Foreign transactions > Forms of payment and conditions

Forms of payment and conditions


The election of the means and conditions for collection and payment in foreign trade transactions is very important, as geographical distance between tne buyer and seller so advise it


12 Dic 2013 - Transhunter.com

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The usual intermediaries in economic transactions are financial institutions or banks, who are responsible for successfully carrying out the foreign payment transactions, which guarantee the viability of simple payments or documentary credits.

A simple payment order is that in which the importer instructs its bank to directly (when it is within the same bank) or indirectly (when the bank which receives the payment is different from the one making it) deposit in the seller’s or exporter’s account the amount corresponding to the foreign transaction being done.

This system is mainly used when the relationship between the exporter and the importer is very good, based on a perfect understanding and mutual trust, since the seller releases the goods before receiving the payment.

The documents or means most used in these procedures, which do not have any commercial document attached, are: personal checks, bank checks, transfers or remittances of effects paid to the order or for acceptance.

A documentary credit is that in which the importer instructs its bank to make directly or indirectly the payment to the seller or exporter, but against provision by him of documents as specified in the mandate.

In a remittance of documentary credits, the exporter deposits in his bank a bill of exchange, promissory note, etc., accompanied by certain documents which represent the goods involved in the transaction, which are to be delivered to the importer upon payment of the same or acceptance of effects.

When there is not enough mutual trust between the importer and the exporter to make a purchase / sale operation, the method of payment most often used is the documentary credit system, since with this method the banks are the ones who assume the risk of funding and ensuring compliance of the commitments undertaken by the parties when formalizing the business transaction, payment being made upon presentation of the required documents, provided that the terms and conditions of the credit for the transaction are met.

The most common types of documentary credits are the ones confirmed, unconfirmed, reported, revocable or irrevocable.