Scribd Logo
Upload

Welcome to Scribd!

  • Terms of Payment

    Uploaded by

    Ankit Verma
    88 views14 pages
    The document discusses terms of payment in international trade. It introduces various factors that determine terms of payment such as the exporter's knowledge of buyers, buyer's financial ability, and degree of security. It then describes common methods of payment including cash in advance, letters of credit, documentary collections, and open accounts. For each method, it outlines the pros and cons for buyers and sellers. Finally, it discusses how terms of payment play a vital role in international business and can influence credit terms, negotiations, and a country's economic growth.

    Original Description:

    Original Title

    TERMS OF PAYMENT

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document discusses terms of payment in international trade. It introduces various factors that determine terms of payment such as the exporter's knowledge of buyers, buyer's financial ability, and degree of security. It then describes common methods of payment including cash in advance, letters of credit, documentary collections, and open accounts. For each method, it outlines the pros and cons for buyers and sellers. Finally, it discusses how terms of payment play a vital role in international business and can influence credit terms, negotiations, and a country's economic growth.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    88 views14 pages

    Terms of Payment

    Uploaded by

    Ankit Verma
    The document discusses terms of payment in international trade. It introduces various factors that determine terms of payment such as the exporter's knowledge of buyers, buyer's financial ability, and degree of security. It then describes common methods of payment including cash in advance, letters of credit, documentary collections, and open accounts. For each method, it outlines the pros and cons for buyers and sellers. Finally, it discusses how terms of payment play a vital role in international business and can influence credit terms, negotiations, and a country's economic growth.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 14

    TERMS OF PAYMENT ; AS A MARKET

    TOOL

    ANKIT VERMA
    M B A ( IT L M ) II Y R.
    I N T E R N AT I O N A L
    LO G IS T ICS
    REG. 1804305004

    1
    CONTENT
    Introduction
    Factors determines the terms of payment
    Methods of payment
    Effect on country’s growth
    Conclusion

    2
    INTRODUCTION
    When it comes to trading of commercial goods, there is always a certain level of risk and trust
    involved. Whether you’re a buyer or seller, you are bound to be exposed to some risk when
    dealing with international transactions. In large part, the amount of risk involved highly depends
    on the method of payment you use.
    There are plenty of international paying methods for importers and exporters across the globe.
    And as the world continues to globalize, we’re seeing an increase in international payment
    modes. But as with incoterms the parties lying at the split ends of the spectrum have clashing
    agendas and priorities to fulfill and to look out for.

    3
    FACTORS DETERMINE THE TERMS OF PAYMENT
    1. Exporters knowledge of buyers.
    2. Buyer’s financial ability
    3. Degree of security of payment, if advance payment is not considered.
    4. Speed of Remittance.
    5. Competition faced by exporters.
    6. Legal issue
    7. Difficulty of payment
    8. Mistrust

    4
    METHODS OF PAYMENT
    Cash in Advance
    Letters of Credit
    Documentary Collections
    Open Account

    5
    6
    CASH IN ADVANCE
    The buyer completes the payment and pays the seller in full before the merchandise  it shows a
    significantly high risk for buyers as it produces a disadvantageous cash flow and no definite guarantee of
    receiving the goods or the condition in which they arrive. This is generally a recommended option for
    sellers who are dealing with new buyers or buyers with weak credit ratings, and/or for high-valued
    products.is delivered and shipped off to the buyer.

    Pros Cons

    Buyer Minimal Unfavorable cash flow

    Seller • Successful payment  Risk of losing business to


    before risk. competitors if offering this
    • No risk as the only accepted
    international payment
    method

    7
    LETER OF CREDIT
     A documentary credit or bankers commercial credit, or letter of undertaking, is a payment
    mechanism used in international trade to provide an economic guarantee from a creditworthy
    bank to an exporter of goods.
    Pros Cons

    Buyer  Guarantee of cargo being → Reliance on seller to


    shipped before payment ship goods as specified
    → Obligation by seller to
    fulfill stated and
    negotiated conditions

    Seller Low risk → Minimal

    8
    DOCUMENTARY BILL
    Documentary collections is a process in which both the buyer’s and seller’s banks act as facilitators of
    the trade.
    The seller submits documents needed by the buyer, such as the Bill of lading, which is necessary for
    the transfer of title to the goods, to its bank.
    Pros Cons

    Buyer
    → More economical than → Reliance on seller to
    Letters of Credit ship goods as specified
    Seller
    → No verification involved
    → No guarantee of
    → Minimal payment from bank

    9
    OPEN ACCOUNT
    Under Open Accounts (also known as Accounts Payable),merchandise are shipped and delivered
    prior to payment, proving to be an extremely attractive option for buyers especially in terms of
    cash flow. On the other end of the spectrum, however, sellers are faced with high risks. After the
    payment,  the seller ships the goods to the buyers with a credit period attached. This is usually in
    30-, 60-, or 90-day periods, during which the buyer must carry out full payment.

    Pros Cons

    Buyer
    → Receives goods before
    payment is due → Minimal
    → Positive cash flow

    Seller → Can attract customers in


    → High risk of default
    competitive markets

    10
    EFFECT ON COUNT’S GROWTH
     Terms of payment plays a vital role and varies globally. Where payments are negotiable
    between the importer and exporter by attractive terms of payment not only by cost or quality
    basis but a best deal.
    Payment terms are determined by the host of factor as the regulation of the countries, financial
    competence of the exporter, monopolistic product condition and rest all other bargaining strength
    of the parties
     As per the exchange control regulation at a global level, the full value of exports proceeds,
    must be received within six months from the date of shipment.

    11
    CONCLUSION
    Terms of payment plays a vital role for International Business.

     Where payments are negotiable between the importer and exporter by attractive terms of
    payment not only by cost or quality basis but a best deal. So, the sale terms influence not only
    credit terms but also credit must be extended to the exporter to facilitate successful transaction.
    Some where, credit may extends by letter of credit, open account & so on buying raw materials or
    manufactured goods for export.
     Here exporter transactions are deemed to complete only when the exporter proceeds are fully
    received by the importer.

    12
    Reference
    www.worldbank.org › results › 2018/04/03 › stronger-open-trade-pol...
    Text Book – C. Ramgopal Verma

    13
    THANKYOU

    14

    You might also like