Export trade options payment terms

I. Selection of payment terms

In the negotiation of export trade, it is necessary to carefully negotiate the payment method and time. Generally, the following three methods are available for selection. The payment guarantees they provide are different. Payment in advance; payment by irrevocable letter of credit (ie, a documentary credit); payment by bill of exchange, or credit.

The superiority and reliability of the above three payment methods are successively decreasing for exporters. It is important to have an in-depth understanding of the buyer’s creditworthiness beforehand. There are many ways to understand: you can ask your own bank, you can consult with commercial credit rating agencies, you can investigate the buyer's financial status. For example, the trade department, embassy or consulate's business department, marketing agent, and other companies with whom the buyer has a relationship are known. In general, if you have more than one year of transactions with the buyer, you can choose your payment method based on your own experience.

First of all, if the payment history of the other party is good, in order to facilitate the transaction of bulk trade, it can be collected by the foreign exchange ticket bank, and even a trade account can be opened for accounting. Of course, the choice of payment method depends on the value of the goods and the financial status of the company. In addition, whether or not the political situation in the other country is stable has credit insurance, which is also an issue that exporters need to consider. Sometimes, even the other party's commerial culture and language barriers of both parties have become a factor that must be considered, because "misunderstanding" may also lead to deterioration of relations and payment difficulties. The political situation mentioned above requires special attention. The replacement of the government team, the wave of strikes, and even some government actions may prevent the buyer from fulfilling the payment agreement. For example, the introduction of an import licensing system, the freezing of import foreign exchange payments, and the strike of port or inland transport workers may all make it difficult for the buyer’s payment agreement to be fulfilled. These issues must be considered when choosing a payment method.

Second, regarding the issue of letters of credit. It provides the seller with sufficient payment guarantees, but it also increases the costs and procedures of the buyers and sellers. The buyer needs to provide financial guarantees for this reason to be able to transport goods from abroad. Therefore, the buyer is generally unwilling to use the L/C payment method.

Again, regarding advance payment issues. For the seller, prepayment is the most favorable way, especially when it comes to doing business with the buyer for the first time, or when the buyer's country is politically unstable and economically chaotic. For the buyer, although prepayments are generally favorable to the early departure of the goods, it is unclear whether the goods can be shipped at an early date and the quality of the goods can be guaranteed. Therefore, the buyer generally requires the seller to provide a bank guarantee before the advance payment, but this increases the financial burden on the seller. Therefore, after the buyers and sellers have established normal trading relations, they are usually not willing to adopt this method. Finally, the issue of paying by bill of exchange. This is done by the seller as the drawer to issue a written unconditional payment of a certain amount of money to the buyer as the drawee. This draft may be on demand or not. In sight, withdrawals are made on a future pred-etermined date.

Second, compare bills and other payment methods

Bills of exchange can be further divided into clean bill of exchange, ordinary bills without conditions (such as bills of lading, etc.), and documentary bill of exchange, that is, bills of exchange with letters of credit. Clean bills of exchange apply to occasions such as transport documents that are otherwise sent, or it is stipulated in the payment terms that the buyer must accept drafts issued by the seller prior to the production of the goods (or prior to delivery). Unlike bills of exchange, it is accompanied by supporting documents such as bills of lading. The bank of the buyer’s home country can only surrender the attached support document if it is ascertained that the purchase price has been paid, or the bill has been accepted, so that the consignee can pick up the goods according to the requirements. Clean bills of exchange provide sellers with greater guarantees of payment. However, most countries have made guarantees on the legislature's credit for the draft, allowing the seller to recover legally when the bill fails to pay. It can be seen that the use of bills of exchange payment method is relatively simple and easy, and the cost is relatively small, is a way to facilitate the buyer to take delivery, but also allows the seller to have a payment guarantee. Only the document document must be a document of title, otherwise it is still unreliable.

The payment method of the cash against documents is as follows: After the seller gives the goods bill of lading or the certificate that can prove the ownership of the goods to the buyer or the buyer's agent, it is verified to be correct and the payment is paid to the seller or his agent. . This type of payment is less reliable than bank drafts. Opening a trade account to sell credit is a seller’s trust in the buyer. It is believed that the buyer will pay on the agreed date. As long as the buyer pays the bill at the time, this method saves time and saves money. The problem is that for the seller, the shipment was delivered and the document was sent out, and no application guarantee for the payment of the payment was obtained. Therefore, it is very necessary to know the credit status of the buyer in advance, and it must be monitored at any time to prevent changes.

Credit sales are quite popular within the European Union (EC). General international trade is different from the EU's internal trade, and the stability of the buyer’s country’s politics must be assessed. Commercial credit insurance (credit insurance) is worth adopting. It can enable sellers to be compensated when the risk of payment occurs. Generally, it is necessary to first compensate 80% of the value of goods (invoice value), and the rest should be paid after the buyer pays, but it must be subtracted from it. cost. There is also a payment method that is often overlooked. It is to consign the goods to a forwarder’s foreign office or its agent. It must indicate that the goods must be paid after payment is made out. Do- cuments of title). After the payment has been received, it will be remitted to the transshipment office that is carrying the goods and the commission agreed upon beforehand will be deducted from the transfer to the seller.

What needs to be noted here is how the creditworthiness of the transshipment companies must be clearly understood in advance. From the above introduction, in order to make the marketing of export trade smoothly and guarantee the payment of payment, the company engaged in export trade must have a staff with rich foreign trade knowledge, experience and ability, and it must be in foreign trade practice. Pay attention to the timeliness and accuracy of the documents. It is no exaggeration to say that the professional expertise of foreign trade, which is often overlooked, is indeed a very valuable intangible asset for foreign trade administrations.