ITA 403- Week 1-Payment Methods & Decisions.

ITA 403- Week 1-Payment Methods & Decisions. -...

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ITA 403/0101 Meaning : Payment method means the way in which the buyer is paying the seller for the goods or services purchased. Payment method (also known as payment terms, terms of payment) can be an important part of the buyer’s purchase decision. All other things being equal, buyers tend to purchase goods from the seller offering the most favorable terms of payment. Well, what is considered best by the buyer could be the worst for a seller. There are four traditional methods of effecting payment for the international sale of goods and a number of alternatives. In the order of preference they are. Preference Preference Seller Method Buyer 4 Open Account 1 3 Documentary Collection 2 2 Documentary Credit 3 1 Advance Payment 4 As clear from the above chart, Open Account (not to be confused with opening an account with a bank etc.) is the most preferred method for a buyer but it is the least preferred method for a seller. From a seller’s point of view Advance Payment is the most preferred method whereas it is the least preferred method for a buyer. Then there are non traditional payments like (1) consignment method and (2) credit card method. A brief explanation of the traditional method of payment follows. Open Account Open account trade takes place only between trusted trading partners ie. those buyers and sellers who have been trading problem free for a long period of time. Under this method, the exporter gives the importer open credit against a written or understood payment arrangement like a Sales Contract. Exporter ships goods to the importer, send an invoice for the price agreed along with other shipping documents and expect payment within the agreed credit period. This method exposes the exporter to lots of risks. Payments received by exporters under open account terms are usually
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ITA 403- Week 1-Payment Methods & Decisions. -...

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