Payment Methods for International Transactions

Unit 3.4-Payment Methods for International Transactions

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Unit 3.4- Payment Methods for International Transactions

The uncertainty of international sales reinforces the earlier discussion regarding sources of credit information. A significant reason for obtaining and effectively utilizing sources of information is to make the best decision for a seller as far as what payment terms are most appropriate, payment terms that minimize risk while allowing a seller to be competitive in the market place. Each of these payment terms can be measured by levels of risk, and an international credit manager needs to be in a position to understand and describe these methods of payments. The concept of extending credit in the international environment requires than an international credit manager learn methods for mitigating payment risks for the organization. One way to do so is with different methods of payment.

There are a variety of payment methods available for international transactions. Some companies, who are new to selling in overseas markets, believe that the letter of credit or some type of secured transaction is the “best” (or only) way to transact business when selling offshore. However, a pro-active international credit manager recognizes that in an attempt to obtain new business, many different payment terms are important in a competitive business environment. The ways these terms apply as they relate to a seller’s risk of receiving payment from a buyer are examined in this lesson.

Unit Objective

The goal of this material is to introduce you to the methods of payment available for international transactions and the risks to buyers and sellers for each method of payment. By the end of this unit you will be able to

identify the methods of payment available for international transactions.
identify the risks to a buyer associated with each method of payment.
identify the risks to a seller associated with each method of payment.

Unit Outline

Correlation: Materials from this unit correlate with NASBITE CGCP's Knowledge Statement 04/03/04: Knowledge of methods of payment (e.g., letters of credit, documentary collection, cash in advance, sight draft)