Methods of payment in international trade

There are three commonly used ways of payment: Remittance, collection, and letter of credit(L/C).

Remittance- M/T, T/T, and D/D

  1. PayPal, a wholly-owned subsidiary of eBay, is currently the world’s largest online payment provider and the most commonly used payment method in cross-border transactions. Paypal is available to anyone with an email address — anyone can make payments or send money directly on the site.

Advantages: Convenient and fast

Disadvantages: A certain fee is required for withdrawal

  1. T/T is a relatively traditional transaction mode in which the client transfers the payment to the designated foreign exchange bank account. It can be divided into pre-T/T and post-T/T. The former is a direct transfer of all the money to the bank account before delivery, and the latter is loading first, then lading full remittance after receiving the bill.

Advantages: Suitable for large payments

Disadvantages: 1. Strict requirements for credit issues. 2. It is not suitable for small and medium-sized payment, and additional fees need to be paid by the buyer (1‰ handling fee + 3% banknote exchange fee + 150 yuan telegram fee)

3. Western Union, the world’s leading express remittance company, is suitable for small private remittances, It can be handily operated by providing information about name and nationality.

Advantages: The principle of payment to delivery maximizes the protection of business interests from loss.

Disadvantages: 1. Shipment after payment. 2. There are certain restrictions on transaction volume. 3. When the payment is large, the handling fee is high. 4. Inconvenient payment.

Collection- The seller issues a draft and entrusts the bank to collect payment from the customer through its branch or agent bank.

4. D/P, the seller delivers the draft and shipping documents to the bank for remitting, instructing the bank to deliver the shipping documents only after the customer has paid the payment. According to the payment time, they can be divided into D/P at sight and D/P after sight.

Advantages: 1. Low cost and simple operation. 2. It is much more convenient for the buyer in funds.

Disadvantages: 1. Lower safety and high risk

  1. D/A is the seller instruct the remitting bank to issue ownership and other shipping documents to the customer after the customer accepts the draft.

Advantages: 1. Low cost and simple operation. 2. The buyer is more convenient in terms of funds

Disadvantages: Lower safety and high risk

Letter of Credit (L/C)- The most important and commonly used payment

  1. L/C refers to the conditional guarantee of payment. According to the general provisions of the settlement, the buyer deposits to the bank first, and the bank issue a letter of credit and informs the seller to deliver the goods in accordance with the terms of the contract and the letter of credit, the bank pays on behalf of the buyer, and the bank assumes the payment obligation.

Advantages: Catering to the foreign buyers and the transaction is much safer.

Disadvantages: Generally, a 10% deposit is required with small payment but high fees.