Please enable JavaScript.
Coggle requires JavaScript to display documents.
Methods of payment - Coggle Diagram
Methods of payment
Advanced payment
Buyer pays before goods are shipped.
Open account
Who benefits: buyer (gets goods first).
When to use?
Strong, long-term relationship.
Stable markets and trusted buyers.
Letter of credit
Pros/Cons
Pros:
Secure for both buyer and seller.
Facilitates international trade.
Cons:
Costly and time-consuming.
Complex documentation.
When can be used?
Large/international transactions + limited trust
Types
documentary, revocable, irrevocable, deferred, red clause, transferable, revolving, back to back, standby, advised, confirmed
Procedure
The process begins when the importer (Applicant) and the exporter (Beneficiary) sign a Purchase and Sales Agreement. After that, the importer submits a request for a Letter of Credit to the Issuing Bank. The Issuing Bank then sends a request to advise or confirm the L/C to the Advising or Confirming Bank. Finally, this bank advises the Letter of Credit to the exporter so they can review the terms and prepare to ship the goods accordingly.
Parties involved
Buyer, seller, advising bank, issuing bank
What it is?
A document from a bank guaranteeing seller’s payment once conditions are met.