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. For the record, that caution is not a demonstration of being anti-global or a show of prejudice against business people from other countries; we advise caution because it is so much more difficult to negotiate, arbitrate or pursue legal action across international borders. It is much smarter to avoid a payment problem than be faced with solving a payment problem.

There are several widely used methods for international payment. Below we have provided a chart that summarises the major payment methods along with risks and benefits.

Method Usual Time of Payment Goods Available to Buyer Risk to Exporter Risk to Importer
Cash in Advance Before shipment After payment None Completely relies on exporter to ship goods as ordered.
Letter of Credit / Confirmed / Sight When shipment is made After payment Credit Risk with Confirming Bank and Documentary Risk. Completely relies on exporter to ship goods as ordered.
Letter of Credit / Confirmed / Time On maturity of draft Before payment Credit Risk with Confirming Bank and Documentary Risk. Completely relies on exporter to ship goods as ordered.
Letter of Credit / Unconfirmed / Sight When shipment is made Before payment Credit risk with Issuing Bank and Documentary Risk. Is assured shipment made but relies on exporter to ship goods described in documents.
Letter of Credit / Unconfirmed / Time of draft On maturity Before payment Credit risk with Issuing Bank and Documentary Risk. Is assured shipment made but relies on exporter to ship goods described in documents.
Sight draft, documents against payment On presentation of draft to buyer often a verbal notification receipt by the collecting to the buyer After payment Disposition of goods if shipment not accepted. Involves many side risks such as exchange availability. Is assured shipment made but relies on exporter to ship goods described in documents unless he can inspect goods before payment.
Time draft, documents against acceptance On maturity of draft Before payment Disposition of goods if shipment not accepted. Relies on buyer to pay draft at maturity. Is assured shipment made but relies on exporter to ship goods described in documents unless he can inspect goods before payment.
Open account As agreed Before payment Relies completely on buyer to pay his account as agreed upon. None

In future articles we will discuss each of these payment mechanisms in more detail so that you can select the transaction method that best meets your needs. We will also include use of the escrow account, an important option for eBay sellers.

Please note that if you are placing an initial sample order, you should confine that order to the smallest amount required to evaluate the supplier and you should expect to pay in advance since you and the supplier do not yet have a relationship and small quantities are not worth the paperwork involved in one of the more cautionary approaches.