The main difference between these payment methods is the level of risk faced by the importer and exporter:
Payment in Advance | Documentary Credit | Documentary Collection | Open Account Payment | |
|---|---|---|---|---|
Bank Charges | Low | High | Medium | Low |
Payment Risk | Exporter has concerns over the ability and willingness of importer to pay | Payment is guaranteed by issuing bank if terms of credit are met | Payment risk unchanged but mitigated by control over goods | Exporter is comfortable with the reliability of the importer to pay |
Country Risk | High Exporter requires payment before shipment | High Exporter requires confirmation from a bank in a low risk country | Medium Exporter mitigates risk by using the banking system to retain control over the goods by holding on to title documents | Low Does not mitigate country risk in any way |
Credit Facilities | Not required | Required | Not required | Not required |
CashFlow | Importer has a good cash position Exporter needs cash as early as possible | Importer wants to delay cash outflow Exporter's cash flow must be able to support the delay | Importer wants to delay cash outflow Exporter's cash flow must be able to support the delay | Importer wants to delay cash outflow Exporter's cash flow must be able to support the delay |
Price | Importer may be able to negotiate a discount | Price may be lower in exchange for added security of bank guarantee | Effect on price depends on collection terms | Importer may pay a premium for supplier credit |
Global Trade Solutions transactions may be subject to credit approval. Other restrictions, including specific country regulations, may apply. Foreign currency exchange rates may apply to certain trade transactions.
Get in touch to learn more about our banking solutions and how we can help you drive your business forward.
