There are many types of foreign trade payment methods, and the most common ones are as follows:
1. Remittance type
Telegraphic Transfer (T/T)
Operation method: This is a commonly used foreign trade payment method. The buyer directly remits the payment to the bank account designated by the seller through electronic transfer payment through the bank. It can be divided into pre-T/T and post-T/T. Pre-T/T means that after the contract is signed, a part of the deposit (usually 30%) is paid first, and the payment is notified after the production is completed. After the balance is paid, the goods are shipped and the documents are delivered; post-T/T means that the goods are shipped first, and the buyer pays after receiving the goods. Pre-T/T appears relatively more in European and American countries because local customers are in a good reputation environment and trust others more.
Advantages and disadvantages: The advantages are simple operation, lower cost than letters of credit, and less bank deductions, generally tens of dollars; the disadvantage is that it depends entirely on the customer's reputation. If it is post-T/T, the seller may face the risk of not receiving the payment. However, the T/T deposit ratio can be determined through negotiation, and the minimum should be enough to send and drag the goods back to reduce risks.
Western Union
Operation method: It is a relatively simple and convenient payment method. The seller only needs to tell the customer his name (pinyin) and address. After the customer pays, he will be informed of a control code or password. The seller can go to the post office to withdraw the money with his ID card. It is best to get the customer's payment receipt.
Advantages and disadvantages: The advantage is that it is simple and convenient; the disadvantage is that there may be a certain handling fee, and it is usually suitable for the payment of small amounts.
2. Letter of Credit (L/C)
Operation method
Letter of credit is currently the most commonly used payment method in international trade. It can be regarded as a contract guaranteed by a bank. The issuer generally applies to the bank for the opening of a letter of credit according to the contract, or pays the bank a proportion of the deposit and a payment redemption bill. As long as the seller complies with the contract one by one and provides the corresponding documents to the bank, the bank must pay. In addition, a reliable letter of credit can also be used as collateral for the seller to go to the bank for a letter of credit package loan to facilitate capital turnover.
Advantages and Disadvantages
The advantage is that it is very safe in theory, and the collection is guaranteed by the bank. If the documents are well done, it is more reliable than T/T; the disadvantage is that the operation is relatively complicated, the bank charges sometimes up to hundreds of dollars, and the buyer needs to pay the letter of credit fee. At the same time, if the bank's credit is not good, or in a country with strict foreign exchange controls (such as India), the letter of credit risk is relatively high. In addition, once a discrepancy occurs, the customer can refuse to pay, and the letter of credit must be modified at this time.
3. Collection
Document against Payment (D/P)
Document at Sight (D/P at Sight)
Operation method: The exporter issues a sight bill, and the collecting bank presents it to the importer. The importer must pay after seeing the bill. When the payment is paid, the importer obtains the shipping documents.
Advantages and Disadvantages: For the seller, it can guarantee the safety of the payment to a certain extent, because the importer can only get the documents after payment; but if the importer refuses to pay, the goods may face problems such as detention and return.
D/P after sight or after date
Operation method: The exporter issues a forward bill of exchange, which is presented by the collecting bank to the importer. After the importer accepts the bill of exchange, the importer pays the bill on or before the due date of the bill of exchange.
Advantages and disadvantages: The importer is given a certain payment period, but the seller's payment time is correspondingly extended, and there is a risk that the importer will refuse to pay when the bill is due.
Documents against acceptance (D/A)
Operation method: Under the documentary collection method, the exporter (or the collecting bank) delivers documents to the importer on the condition of acceptance, that is, the importer can obtain the shipping documents after accepting the bill of exchange, and pay when the bill of exchange expires.
Advantages and disadvantages: It is beneficial to the importer, who can obtain the goods in advance for sale; but it is more risky for the seller, because if the importer fails to pay after acceptance, the seller may lose both money and goods.
4. Online payment
Third-party payment platform (such as PayPal, etc.)
Operation method: PayPal is a world-renowned online payment platform. Users register an account with an email address on its website and link it with their bank card or credit card. The seller informs the customer of the registered email account, and the customer can pay. In addition, there are Alipay/WeChat Pay, etc., which are also recognized internationally. These payment methods can be completed directly online, with the guarantee of third-party payment companies, and consumers can refuse to pay.
Advantages and disadvantages: The advantages are fast and convenient, and can protect the interests of consumers; the disadvantages are relatively increased risks, mainly small-amount collection, and are often used for online earning and foreign trade retail small-amount collection.
Electronic account payment
Operation method: Both buyers and sellers need to register electronic accounts to realize direct transfers between electronic accounts, similar to transactions between Alipay and Alipay.
Advantages and disadvantages: The operation is relatively convenient, but there may be electronic account security risks and compatibility issues between different electronic account systems.
International credit card payment
Operation method: Collection is realized through the payment channel provided by a third-party credit card payment company.
Advantages and disadvantages: It can be used worldwide, is convenient and fast, and can improve the customer's shopping experience; but there may be risks such as credit card fraud, and some payment companies will charge a certain percentage of handling fees.
5. Other methods
Prepayment
Operation method: The buyer pays all or part of the payment in advance before delivery.
Advantages and disadvantages: The advantage is that the seller can obtain funds and reduce their own risks; the disadvantage is that the buyer may doubt the seller's reputation and the quality of the goods3.
Guaranteed payment
Operation method: The buyer needs to pay the payment to the guarantee agency, and the guarantee agency will guarantee payment to the seller.
Advantages and disadvantages: The advantage is that the seller can obtain financial security; the disadvantage is that the buyer needs to pay the guarantee fee
