Methods of payment

Today a modem businessman must be very educated in all spheres of market trade. So the knowledge of the main methods of payment under the different contracts becomes very necessary.

There are a lot of methods and manners of payment in private and international trade. They are classified by the numerous features and signs, for example:

1) cash payment; cashless payment

2) full payment; separate payment (payment by installments)

3) advance payment; payment after executing a transaction

4) payment by credit; immediate payment for the full value of the contract.

There are also different special kinds of export-import prices which are used in international trade. These prices depend on the terms of delivery, for example, sea delivery of the goods from the Sellers to the Buyers. If the terms are more attractive to the Buyers then the price is higher and the other way round. Under this sign of prices here are the following kinds of export prices:

1) FAS (free alongside ship) is the lowest;

2) FOB (free on board);

3) CAP (cost and freight);

4) CIF (cost, insurance, freight) is the highest in this group. The main methods of payment are: cash payment and payment on a credit basis. Cash payment is divided into several methods:

1) By cheque:

as a cheque is payable in the country of origin it is not very often practiced in international business. That's why cheques are usually used for payment in home trade.

2) By telegraphic or telex transfers or post(mail):

this payment is made in the Buyers' letter of instruction and the terms of the Contract. Actually, this method of cash payment may sometimes take several months which is naturally very disadvantageous to the Sellers. Why?

Firstly, if the inflation in economy is considerable. Secondly, a large period of time may cause different price transgresses on the part of the Buyers and also on the third part. Moreover, any delay in payment may cause any other risks, even the breakdown of the Contract.

3) By a Letter of Credit (or just: by credit)

A L/C is the most frequently used method of cash payment because it's advantageous and secure both to the Exporters and to the Importers though it is more expensive than payment by transfer.

If overcomes the gap between delivery and payment and gives protection to the Sellers by making the money available for them on the fulfillment of the transaction and to the Buyers because they know that payment will only be made against shipping documents giving them the title for the goods. This method is often used in dealings with developing countries.

4) By payment for collection:

this payment doesn't give any advantages to the Exporters because it doesn't give any guarantee that they will receive payment on time or at all. That is why the Exporter usually requires that the Importer present a guarantee of a first class bank that payment will be effected in due time.

There is also a long period of time between the delivery of the goods and actual payment. But it is advantageous to the Importer because there is no need to pay big sums of money before actually receiving the goods.

But in modern business transactions the following manners of payment are often applied: