International Trade

In a typical trade transaction, one of the critical decisions facing both the buyer (importer) and the seller (exporter) relates to how and when payment for the goods sold will be made. In practice, there are various methods of trade settlement (or payment) being adopted ranging from payment in advance to payment upon delivery or even payment after a certain period from the date of delivery or shipment.

The method adopted in a certain trade transaction will depend on the relationship between the buyer and the seller, and is generally adopted after due negotiation between the said two parties. When determining the appropriate method of payment, both the buyer and the seller would consider the following factors:

1. the nature and extent of relationship between the buyer and the seller;
2. the track record, financial and credit standing and financial needs of the buyer;
3. the financial standing, financial needs and profit margin of the seller;
4. the nature and extent of competition in the particular industry;
5. the trade customs and practice for the industry;
6. the political, economic, exchange control and imports quota conditions in the buyer's country;
7. the amount and currency used in settlement for the trade transaction;
8. the nature of the goods (example: special manufacturing requirements).

Thus, with due consideration to the above factors and other relevant factors, the buyer and the seller should be able to agree on an appropriate method of payment.

Basically, there are four (4) methods of payment, where which method of payment is adopted would depend very much on the various factors indicated above herein.

An important consideration to note that in view of stiff and increasing competition, the relatively high cost of financing and capital inadequacies in may trading countries, the ability of the seller to offer an adequate credit facilities to the importer has become an increasingly important issue in the success of the seller to clinch a sale.