What are the import and export payment methods in international trade?

Generally, there are three common payment methods for imports and exports in international trade. Typically, based on exporters payment preferences (payment before delivery), importers payment preferences (payment after receipt), and adjustments, these can be categorized into remittance, collection,L/C.

Remittance (Remittance)

The simplest payment method. Importers primarily use wire transfers, credit transfers, or bills to actively pay exporters. Applying remittance and payment methods to accounting or installment transactions benefits importers. After receiving goods, they can make one or multiple purchases within a specified period. However, exporters face certain risks. If importers have poor credit, refuse payment, or delay payment after receiving goods, exporters may encounter difficulties. This method favors exporters cash flow when payment is made before the transaction. Thus, if the counterpartys credit is unreliable,import and exportexporters generally hesitate to accept this payment method.

Collection (Collection)

After exporters complete delivery, banks instruct foreign importers to receive drafts (or non-drafts) and related shipping documents. Collection is purely a commercial service. Banks only handle payment collection and do not guarantee importers payment obligations. If importers breach contract terms and exporters deliver early, payment may be refused. Unless banks can cover the bill, exporters may need to return goods or resell them locally, incurring losses. For post-trial agreement payments, delivery terms, due dates, and calculation methods must be specified.

Letter of Credit (Letter of Credit, L/C)

Banks handle payment under letters of credit, where importers authorize exporters to present bills and shipping documents after shipment. Essentially, letters of credit combine remittance and collection methods, differing from bank-handled collection payments. With letters of credit, banks guarantee payment if exporters provide compliant shipping documents, ensuring exporter securityA complete export agency agreement should be attached with:; this has become the most widely used payment method in import-export trade.