Methods of Payment in International Trade: In this video, we discussed methods of payment in international trade (Hindi/Urdu) -international payment methods(import-export), mode of payments in Import Export. Subscribe to our channel for more videos.
Mode of payments in Exports and Imports:
The Major ways of making payment for export of goods are:
1. Advance payment
Which is the best method of payment in an export trade? What type of terms of payment can I adopt an Export business?
Under any kind of sales, obviously, advance payment is the best option for payment.
Ok, now the terms of payments are concerned, you are very happy if you get payment in advance. Right? Yes, the 100% safe business in any business, especially in export business, is nothing but receiving the advance payment. However, in this present competitive world, you do not expect advance payment from the buyer in all cases unless your product attracts some specific reasons to pay you to advance payment by your buyer.
2. Letter of credit.( L.C.)
Letter of credit is an assurance given by the buyer’s bank to remit the amount to the seller through seller’s bank on maturity, as per the terms and conditions of the document based on the contractual agreement between buyer and seller. Now in simple words, If LC opened on your name, you will receive amount through the buyer’s bank on the agreed time.
There are various types of letters of credits like Revocable, Irrevocable, Confirmed, Unconfirmed, Clean & Documentary, Fixed, Revolving, Transferable, Back to Back etc. Most common and safe LC is Irrevocable Letter of Credit. I will explain in details about all types of LC in other videos.
3. DP basis - Documents against Payments:
What is DP term of payment? How does DP term of payment work?
DP OR DAP term of payment is one of the terms of payment in international trade.
D.A.P or D/P terms of payment means, Documents Against Payment.
Once cargo shipped out from supplier’s premises, after completing necessary export legal formalities of exporting country, he hands over goods to the carrier who transport to the final destination of a buyer. After delivery of goods, the exporter is issued Bill of Lading (undersea shipment) or Airway Bill (under air shipment) by Carrier or his agent.
Exporter submits all required documents along with Bill of Lading /Airway bill, invoice, packing list, bill of exchange with the bank to send to the buyer through buyer’s bank.
The seller’s bank, once after verification sends these shipping documents to the buyer through buyer’s bank. After receipt of such shipping documents by buyer’s bank notifies buyer on receipt of documents and advise to ‘accept’ the documents by effecting payment of export proceeds. Under a DP terms of payment (DAP terms of payment), the buyer collects original shipping documents from his bank after making necessary payment against the sale of goods.
4. D.A terms means Documents against Acceptance
Payment terms ‘DA’ means Documents against Acceptance.
As per D.A terms, once the shipping documents along with bills of exchange received by the buyer’s bank, the buyer is informed to accept documents from buyer’s bank. The buyer accepts documents by signing bills of exchange sent by the exporter, agreeing to pay the value of goods shipped as per agreed period of time. (say, 30 days from the date of bill of lading, 60 days from the date of bill of lading or 90 days from the date of bill of lading).
Importer receives original shipping documents by ‘accepting’ bill of exchange. He completes import customs clearance procedures with the said original shipping documents and approach carrier to deliver cargo to him after completion of such import customs clearance.
The payment against the sale of goods is effected upon the maturity day mentioned in the bill of exchange.
Documents against Acceptance - Is it safe for the seller?
In payment terms, is DA safe for an Exporter? Does importer make payment on maturity of the contracted period? How reliable DA terms in exports?
As per my opinion, the legal strength on D.A terms is very weak in international legal terms. Ok, if you have a strong business relationship with your buyer, you can ship goods on ‘credit’ basis. A proper study of the buyer’s creditworthiness is a dare need while shipping under D.A.terms.
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