Terms of payment
Like most generalizations this is only a half truth although not being paid for exports is a major exporting fear.
In practice, however, there is little to worry about, although it is not always as simple to collect payment from overseas as it is from home customers. Even companies with a sizeable export turnover can rarely afford the full-time services of an expert in export finance, so that it must be faced that much of the work regarding finance for exports, and credit and payment, will fall on the shoulders of the export manager. With all the other things he has to do, and all the other qualities he should possess, it is unlikely that he will also have an aptitude for finance work. But if he has a good graspnof the mechanics of export finance he will find that most of the work will be done for him by the banks and his accounts department. The clause stipulating the therms of payment under a sales contract should include the following elements:
Place of payment;
Time of payment;
The method of settlement;
The method of payment;
1. The place where payment is made is not as a rule the place of delivery of the goods. The place of payment depends on the method of payment adopted in the contract, it may be the bank which makes payment on receipt of the documents.
2. The stipulations regarding the time when payment is to be made may provide:
a)A cash transaction, when the buyer gets the right to dispose of the goods only when he pays for them A.C.O.D. (Cash on documents) transaction is a cash transaction.
b)A credit transaction - the buyer pays an advance thus allowing the seller a credit. On a C.W.O. (cash with order) sale the buyer likewise allows the seller a credit. Payment on such a sale is generally made by telegraphic transfer (T/T) or by mail transfer (M/T) of the specified sum from the buyer's to the seller-s account. There is no risk of non-payment on such a sale. It is a method of payment which favours exporters but is seldom used as the buyer is unwilling to keep his trading capital tied up. When payment is made after the delivery of the goods, that is, thirty days from the date of the invoice, it is the seller who allows the buyer a credit.
3. The Method of Settlement. A sales contract may provide for:
a) Under a clearing convention. Thus payment is made by mutual entries (debiting the buyer's account and cretiding the seller-s account with the amount of the invoice on delivery of the goods) through a central clearing account established by buyer and seller in keeping with a clearing convention.
b) in foreign exchange (bills of exchange, letters of credit, cheques, etc.).
c) In compensation: the exchange of goods of a certain value for other goods of the same value. This is barter.
4. Methods of Payment Used in Foreign Transactions.
The various methods of payment for an export order (contract) are linked with the terms of trade so it is now necessary to consider the various alternatives open to an exporter to secure money.