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Today: Sep 27, 2020
Home The important modules for the international trade
What should we consider before doing the international biz?
  • Term of payment
  • Incoterm (Delivery Term)
Generally, there are four terms of payment agreed between sellers and buyers, namely advance payment, open account, letter of credit and bill for collection.

 

Advance payment is buyers must pay or transfer money to sellers before the goods are sent to the buyers. This term is normally used for a new transaction in case the sellers and the buyers have no any biz before, so it is safe for the sellers. But the buyers would take a risk.

Open Account is the credit term gave to the buyers and the credit would be 15days, 30days, 60days or whatever as the agreement between the sellers and the buyers. This term would be considered after the period of biz transaction making the sellers rely on the buyers’ credit.

Letter of Credit (L/C) is a document issued by a buyer’s banker to certify a seller’s banker that the payment would be paid under the reliability of buyer’s bank. The buyer’s bank issuing the L/C is called “Opening or Issuing Bank”, meanwhile the seller’s bank receiving and advising the sellers of L/C issuance is called “Advising Bank”. The opening bank would get the bank commission ¼ or 0.25% of L/C amount per L/C period (3month or 90days after the issue date).

 

Bill for Collection (B/C) is an agreement between sellers and buyers that the sellers would present shipping documents including the bill of exchange or draft to their bankers to collect the payment from buyers through the buyers’ bankers. There are two kinds of B/C, Documents Against Payment (D/P) and Documents Against Acceptance (D/A).

 

-D/P is the buyers have to pay their bank for the goods value as per the draft once they take the shipping documents from their banker for further import customs clearance process.

 

- D/A is the buyers just sign the banking document to acknowledge and commit the payment in due as agreed between the sellers and the buyers through bank.

 

** The sellers’ bank is called “Collecting Bank” and the buyers’ bank is called “Remitting Bank”.

 

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