Choosing a payment arrangement
International trade payment methods allocate risk differently between buyer and seller. Commercial trust, transaction conditions and banking arrangements matter. Discuss the contract and suitable method with qualified financial and legal advisers; this overview is not a financing recommendation.
Advance payment
Under advance payment, the buyer pays before the agreed delivery stage. This changes the balance of commercial risk. The parties should understand the contract, evidence and arrangements if delivery does not proceed as expected.
Letters of credit
A letter of credit involves bank commitments subject to its terms and documentary conditions. Document consistency and deadlines matter. Parties should obtain advice on the specific credit rather than rely on a general description.
Documents against payment
Documentary collection arrangements concern delivery of documents under the agreed banking instructions. They are distinct from a letter of credit and should not be assumed to provide the same payment assurance.
Open account
Open-account arrangements allow payment under agreed terms after delivery or another contractual milestone. Credit exposure, collection arrangements and the counterparty should be considered before agreeing to terms.
Factoring
Factoring arrangements relate to receivables and vary by provider and contract. Costs, recourse, coverage and eligibility require individual review. Keep payment arrangements aligned with the commercial transaction and supporting documents.
