Terms of Payment
Terms of Payment
• Cash in Advance
• Documents against Payment/DA
• Open Account
• Letter of Credit
CASH IN ADVANCE
• Receive cash from the buyer before shipping
– Telegraphic Transfer
– Demand Draft
• In case of HUGE payments (importer may
demand a bank guarantee)
• Followed if exporter is in a strong trading
position & particular product is not available
DOCUMENTS AGAINST PAYMENT
• When the importer’s bank sends a collection
notice to the importer, the importer pays thus
taking the possession of documents
DOCUMENTS AGAINST ACCEPTANCE
• When the importer’s bank sends a collection
notice to the importer, the importer gives the
‘acceptance’ to pay at a later date I/O making
payment upon receiving the collection notice
OPEN ACCOUNT
Ship the goods
await payments ……
A LETTER OF CREDIT
A L/C is A formal document of payment
Opened by a party wishing to import
Communicated through banking channels
Paid by the opening bank within a specified
timeframe upon presentation of docs
Parties to a letter of credit
– Applicant/Importer
– Exporter
– Issuing Bank
– Intermediary Bank/Confirming Bank
Documentary Credit Cycle
(1) Contract
EXPORTER- SELLER IMPORTER - BUYER
(BENEFICIARY) (5) Shipment (APPLICANT)