Methods of International Payment

Definition: 

Risk involved in international transactions (will they pay, will they deliver?) can be mitigated through various methods of payment.

• Payment in advance: Where importer pays for goods prior to shipment (most risk for importer; none for exporter)

• Letter of credit: Commitment by importer’s bank to pay upon receipt of goods (for a fee)

• Bill of exchange: Use bank as an intermediary in the transaction. Written order from the seller requesting payment from the buyer at a specific point in time. Bank monitors shipping documents from the seller—once received, the bank seeks payment from buyer.

• Clean Payment: Payment made only upon receipt of goods (higher risk of delayed payment / no payment for exporter, minimal risk for importer).