer authorises their bank to debit payments from their account and electronically remit the amount to the exporter, who will typically receive the cleared funds on the same day.