TOPIC:
FINANCING FOREIGN TRADE
Group 19
1. Payment Terms in Foreign Trade
* Four Principle Means:
- Cash - in - advance
With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred.
- Letter of Credit (LC)
Letters of credit (LCs) are one of the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents.
- Drafts
A draft may be written with virtually any term or condition agreeable to both parties. A draft is a check that is drawn on a bank’s funds and guaranteed by the bank that issues it.
- Open account
An open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days.
