1) Advance Payment Method

  • It’s a secure and safe method for exporters
  • Payment first & ships the goods later.
  • AS per FEMA guidelines, exporter is supposed to ship/dispatch the goods within maximum 12 months from the receipt of an advance payment.
  • The foreign buyer is entitled to claim the payment of interest for the period for which the exporter utilizes the funds till the date of shipment.

2) Open Account Method:

  • It’s a secure & safe method for Foreign buyer.
  • Ships the goods first & payment later.
  • Generally, such payment is practice when both the parties know each other well.
  • Some SME exporters who do not have an adequate resource, have to agree to this kind of condition presented by the foreign buyer.

Note: Both the above methods are not popular in the International Trade.

3) Document on collection basis:

  • Document against payment (D/P) or sight basis
  • Document against acceptance (D/A) or usance basis

3.a) Document against payment (D/P) or sight basis:

  • The exporter ships the goods to the buyers country.
  • The exporter submits the documents as the Sales contract to his bank.
  • The exporter bank forwards the documents to the Buyer’s bank.
  • Buyer pays his bank and releases the documents.
  • Buyer bank makes payment to the exporter’s bank.

If in case the buyer doesn’t accept the documents then exporter incur a huge loss of disposal of goods or re-import of the goods.

3.b) Document against acceptance (D/A) or usance basis

  • The exporter ships the goods to the buyers country.
  • The exporter submits the documents as the Sales contract to his bank.
  • The exporter bank forwards the documents to the Buyer’s bank.
  • The documents are exchanged for acceptance by the buyer to pay on the agreed date.
  • On the due date, funds flow from buyer to the exporter.

Under this method, buyer is in a position to take the possession of the goods by mere acceptance of the claim, by signing on the acceptance, thereby signifying his willingness to pay the given amount after a period of agreed time allowed by the exporter, which may vary for period like 30 days, 60 days, 90 days, 120 days etc. but not more than 180 days from the date of shipment.

Generally, Bill of exchange is used in this case.

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