What are the advantages and disadvantages of foreign trade payment methods？
The following payment methods are active in the forefront of many international trade payment methods. They are remittance, letter of credit, collection, Western Union, and credit sales.
01Remittance
This payment method, as its name suggests, is the so-called remittance payment form, which mainly includes three types: wire transfer, letter transfer and draft transfer.
Telegraphic transfer, the foreign name is "Telegraphic Transfer", or "T/T" for short. The operation process is roughly divided into the following steps: the remitter deposits the money to the bank, and then the remittance bank transfers the money to the bank in the form of telegram or telex The remittance bank, and the beneficiary then withdraws a certain amount of payment to the remittance bank.
Mail Transfer, whose foreign name is "Mail Transfer", is abbreviated as "M/T". Mail Transfer is essentially a relatively common method of exchange settlement. The operation process is roughly divided into the following steps: The remitter submits an application and provides certain The remittance bank will forward the letter of authorization to the remittance bank, and the beneficiary will obtain a certain amount of payment from which remittance bank.
Draft, the foreign trade name is "Demand Draft", abbreviated as "D/D", and its operation process is mainly as follows: the remitter purchases the draft at the local bank, sends it to the beneficiary, and then receives it. The payer can withdraw money from the designated bank by virtue of the money order received.
advantages: convenient, fast, flexible, the simplest, the least intermediate procedure, and the most direct way.
Disadvantages: commercial credit, poor security
If it is prepaid, then for the importer, there is a risk that the exporter will not deliver;
If payment is made after delivery, then the exporter has the risk that the importer will not pay after delivery;
Therefore, remittance is suitable for small-amount transactions (affordable), or if the buyer and seller have a solid foundation for cooperation, there will be no non-delivery or non-payment.
02letter of credit
The foreign name is "Letter of Credit", abbreviated as "L/C". The payment method of letter of credit is guaranteed by the bank, and at the same time, the documents that meet the relevant provisions of the letter of credit are used as the settlement center. Therefore, the international trade payment method of letter of credit is widely used in the practice of international trade settlement due to its high security.
Moreover, because the letter of credit is simply a "real gold and silver" existence, if the seller needs a certain amount of loan as a capital turnover operation, it is entirely possible to use the letter of credit as a collateral to obtain a certain amount of money from the bank.
advantages: bank credit, relatively safe
When a letter of credit is used for settlement, the beneficiary (exporter)'s collection is guaranteed, especially when the exporter does not know the importer very well, and the advantage of the letter of credit is more significant when the importing country has foreign exchange control.
Disadvantages: complicated and cumbersome procedures, stricter requirements on documents, and higher bank fees.
Document review and other links need to be more technical, increase business costs, and occupy buyer’s funds. At least four roles are involved: letter of credit applicant, issuing bank, advising bank, and beneficiary of letter of credit.
Fraud is prone to occur. Since the letter of credit is a self-sufficient document, the relevant bank character only deals with the characteristics of the documents, and there are false bills.
03collection
Collection (Collection) mainly includes two types: Documents against Payment (D/P) and Documents against Acceptance (D/A).
D/P is a document against payment. After we ship the goods, we prepare our negotiation documents and submit the documents to the customer's bank through our bank. The customer bank reminds the customer that the documents have arrived, and the bank submits the documents after the customer pays.
D/A is the document against acceptance, which is also delivered to the customer's bank through our bank. The difference is that the customer only needs to accept our documents and then they can take the original documents and pay after the due date.
Advantages: low cost, simple operation, the buyer is more convenient in capital, and improve the way of export competition.
Disadvantages: poor security, high risk
Because the exporter delivers the goods first, if the importer refuses to pay, even if the property rights documents are still in the hands of the exporter, the goods can be detained in the port of the other party and the backlog and the freight and bank charges for returning to the country are not small losses.
If the market changes or the buyer goes bankrupt due to poor management, the importer may not want the goods, and the exporter may not receive the payment.
Although the operation of D/P and D/A is much simpler than that of a letter of credit, and the fee is less than the fee of an advising bank, the bank does not bear any risks and responsibilities in the collection process. Collection is suitable for buyers and sellers to have a solid foundation for cooperation, and there will be no non-payment.
04Western Union
Western Union, short for Western Union, is the world’s leading express remittance company. It has a history of 150 years. It has the world’s largest and most advanced electronic remittance financial network, with agency outlets in nearly 200 countries around the world. And region.
Advantages: The procedure for Western Union is simple. It uses the world's most advanced electronic technology and a unique global electronic financial network to instantly process remittances in nearly 200 countries and regions around the world. The recipient can receive the remittance in just a few minutes.
Disadvantages: The remittance fee is charged per transaction. The fee for small collections is high, which is higher than that of other remittance methods.
Sometimes buyers don’t believe it. The first time they work with you, they will pay the supplier first, and they will worry that the supplier will not deliver the goods, so they will give up the transaction because of this payment method. If it is a large customer, for us The loss will be great.
05Sale on credit
It refers to a payment method in which the exporter directly delivers the property right certificate and related documents to the importer after the goods are shipped, and then collects the payment from the importer after a certain period of time. It can be understood as "sale on credit."
Advantages: Credit sales can stimulate purchasing power, improve the competitiveness of sellers, stabilize customers, reduce corporate inventory, and ease the pressure of capital turnover.
Disadvantages: Credit sales are the riskiest of all payment methods. After all, the goods are shipped first and all the documents are delivered. As far as the exporter is concerned, any protection is lost. Once the customer defaults, all problems will be borne by the exporter.
In the practice of international trade settlement, we must choose a scientific and reasonable payment settlement method based on the actual international trade development environment and actual conditions, so as to ensure the effectiveness of the payment for goods and the realization of the interests of both parties' transactions.
