Export payment methods: how to choose?

Those who want to leverage their business beyond the domestic market, but do not have much knowledge about foreign trade, should find out about how the processes for exporting goods works. Among other factors, knowing export payment methods is fundamental for international negotiation.

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Therefore, in this content, we will show you the different types of export payment methods. In the course of the following topics, you will learn about the main risks, responsibilities, rights, duties and particularities that each category offers. Continue reading and check it out!

What are the export payment methods?

Among the available options, there are alternatives that favour agility and reduced bureaucracy, but, on the other hand, do not provide guarantees for both parties. Other payment methods, on the other hand, have bureaucratic processes, but protect both sides of the negotiation.

See below what are the main export payment methods!

Anticipated Payment

Undoubtedly, this is one of the most advantageous payment methods for the exporter, since the importer must pay for the goods before they are shipped. That is, the shipment of cargo is only carried out upon receipt of the money, which also implies conservation of the exchange rate of the day.

In international negotiation, the importer will assume the risk of delay, loss or even non-delivery of the goods, which emphasises the importance of negotiations always being based on credibility and trust.

In practice, the importer will make the payment through a banking institution in his country, while the exporter will receive the remittance through his respective bank, assuming responsibility for the exchange contract and taking charge of the dispatch of the cargo and the necessary documentation.

Direct remittance of documents (no withdrawal)

For those who do not like to deal with bureaucracy and appreciate the agility in the export process, this is the most suitable way, as it works more directly, as stated in the term itself. In short, the exporter sends the cargo and the necessary documents to the importer even before receiving the money, an inverted role in relation to the modality mentioned above.

In addition, in the direct remittance of documents, there are no banking institutions intermediating the operation. This can place the exporter in a position vulnerable to risks, since their only guarantee is the payment commitment established in the negotiation. That is why it is so important to establish a relationship based on trust between the parties.

Document collection

This is a method that provides much more security for both exporter and importer, however, in terms of bureaucracy, it is more complex and time-consuming.

In this format, first, the exporter must ship the cargo and send the customs clearance and shipment documentation through an intermediary banking institution in charge of reviewing and checking the documents to later submit them to the importer’s bank. Finally, the importer’s banking institution must carry out the same analysis procedure to, only then, pass on to the final buyer.

The documentation made available by the exporter will only be available to the importer upon payment of the commercial invoice, which is defined in the act of international negotiation. The importer will be able to negotiate payment in cash or in instalments and, after settling the payment, he will receive all the documents to carry out the import customs clearance and the receipt of the cargo.

This third-party bank intermediation process increases costs, but ensures greater formality and security for both parties of the negotiation. However, it is worth remembering that, even if the importer appears at the bank, signs the withdrawal and withdraws the documentation, the exporter runs the risk that payment deadlines are not met. Therefore, this payment method has an intermediate degree of security.

Letter of credit or L/C

Last but not least, the letter of credit is an intermediary alternative, which aims to guarantee security for both parties involved in the international negotiation and, therefore, is one of the most chosen payment methods in foreign trade.

Basically, the importer asks the bank to issue a letter of credit, in which all conditions of the negotiation are established, such as the beneficiary (exporter), purchase price, payment terms and validity, invoices, description of the goods, certificates, destination and loading points and all documents involved in the export process.

From that moment on, the letter of credit assumes the role of guarantor of the execution of payments that the importer must make, since the latter is assuming the commitment with its banking institution. Thus, the exporter also assumes to comply with the terms and obligations stipulated in the negotiation and in the letter of credit, which serves as a guarantee for the importer.

Methods as a key part of your international negotiation

In the context of foreign trade, the method of payment plays a fundamental role not only in the way in which financial resources will be transferred, but also directly influences the risks, costs and responsibilities between importer and exporter.

After all, it is based on this aspect that a series of other factors are defined, for example, the way in which the transport will be carried out, the rights and duties assumed and the risks of losses and guarantees. All of these issues are related to decision-making on the export payment, which must be determined at the time of negotiation.

The fact is that, when dealing with foreign trade activities, the entrepreneur relates to different cultures and customs and, therefore, needs to be familiar with certain subjects: “Is it necessary to have a third-party bank to formalise the transaction?”, “Is my commercial partner part of a reputable company?”, “What is the importance of written, gestural and/or verbal contractual validation for the trader?”. “Are transportation routes safe?”.

Given the context, payment methods play a decisive role in international negotiations, as they act as a vote of confidence between the parties, so that both feel comfortable in assuming certain risks, in favour of a profitable and lasting commercial relationship.

As you can see, there are different methods of payment in exports, each one having its positive and negative points, risks and responsibilities. We also show the important role they play in international negotiations.