Conni Joy A.

Comaling October 15, 2021

Group 6 AC 4105

1. Name the different methods of payment acceptable internationally.

 Cash in Advance
 Documentary Credit or Letter of Credit
 Documentary Collections
 Open Account
 Consignment and Trade Finance

2. Describe each method.

 Cash in Advance – Goods are securely paid for by the buyer or importer first
before shipment and ownership is transferred.
 Documentary credit or letter of credit – A promise by the bank to pay an exporter
if all the terms in contract are executed properly. One of the most secured
payment methods.
 Documentary Collection – Exporter instructs bank to forward documents
regarding the sale to the importer’s bank with a request to present them to the
buyer as a request for payment indicating the conditions for it to be released to the
buyer. Importer may obtain possession of goods is he/she possesses the shipping
documents. This method can be done in two ways.
 Open Account – Goods are shipped and delivered before payment is due usually
in 30, 60 or 90.
 Consignment & Trade Finance – Consignment is when payment is sent only to
the exporter when the importer and distributer has sold the goods to the end
customer. Trade finance is when exporter requires an importer to prepay the
goods the goods shipped.

3. Give the procedure on how this payment can be made.

 Cash in Advance
i. Importer purchases goods in an international market through online
or other platforms.
ii. Before the purchase pushes through, the market receives payment
from the importer in advance through wire transfers, credit cards,
escrow services or international cheque.
iii. The purchase then pushes through after payment then shipment is
prepared and ownership is transferred to the importer.
 Documentary credit or letter of credit
i. The contract is negotiated and confirmed then importer applies for
documentary credit with their bank.
ii. The documentary credit is then set up by the issuing bank and the
exporter and exporter’s bank are then notified by the importer’s
bank.
iii. The goods are then shipped.
 iv. Terms of sale as well as documents verifying the shipment are then
provided by the exporter to the exporter’s bank and the exporter’s
forwards the documents to the importer’s issuing bank.
v. The issuing bank then verifies the documents and issues payment to
the exporter’s bank.
vi. The importer then collects the goods.
 Documentary collection
A. Document against payment
i. Contract is negotiated and confirmed then exporter ships goods.
ii. Exporter forwards documents to his/her bank confirming the
transaction.
iii. Exporter’s bank forwards documents to importer’s bank then
requests payment from the importer by presenting the documents.
iv. The importer then pays his/her bank then the payment is transferred
to the exporter’s bank.
v. The exporter’s bank pays the exporter.
B. Document against acceptance
i. Contract is negotiated and confirmed then exporter ships the goods.
ii. Exporter presents transaction documents to their bank.
iii. Exporter’s bank forwards documents to the importer’s bank.
iv. Importer’s bank requests payment by presenting the documents
banks.
v. The importer makes payment, receives the documents and collects
the goods.
vi. The importer’s bank pays the exporter’s bank and the exporter’s
bank pays the exporter.
 Open Account
i. Importer makes an open account purchase from an exporter in the
international market.
ii. The goods along with the necessary documents are then shipped to
the importer who has agreed to pay the exporter’s invoice at a
specified date.
iii. The exporter has trust and confidence that the importer will accept
shipment and would pay at the agreed time and that the importing
country is commercially and politically secure.
 Consignment & Trade Finance
A. Consignment
i. Exporter in the international market comes to an agreement with an
importer on terms and conditions of the transaction.
ii. The goods are then shipped along with the necessary documents to
the importer.
iii. Importer is responsible for the management and sale of the goods.
iv. Importer only obliged to fulfill payment when the goods are sold to
end customers.
B. Trade Finance
 i. Importer’s bank will provide a letter of credit to the exporter to
provide payment and the presentation of necessary documents like
the bill of lading. Note that the bank is only responsible of the
documents.
ii. The exporter then receives the documents stating the specified date
and time on which he/she will be paid for the shipped goods.
iii. The exporter is then paid at a specified date and time.

4. Choose one mode of payment that is best for you and explain.

Cash in Advance is the best mode of payment for me especially in

international stores or even the local ones because it is less hassle on my
part than other modes of payment that could cost more because of other
fees as well as it might take longer than usual. It is also understandable
that sellers will require advance payment since the sale is in an
international platform. Through the use of a credit card, you can access
international stores and make purchases with just a tap of a finger.

5. In the future, what transaction do you want to use that method of payment?

I want to use Cash in Advance in the event that I will open my personal
business since it’s a security in my part that will assure me that I will
really receive payment for the goods that I ship to buyers. Also, I know
within myself that I am a legit seller thus, employing the cash in advance
as my payment method will be understandable among my buyers.