UNIT 1 Methods of Payment in International Trade

Introduction to Methods of payment - Overview - Considerations

Factors to consider (affecting) when choosing a payment method
International Trade Risks: Political - Country - Commercial Risks
Classification of Methods of Payment - Main International Payment Methods
Types of international payment methods - Comparison of methods
Determining (choosing) the right methods of payment - How to select the payment
method and terms
Payment Risks Ladder - Risk diagrams
Clean - Documentary Payments
Parties involved: Banks - Insurance
Money - Banknotes for payment - Money Transfers - Limits on Cash
Regulation
Glossary of Terms

International Trade Management

International Methods of
Financing Payment

Contracts

International transactions are not as stable, secure, transparent, or reliable as domestic transactions
and many things can happen between the time of the sale and the expected time of payment. For
these and other reasons, the seller will always prefer to be paid immediately; either at delivery or
even prior to delivery.
- Buyer/Importer: Prefers that the seller bear the credit risk and wants to make certain that he
receives the goods once he has paid.
- Seller/Exporter: Prefers that the buyer bear the credit risk and wants to make certain he receives
payment for goods shipped.

To succeed in today’s global marketplace and win sales against foreign competitors, exporters must
offer their customers attractive sales terms supported by the appropriate payment methods. Because
getting paid in full and on time is the ultimate goal for each export sale, an appropriate payment
method must be chosen carefully to minimize the payment risk while also accommodating the needs
of the buyer.

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 During or before contract negotiations, you should consider which method in the figure is mutually
desirable for you and your customer.

Different types of international payment methods

When it comes to trading of commercial goods, there is always a certain

Level of risk and trust involved
_________________________________________________________________.
Whether you’re a buyer or seller, you are bound to be exposed to some
Risk when dealing with international transaction
________________________________________________________________.
In large part, the amount of risk involved highly depends on the method of payment you use.

When it comes to cross-border payments,

Buyers tend to prioritze the cheapest and most straightforward payment methods
________________________________________________________________________.
In other words, anything that can help reduces cost. Another priority is ensuring they receive the
goods specified.

While buyers prefer paying us late in the transaction proces as possible

___________________________________________________________________,
Sellers will want to be paid in full, as quickly as possible
_______________________________________________________, and via a secure option. Sellers
who offer attractive payment terms and varying methods will have an advantage over those who
limit themselves.

CONSIDERATIONS when choosing a Payment Method

When choosing the payment the following criteria must be taken into account:
Security, acceptability by buyer/seller, cost and ease of use
__________________________________________________________________. As with all trade,
there are some risks associated with international trade that need to be considered. These risks are
summarized below:

Commercial risk
_____________________________: Exporters run the risk of non-payment for merchandise after it
has been exported. Importers run the risk of making payment and then not receiving the
merchandise, or receiving faulty merchandise.
Political risk
____________________________: if the country supplying or purchasing merchandise undergoes
political instability or war, trade with that country may no longer be possible.

Transfer risk
_____________________________: When currencies are exchanged, the bank in the local country
needs to have a sufficient amount of each currency to make the exchange.

Choosing the appropriate method will depend on a number of factors, the most important being:

• Trust Between the buyer and seller

____________________________________.
• Convenience.
• Time, money
_________________________ and energy involved in each of these methods.
• Availability of finance from the bank
______________________________________.
• Past track record of the buyer
_____________________________________.

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INTERNATIONAL TRADE RISKS
Customer Risks
Can they / will they pay? _______________________________________________________.
Banks can help by contacting the buyer’s bank for a reference. There are many commercial
organisations that can provide credit information at relatively little cost. Does the exporter have any
local contacts or agents who might be prepared to find out what they can?

Country Risks
Exporters should find out (study about) these key issues:
Key issues include:
• _________________________________– at a national as well as financial institutional level;
• _________________________________– an exporter’s Spanish bank should be able to assist
• __________________________________________ – Are there any?

• If the country has a habit of ______________________________________?

Types of international payment methods

The main international payment methods used around the world today include:

• _____________________________________ _____________________(Pago por anticipado)

• ____________________________ (Crédito Documentario / ‘Carta de Crédito)
• ______________________________ (Remesa Documentaria)
• _________________________ (Cuenta abierta / Venta a Crédito)
• ____________________________ (Consignación)

Typically, with domestic sales, sales are made on open account if the buyer has good credit; if not,
cash in advance is sought.

Payment Risk Ladder

It is often a good idea, during, or even before contract negotiations, to consider where, on the
diagram below, you and your customer will be comfortable in placing yourselves.

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 Payment Risk Ladder
Exporter: Least Secure Less Secure More Secure Most Secure
Importer: Most Secure More Secure Less Secure Least Secure

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Considerations of trading partners

Type of Collection

Clean Collection (‘Remesa Simple’)

Clean collection means the collection business of financial document
______________________________________.

Documentary Collection (‘Remesa documentaria)

Clean collection means the collection business of financial document
_______________________________________.

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International Banks

International banks handle _________________________________ for exporters and importers,

including __________________________________ and _____________________________.

Instruments of Payment
In import transactions, the most widely used payment instruments in the world are: credit transfers,
direct debits, cards, and cheques. Electronic money (e-money) is little used at the moment but has
potential to grow and may become a major payment instrument in future.

_____________________; These are instructions from the importer to his/her bank to debit his/her
bank account and to credit the exporter’s bank account. Credit transfers are the most frequently used
payment instrument in Europe. They account for around 30 per cent of all non-cash payments.

________________________; These are pre-authorised debits on the importer’s bank account the
are initiated by the exporter. They are often used for recurring payments. Telegraphic Transfer (TT)
is most frequently used to transfer money for making payments.

________________________________________; These are cards issued by the bank or card

company. The debit card indicates that the holder of the card may charge his/her account at the bank
and credit card draws on a line of credit up to an authorised limit.

Insurance Companies
Insurance companies provide ________________________to indemnity or guarantee another party
___________________________ for a stated peril.

• __________________________
• Insurance for risk of loss or damage to cargo
• Kidnapping insurance

Companies that cover commercial risk: ____________________________________________, etc.

Limits on Cash Payments

Article 7 of Act 7/2012, of 29 October, on modifications to tax and budgetary regulations and
changes in financial regulations to intensify efforts to prevent and combat fraud, establishes limits to
cash payments with regard to certain transactions.

In particular it stipulates that payment may not be made in cash when one of the parties acts as
employer or professional, for amounts equal to or greater than 2,500 euros or the equivalent in
foreign currency.

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 However, the aforementioned amount shall be 15,000 euros or its equivalent exchange value in
foreign currency when the payer is an individual who justifies that they are not resident in Spain for
tax purposes and that they are not acting as a trader or professional.

For the purpose of calculating the amount all partial payments corresponding to the delivery of goods
or the provision of services will be taken together.

Cash payment will be understood as the means of payment defined in Article 34.2 of Act 10/2010, of
28 April, on the prevention of money laundering and the financing of terrorism. In particular, the
following are included:

• Bank notes and coins, whether Spanish or foreign.

• Bank checks made out to the bearer in any currency.
• Any other physical means, including electronic payment, intended to be used as a means of payment
to the bearer.

Movement of Money
If, upon entering or exiting Spanish territory, you are carrying coins, banknotes and/or bank
cheques made out to the bearer, in Spanish currency or in any other currency or physical medium,
including electronic, that may be used as payment, totaling at least ___________ per person and trip,
you must fill in a
________________________________________________________________________________.
The Declaration submitted shall be valid for a single movement of means of payment on the date
declared. During your stay, the means of payment must be accompanied by this Declaration and be
carried by the person stated as the bearer therein. The S-1 Form and instructions may be found on the
Tax Agency (Agencia Tributaria, in Spanish) website.

Money Transfer

Giro Inmediato
The immediate delivery of money.
This service lets you send money with instant availability at any Post Office.
Delivery time period: Immediate availability at any Post Office.
National, Spain and Andorra.

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Giro Internacional
This service lets you send money to international destinations.
The service can be used to pay people or organisations in towns in the countries where
Correos has established an agreement, guaranteeing the amount sent.
Delivery time period: 4 - 6 working days.
International
Giro Nacional
Service which lets you send money with full guarantees.
From €2.25 plus 1.25% of the amount of the money order.
Service available at any Post Office which lets you choose the most convenient way to pay the
recipient.
Delivery time period: 3 - 5 working days.
National, Spain and Andorra.

Western Union
Send money in minutes.
From €2.90.
Send money in minutes by electronic transfer to more than 190 countries.
Delivery time period: In minutes.
International

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Glossary of Terms - Vocabulary International Methods of Payment (Spanish
/ English US)

Billetes / ____________________________

El Cheque / _______________________

El Cheque Personal / ____________________

El cheque bancario/ ______________________

El aval en el cheque / _______________________
Banco Librado _____________________________
Pagadero a la orden ______________________________
Pagadero a la vista ________________________________
Pagadero al contado _____________________________
Pagadero al portador__________________________________________

La Orden de Pago o Transferencia / ___________________________________

La Orden de pago o Transferencia Documentaria / _____________________________

A la vista________________________________
Banco avisador ___________________________
Banco emisor _____________________________
Comisión de cobro ________________________________
Comisión de pago _________________________________
Fecha de pago _____________________________________
Gastos bancarios ___________________________________

La remesa / ___________________________
- Remesas simples / ________________________
- Remesas documentarias / ______________________________
A plazo ________________________________
Efecto a fecha fija _______________________________________
Efecto a la orden _________________________________________
Efecto commercial _______________________________________
Efecto en gestión de cobro _________________________________
Entrega contra aceptación _____________________________________
Entrega contra pago __________________________________________

Falta de aceptación ___________________________________

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 Fecha de vencimiento __________________________________
Giro ________________________________
Letra a la vista _____________________________
Letra a plazo ______________________________
Letra aceptada ____________________________
Letra avalada _____________________________
Negociable _______________________________
Notificación ______________________________
Pagaré __________________________________
Protesto ________________________________

CREDITO DOCUMENTARIO - ______________________________

Ordenante – ___________________
Banco avisador - _____________________
Banco pagador - _______________________
Beneficiario - _______________________

Transferible / ____________________________

Revocables e irrevocables / ____________________

Rotativo / ___________________________
Abrir un crédito __________________________
Comisión de apertura ____________________________
Comisión de cobro ______________________________
Comisión de confirmación ________________________
Comisión de modificación ________________________
Comisión de notificación _________________________
Comisión de pago _______________________________
Documentos a la vista ____________________________

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