Chapter 1: Methods of Payment in International Trade


New Payment Risk Diagram – To Be Created by Designer



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New Payment Risk Diagram – To Be Created by Designer Least Secure Less Secure More Secure Most Secure Exporter
Consignment
Open
Account
Documentary
Collections
Letters of
Credit
Cash-in-
Advance
Importer
Cash-in-
Advance
Letters of
Credit
Documentary
Collections
Open
Account
Consignment
Figure 1: Payment Risk Diagram
Key Points

International trade presents a spectrum of risk, which causes uncertainty over the timing of payments between the exporter (seller) and importer (foreign buyer. For exporters, any sale is a gift until payment is 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. For importers, any payment is a donation until the goods are received. 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.

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