Method |
Usual Time of Payment |
Goods Available To Buyer |
Risk
to Seller |
Risk to Buyer |
Comments |
| CASH IN ADVANCE |
Before shipment |
After payment |
None |
Complete. Relies on seller to ship exactly the goods expected, as quoted and ordered |
Seller's goods must be special in one way or another, or special circumstances prevail over normal trade practices (e.g., goods manufactured to buyer-only specification). |
LETTER OF CREDIT (L/C)
(See next two items.) |
|
|
Commerical Invoice must match the L/C exactly. Dates must be carefully headed. "Stale" documents are unacceptable for collection. |
|
Letters of Credit require total accuracy in conforming to terms, conditions, and documentaion. Consult your United Shipping Associate member for determining feasibility of terms and conditions. |
| CONFIRED IRREVOCABLE CREDIT |
After shipment is made, documents presented to the bank. |
After payment |
Gives the seller a double assurance of payments. Depends on the terms of the letter of credit. |
Assures shipment is made but relies on exporter to ship goods as described in documents. Terms may be negotiated prior to L/C agreement, alleviating buyer's degree of risk. |
The inclusion of a second assurance of payment (usually a U.S. Bank) prevents surprises, and adds assurance that issuing bank has been deemed acceptable by confirming bank. Adds cost and an additional requirement to seller. |
| UNCONFIRMED IRREVOCABLE CREDIT |
Same as above |
|
Drafts, by design, should contain terms and conditions mutually agreed upon. |
|
A draft may be written with virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions), consult with your banker and freight forwarder to determine the most desirable means of doing business in a given country. |
| SIGHT DRAFT (with documents against acceptance) |
On presentation of draft to buyer. |
After payment to buyer's 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. Payble upon presentation of documents. |
| TIME DRAFTS (with documents against acceptance) |
On maturity of the draft |
Before payment, after acceptance |
Relies on buyer to honor draft upon presentation. |
Assures shipment but not content. Time of maturity allows for adjustments, if agreed to by seller. |
Payable based upon the acceptance of an obligation to pay the seller at a specified time. Although a time draft has more collection leverage than an invoice, it remains only a promissory note, with conditions. |
| ACCOUNT |
As agreed, usually by invoice |
Before payment |
Relies completely on buyer to pay account as agreed |
None |
All terms of payment, including extra charges and terms should be mutually understood and agreed upon prior to account initiation. Companies conducting ongoing business are candidates foraccount terms of payment. Seller must measure not only buyer's credit reliability but the country's as well. |
Please take note that we endeavor to report accurate information and as such we obtain same from sources which we believe are reliable; however, we cannot guarantee its accuracy. Any reliance you may place on the accuracy of this information or the validity of our opinion is at the reader’s own risk. All information is given in good faith, but without guarantee.
