The buyer establishes credit and pays his or her bank to render this service. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents. Letters of credit (LCs) are one of the most secure instruments available to international traders. Thus, exporters who insist on this payment method as their sole manner of doing business may lose to competitors who offer more attractive payment terms. Foreign buyers are also concerned that the goods may not be sent if payment is made in advance. However, requiring payment in advance is the least attractive option for the buyer, because it creates unfavorable cash flow. With the advancement of the Internet, escrow services are becoming another cash-in-advance option for small export transactions. For international sales, wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters. With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. Therefore, importers want to receive the goods as soon as possible but to delay payment as long as possible, preferably until after the goods are resold to generate enough income to pay the exporter.For importers, any payment is a donation until the goods are received.Therefore, exporters want to receive payment as soon as possible, preferably as soon as an order is placed or before the goods are sent to the importer. ![]()
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