Overview

Trade Payment Options

Importers and exporters use a range of trade financing payment options.

Trade Payment Options

Importers and exporters use a range of trade financing payment options. The more attractive the payment option is for the exporter, the less attractive it may be for the importer or vice versa but trading partners should aim for arrangements that are mutually beneficial.

An importing or exporting business should consult with its bank to consider the range of trade financing options available and to find a solution that fits its needs.

 

Trade Finance Options

 

 

 

 

 

 

 

 

 

 

 

 

The main trade finance options include open account transactions, collections, letters of credit and cash-in-advance.  While open account is the most secure for importers, offering free access to short-term trade credit, it is is risky for exporters as they are not assured of payment.  Similarly, cash-in-advance is most secure for exporters but importers must accept the risk that goods or services may not be delivered or meet the standards or requirements expected.

Bills of Exchange Financing

The bill of exchange can be used to access bank credit. A bill of exchange or foreign bill negotiation is an advance from the bank for up to 100% of the face value of the bill of exchange. The bank recovers the proceeds from the sale from the importer and charges interest on the credit provided to the exporter. The negotiation may be with recourse (where the exporter must refund the bank if the buyer does not pay up) or without recourse (where the bank accepts the risk of non-payment.

Discounting bills of exchange is similar to negotiation, except that the bill of exchange be time rather than sight and be accepted by the importer. The exporter receives the value of the payment net of a discount charge or interest rate.