Terms of Trade - Global supply Chain Management Terms of...

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Global supply Chain Management Terms of Payment SCM 475
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Characteristics of International Payments Risks in International Trade Different Methods of Payment Methods of Payment as a Marketing Tool
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n Characteristics of International Payments Credit information  – It is much harder to find credit information  on a person in a foreign country.  Lack of personal contact  – Due to the different physical  locations, communication is typically not done face-to-face. This  can make it hard to get to know a person, which is particularly  important is certain cultures. Collections are difficult and expensive  – If a customer fails to  pay it is difficult and expensive to collect on the past due account. 
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n Characteristics of International Payment Issues No easy legal recourse  – Due to the nature of international  transactions, there is no single court that has direct jurisprudence  over an international trade dispute between an exporter and an  importer. Because of all of these issues, a climate of mistrust is often created. Higher litigation costs  – If legal proceedings are required, there  are much more expensive and complicated than for a domestic  case. 
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n Risks in International Trade Exposure The consequence of a loss to a particular firm is the exposure. A  small firm has more exposure in a $50,000 transaction than a  large firm. Risk The risk of non-payment is the probability of not getting paid or of  being paid late, and it dictates the terms of payment chosen by  the exporter. There are commercial and country risks.
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n Risks in International Trade Country Risk Different issues – primarily political and economical – affect the  risk that a country represents. It includes the possibility of not  being paid because a customer’s country does not have the  foreign currency to pay the debt, or the customer is not allowed to  pay. Political unrest, chances of a strike, and variations in interest  and exchange rates should also be taken into account.  Commercial Risk An individual firm may not be able (or willing) to pay for a number of  reasons. It is difficult to find reliable credit information on  international firms.  
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n Terms of Payment
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n Cash in Advance Recommended for doing business in very few countries; those in  which fraud is rampant, where there is political instability, where  the currency is non-convertible or where there is the possibility of  foreign exchange “freezes.” The exporter requests that the customer provide payment in  advance, before shipment of the goods can take place. This method 
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