Page 29 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation Hitesh Jhanji, Lovely Professional University

Notes Unit 2: Methods of Payment and Incoterms

CONTENTS
Objectives
Introduction

2.1 Methods and Instruments of Payment in International Trade
2.2 Incoterms
2.3 Summary
2.4 Keywords
2.5 Review Questions
2.6 Further Readings

Objectives

After studying this unit, you will be able to:
Describe methods of payment

Describe financing exporters
Explain financing importers
Know instruments of payment
Understand Incoterms

Introduction

For successfully conducting international trade in the today’s competitive international
environment, it has become essential for the exporters to offer attractive terms of sales and
payments to importers in order to woo them against other competitors. One of the major
concerns that an exporter has to take care of is that he has to choose an appropriate payment
method in order to minimize his risks related to the payments of trade transaction. This is
essentially to be done understanding the whole economic environment of importers country,
importer creditworthiness and to certain extent accommodating the needs of the importer.

Table 2.1: Factors to be considered for Choosing Payment Terms

Factor Require Consider Consider
Letter of Documentary Collection Against Open
Credit Payment Account
Type Of the Undetermined Acceptable Excellent
Customer
Relationship New Established Established
Economic Stability Unstable Stable Very Stable
Type of Order Custom Regular Production In Stock
Transaction Size Large Moderate Small
Cash Flow Always Never Never

Source: John Michael Pierobon, How to Succeed in International Business.

24 LOVELY PROFESSIONAL UNIVERSITY