Payment Methods in International Trade
Depending on the degree of trust between the importer and exporter and the risks assumed by the parties, different payment methods are used in international trade. The most commonly used payment methods are as follows:
Cash Payment / Advance Payment / Prepayment / Cash Before Delivery
In this payment method, the importer pays the exporter for the goods before shipment takes place. The exporter does not assume any risk; all risks, such as shipment delays or goods not matching the order, are borne by the importer in this payment method.
Cash Against Goods
In this payment method, the importer pays the exporter for the goods after receiving them. After shipping the goods on behalf of the buyer, the exporter sends the documents representing the goods to the importer, either directly or through a bank on a free delivery basis. This is the payment method in which the exporter assumes the most risk.
Cash Against Documents / Documentary Collections
This payment method allows the exporter to ship the goods in accordance with the sales contract made with the importer and then deliver the shipping documents representing these goods to the importer through a bank in exchange for the collection of the goods' price.
Acceptance Credit
This is a payment method whereby the payment of the goods to be imported is deferred for a certain period after shipment, based on an agreement between the importer and the exporter. In this payment method, there is a bill of exchange/promissory note that guarantees the payment of the goods within a specified period.
- Acceptance Credit Letter of Credit: A payment method that allows for the release of shipping documents in letters of credit opened in accordance with international rules and regulations, following the acceptance of the policy presented with these documents by the importer's bank or correspondent bank, enabling payment of the amounts due on the policy maturity date.
- Documentary Acceptance: A payment method whereby the bank delivers the shipping documents to the importer following the importer's acceptance of the bill of exchange attached to these documents, and the goods' value is paid to the exporter at the maturity date of the bill of exchange.
- Cash Against Goods with Acceptance Credit: A payment method whereby the price of the exported goods is paid at maturity of the bill of exchange after the goods have been delivered to the importer and the bill of exchange has been accepted.
Letter of Credit Payment
The letter of credit payment method involves the importer's bank, acting on the importer's instructions, committing to pay the exporter up to a specified amount and within a specified period, provided that the required conditions are met and the exporter presents the documents relating to the export of the goods. As both the importer and exporter are under the financial guarantee of a bank, the letter of credit payment method offers advantages to both parties.
Bank Payment Obligation (BPO)
Bank Payment Obligation is an irrevocable and independent payment commitment given by a liable bank (the buyer's bank) to a beneficiary bank (the seller's bank), subject to the successful matching of data provided electronically for the transaction between the exporter and importer. It is a new payment method that combines the letter of credit and cash against goods methods.