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Popular payment methods in international trading

A table of the most popular ways to make and receive payment in international trade.

Popular payment methods

There are many ways to make and receive payment in international trade. Due to the physical distances between buyer and seller, and the fact that the transaction may have taken place without the two parties actually meeting, minimizing exposure to risk is on the minds of both parties. The buyer wants to make sure they receive their order in acceptable condition and on time, and the seller needs to know they will get paid for it. Below is a table of the most popular payment methods for trade, according to Alibaba.com member research:

Payment	Details	Allocation of Risk
TT or Cash Advance	T/T is the easiest payment from and is typically used when samples or small quantity shipments are transported by air. T/T is also used between buyers and sellers who have already established a mutual trust, as this negates the risks associated with this, the fastest and cheapest form of payment. Documents like air waybills, commercial invoices and packing lists will be sent to you along with the shipment in the same aircraft. As soon as the shipment arrives, you, with documentation, can clear the customs and pick up the goods. Shipping happens only after money is safely in seller's ****. It usually takes 3-4 days for such a wire transfer anywhere in the world.	100% buyer risk
Letter of Credit (L/C)	The L/C is a guarantee, given by the buyer's bank, that they will pay for the goods exported, provided that the exporter can provide a given set of documents in accordance with clauses specified in the L/C and in a timely manner. The technical term for letter of credit is "Documentary Credit." Letters of credit deal in documents, not goods. Thus, the process works both in favor of both the buyer and the seller. Simply put, a letter of credit is a letter written by the importer's bank to the exporter. It verifies that the payment will be guaranteed when the bank is presented with concrete documents (bills of lading and freight documents). Most letters of credit are "irrevocable" once the importer has had them sent, which means it cannot be changed unless both the buyer and seller agree. Click here to see a letter of credit flow diagram	Evenly shared
Escrow	Escrow is a legal arrangement (and most commonly a payment arrangement) whereby money is delivered to a third party (called an escrow agent) to be held in trust (“in escrow”) pending the fulfillment of condition(s) in a contract, whereupon the escrow agent will deliver the payment to the proper recipient. Typically, escrow is used when the Buyer and Seller are unknown to each other. In an international trade context, after the Buyer and Seller have agreed to the transaction, the buyer puts the payment in escrow by paying the escrow agent, which both parties have agreed to use. The seller sends the shipment and upon acceptance by the buyer, the escrow agent releases the payment to the seller.	Evenly shared
Document Against Payment/Bill of Exchange (D/P)	The exporter ships the goods, and then gives the documents (including the bill of lading necessary to claim the goods at the foreign port) to his bank, which will forward them to a bank in the buyer's country, along with instructions on how to collect the money from the buyer. When the foreign bank receives the documents, they will contact the buyer and provide documents to the buyer only when the buyer pays. Click here to see an example of D/P flow diagram	Mainly with supplier
Open Account	Opposite situation to T/T: The exporter receives payment only after the buyer has received and inspected the goods.	100% seller risk

Related Comments

Re: Re:Popular payment methods in international trading
by joe joesph on 28 Aug 2009 17:01
from the buyer view, ask the seller if he, or she dealt with any business in your country, and call them and find out about that company.

Re: Re:Popular payment methods in international trading
by mrsbelindabmc on 26 Oct 2009 07:18
THIS IS A SCAM AND THE CHECK WILL TURN OUT TOB BE NO GOOD. IF YOU HAVE NOT SENT MONEY DO NOT SEND ANY IGNORE WRITE THIS PERSON OFF AS A BAD CONTACT.GOOD LUCK

Re: Popular payment methods in international trading
by Madd on 07 Dec 2009 03:40
http://img.alibaba.com/images/eng/style/icon/emoticons_rage.gif Your website doesn't show in BOLD these secure payment options, it should be much larger to protect buyers from fraudulent activity. There is a lot of fraud on this site - its more like Alibaba and the 40 million thieves!!!

Tt (telegraphic transfer), * bill etc. vs. lc (letter of credit)
Author: Catalyst

Back to back letters of credit
Author: Catalyst
The original LC and the one issued against it are independent. See how it works.

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