Terms of payment

In business there are many occasions on which people have to deal with money and talk about money.

Payment in foreign trade may be made in cash and on credit. There are different methods of cash payment:

1. By cheque (They are mostly used for payment in home trade).

2. By telegraphic or telex transfer or post. They are made from the Buyer's bank account to the Seller's in accordance with the Buyer's letter of instruction.

3. Ву a letter of credit (L/C). In commercial practice the following types of letters of credit are usually used: irrevocable, confirmed and revolving. An irrevocable L/C cannot be modified or controlled without the agreement of all the parties. A confirmed L/C is an irrevocable L/C, payment under which is guaranteed by a first class bank. A revolving L/C is one under which its value is constantly made up to a given limit after payment for each shipment which saves the charges on multiplied letter of credit.

The letter of credit is the most frequently used method of cash payment because it is profitable and secure both to the Buyer and to the Seller though it is more expensive than payment by transfer. Payment is made against shipping documents.

4. Payment for collection is not widely used because it doesn't give the Seller any guarantee that he will receive payment in time or at all. It is more advantageous to the Buyer because there is no need to withdraw from circulation big sums of money before actually receiving the goods. Most modern business is done on a credit basis which may be:

· by drafts. A draft is an order to pay. It is made out by an exporter and presented to the importer. It is also called a bill of exchange. There are two main types of drafts: sight draft and term draft. A sight draft is a bill which is paid immediately on presentation. A bill to be paid at a later date is called a term draft. There are 30-day, 60-, 90-and 120-day drafts;

· in advance (the Buyer credits the Seller) [For example the contract may stipulate a 10 % or 15 % advance payment, which is profitable to the Sellers]. This method is used when the Buyers are unknown to the Sellers or in case of single transaction;

· on an open account -open account terms are usually granted by the Sellers to the regular buyers or customers in whom the Sellers have complete confidence. Actual payment is made monthly, it is not profitable to the Sellers, but may be good to gain new markets.