International Trade Payment Methods Explained

Billy shares valuable insights on payment methods in international trade, emphasizing trust between exporters and importers.

### Understanding Payment Methods in International Trade
* 👋 Hi, I'm Billy from Training Resources, specializing in **letters of credit and international trade training** since 1994, after my tenure as **head of the trade faculty** at an international bank in Malaysia.
* 📚 Over the years, I've trained staff from **over 2,000 companies** across Malaysia, Singapore, and Indonesia, and now I'm excited to share my expertise through **online videos for the international trade community**.
* 🎥 Our first video will cover "**methods of payment in international trade**," presented by my assistant Sling, and we encourage you to **subscribe to our channel for more insightful content**.
* 🌍 In international trade, the two primary parties involved are the **exporter** and the **importer**, engaging in the movement of **goods, documents, and payments**.
* 💳 We will explore four key methods of payment: open account, advance payment, documentary collection, and documentary credit, starting with the **open account method** where the importer **receives goods before making payment**, posing a **risk to the exporter**.
* 💰 Conversely, in the advance payment method, the importer **pays upfront before goods are shipped**, transferring the risk to the importer who must **trust the exporter to fulfill the order**.
* 🏦 To address the trust issues between parties unfamiliar with each other, banks offer solutions like **documentary collections** and **documentary credit**, which will be discussed in our next video.
* 📜 Stay tuned as we delve deeper into these payment methods and how they **facilitate international trade transactions effectively**.

hi friends. My name is Billy from training resources, which specializes in training on letters of credit in court terms to see p600 case studies on international trade and shipping documents. Prior to setting up training resources in the year 1994, I was the head of the trip - faculty of an international bank in Malaysia, where I conducted training on a set topic for bank managers and bank officers. After setting up trade links resources, I've been training staff from more than 2,000 companies from Malaysia, Singapore, Indonesia, and immediately after 25 years of training experience. I've now decided to share my experience with the online international trade communities by producing videos like what we are going to present to you all. Ok, the first video will be on the topic matters of payment in international trade. This will be presented by my assistant Sling, and we would like to this video and know please subscribe to our channel. In fact, we have more videos coming up, especially on case studies relating to international trade. Thank you. Hi everyone, as mentioned by Mr. Billy, I am Sling. I will be presenting

our online content to you in our YouTube channel. So let us move on to our first video, which is methods of payment in international trade. Hi everyone, we'll be looking at the methods of payment in international trade. In international trade, there are two parties, which are the exporter and the importer. From exporter to importer, there are movements of goods, another movement from exporter to importer up is the movement of documents. From the importer to exporter, there is movement of payment. From this free movement of goods, documents, and payment, there are four methods of payment, which are open account, advance payment, documentary collection, and documentary credit. We shall be looking at the four methods of payment in detail in the next slide. We will be looking at open account. We have the exporter on the left and the importer on the right. So the exporter and importer would get into a sales contract. Once the contract has been signed, the exporter will then ship out the goods to the importer. After shipping out the goods to the importer, the exporter will prepare the necessary shipping documents such as bills of lading, invoice, and packing lists, and

will forward the documents over to the importer. So, when importers receive the documents and when the goods are arrived at the port, the importer will be able to clear the goods at a port. In this case, the goods are available to the importer before payment. And is there any risk to the importer? Certainly none. Once the importer has received the goods, the importer will subsequently make payment to the exporter. Timing of the payment will depend on the sales contract. And is there any risk to the exporter? Certainly yes, because the exporter relies completely on the importer to pay as agreed as per the sales contract. So, this is a situation where the exporter will rely on the importer to make payment as agreed. So, for this method of payment to work, the exporter must know and trust the importer. This is the summary of how the open account method of payment works. We'll be looking at the next method of payment, which is advance payment, in the next slide. For advance payment, advance payment is the direct opposite of open accounts. We can see in this slide the exporter is placed on the

left-hand side while the importer is placed on the right-hand side. So, after both parties enter into a source contract, which specifies that the method of payment is to be by advance payment, once the contract has been signed, the importer will make payment to the exporter. The time of payment is before shipment. Is there any risk to the exporter? Certainly not, because the exporter has received payment first. So, after the exporter has received payment, the exporter will then ship the goods to the importer. After shipment of goods, the exporter will prepare the relevant shipping documents, and the exporter will then courier the documents directly to the importer. When the importer receives the documents, the importer will then be able to clear the goods from the port. The goods are available only to the importer after payment. The risk to the importer is that the importer would have to rely completely on the exporter to ship out the goods as ordered. For this method to work, the importer must know and trust the exporter. So, this is an essence advanced payment method. We have a problem here. The exporter does not

know the importer very well, and the importer does not know the exporter very well, so there is no trust between both parties. Because the exporter will certainly want advance payment, and the importer will certainly want open terms. So, if both parties cannot compromise, they will need the bank to resolve this issue. For this situation, the bank has invented two methods of payment, which are documentary collections and documentary credit. In the documentary collection method, you have both site and new sons. Under site documentary collection, you have DP, which is documents against payment. Under use sons, you have DEA, which is documents against acceptance. In our next video, we'll be looking at an overview of how a site letter of credit works.

Methods of Payment in International Trade for Export & Import (2020)

Tradelinks Resources

Methods of Payment in International Trade

Billy, from Training Resources, has 25 years of experience in training on letters of credit and international trade.

He is now sharing his knowledge through online videos, starting with the methods of payment in international trade.

The four methods of payment discussed are open account, advance payment, documentary collection, and documentary credit.

The open account method allows importers to receive goods before making payment, posing no risk to them.

The timing of the payment is determined by the sales contract, placing the risk on the exporter who relies on the importer for payment.

Trust between the exporter and importer is crucial for this payment method to work effectively.

The Advance Payment Method in International Trade

The advance payment method involves the importer paying the exporter before the shipment of goods.

This approach eliminates risk for the exporter, as they receive payment first.

However, it places the burden of trust on the importer, who must rely on the exporter to fulfill the order.

Resolving Trust Issues in International Trade

In international trade, the importer and exporter often have a lack of trust, leading to conflicting payment terms.

The bank offers two methods of payment to resolve this issue: documentary collections and documentary credit.

Documentary collections include two types: documents against payment (DP) and documents against acceptance (DEA).