Our series of articles on international payment methods has discussed the major payment approaches in use today including letters of credit, documentary drafts, escrow and cash in advance. Our final article in this series discusses several less common methods of payment that may have value in your business.

The documentary draft, like the letter of credit, is used to protect the interests of both buyer and seller. Both methods require that payment be made based on the presentation of documents transferring ownership of goods and documents giving evidence that specific steps have been taken such as shipping, obtaining necessary certificates and so on.

A Letter of Credit is a standard tool for international transactions. A letter of credit (LOC) is issued by a foreign bank (representing the buyer) and confirmed by a corresponding bank usually in the country of the seller. The LOC is the buyer's bank's commitment to pay for goods sold.

Payment made by cash in advance is ideal if you are the seller. Before you release your products to the buyer, the buyer pays you. However, if you are the buyer, cash in advance puts you at significant risk. You have paid before you have any product in hand. If the supplier does not follow through, you have lost your money.

The escrow account is less often used in international trading because there is a presumtion that the escrow agent is known and trusted by both parties, a situation that can't always be achieved across international borders.

As your sourcing efforts expand internationally, you will discover that the typical credit card transaction or invoice/payment within 30 days arrangement is less common. In fact, if you are not only buying internationally but also selling internationally, you should plan to be much more cautious in extending credit than you may be when dealing within your own country.

You may still be using paper invoices and doing so for various reasons. Perhaps you're unsure of the viability of electronic invoicing? Or maybe you don't trust cyberspace? It may be that you're intimidated by the changeover or feel that it will take too much time and effort? The fact is paperless invoicing is easy, convenient and inexpensive.

Whether you're a supplier or a buyer, it's essential that when an electronic payment is made it reaches its destination in a timely manner, and securely.