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When problems of bad debts occur in international trade, obtaining the payment is not only difficult but also expensive. Even when the exporter has insurance to cover commercial credit risks, a default still requires time, effort and cost of the exporter to collect the payment. That is why following basic methods of payment in international trade offers business prudence to the exporter so that he can cover himself to a certain extent.
An experienced international trade company will always give credit cautiously. All new customers should be evaluated with care; even older customers should be monitored continuously. If the risk is too high, a customer’s request for credit can be denied. Instead you can propose payment on delivery terms through a documentary sight draft or irrevocable confirmed letter of credit or payment in advance.
You should always be aware of any unfavorable changes in your customers’ payment patterns and if you do notice anything, you should refrain from going beyond the normal commercial terms and immediately consult your international banker on how to cope with the situation. Make sure you do a thorough check on your buyer’s credit. A Department of Commerce International Company Profile (ICP) gives useful information on credit checks. For a fee, an ICP can be requested on foreign companies in many countries. However, ICPs are not available for each and every country so tread with caution when using this facility.
Some basic methods of payment in international trade are as follows:
- Cash in advance
- Documentary letter of credit
- Documentary collection or draft
- Open account
- Other payment mechanism like consignment sales
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Basic Methods Of Payment In International Trade
The international trading system was developed after World War II as way of protecting major economies. Concerned with the emergence of protectionist trends, the United States and other countries joined hands to move toward liberalization of trade to help develop world and domestic economies. 
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