Page 33 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes International Cheque and such payment shall be before the actual transfer of ownership of
the goods to the importer.
4. Cash-in-Advance through wire transfer, is one of the safest, most attractive and favourable
methods of international trading for exporters and as a result; the least secure and
unattractive option for importers.

5. The exporter should avoid the Cash-in-Advance method through the international cheque
as time required in international collection of cheques is four to six weeks. This may
frustrate the original intention of the exporter of realizing payment in advance and using
the money for other purposes.
6. Trading under such mode of payment may result in losing important buyers to competitors
as they may offer more favourable and attractive option of payment to importer in today’s
globally competitive market.

7. Importers are usually not interested in such mode of payments as it reduces their chances
of greater cash utilization under other modes of payment, such as open account and
documents against acceptance. The importer will use this method only in cases of dire
requirement of goods and if the exporter has monopoly on that market.

Note Cash-in-Advance method is useful in case of high risk trade relationship and is
ideal for teleshopping and Internet-based business.
2.1.2 Letters of Credit

In today’s scenario, the letters of credit (LCs) are considered to be among the safest and most
secure mode for payment available to the exporter and the importer for trade deals. A Letter of
Credit is a commitment by the L/C issuing bank on behalf of the importer that payment will be
made to the exporter subject to the fulfilment of the terms and conditions that have been agreed
upon between the exporter and importer in the letter of credit. The exporter has to submit the
trade documents as agreed in Letter of Credit through his collecting bank to issuing bank for the
fulfilment of contract of payments. The issuing bank, upon verification of documents, if satisfied
with the documents as submitted by exporter for fulfilment of terms and conditions, is bound to
release the payment to the exporter.
The importer has to pay some fees with a request to issue a letter of credit in favour of the
exporter. Letter of credit is a reliable and secure mode of payments in case the exporter is unable
Figure 2.2: Process of Execution for Payment under L/C Mode

Source: International Trade Operations by Dr. Ram Singh

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