International Terms Payments
Method | Usual Time of Payment | Goods available to Buyer | Risk to Seller | Risk of Buyer | Comments |
CASH IN ADVANCE | Before | After payment. | None. | Complete. Relies on seller to ship exactly | Seller’s goods must be special in one |
LETTER OF | Commercial Invoice | Letters of Credit require total accuracy | |||
CONFIRMED | After shipment | After payment. | Gives the seller a | Assures shipment is | The inclusion of a second assurance of |
UNCONFIRMED | Same as above. | Same as above. | Seller has single bank assurance of payment and seller remains dependent on foreign bank. Seller should contact his banker to determine whether the issuing bank has sufficient assets to cover the amount. | Same as above. | Credit can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open account with buyer’s bank as collection agent. Foreign bank may have problems making payment in sum or timeliness. |
DRAFTS (See next two items) | Remittance time from buyer’s bank | Drafts, by design, should contain terms | A draft may be written with virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions), consult with (terms and conditions), consult with determine the most desirable means of doing business in a given country | ||
SIGHT DRAFT | On presentation of draft to buyer | After payment to buyers bank. | If draft not honored goods must be returned or resold. Storage, handling and return freight expenses may be incurred. | Assures shipment but not content, unless inspection or check-in is allowed before payment | A draft can be a collection instrument used to exchange possession and title to goods for payment. Seller is essentially drawing a check against the bank account of the buyer. Buyer’s Bank must have pre-approval or seek approval of the buyer prior to honoring the check. Payable upon presentation of documents |