FOREIGN trade or international trade is the exchange of goods and services between two or more countries. So here in this blog Post, I’m going to be writing on the means or methods of payment in international trade.
Methods Of Payment In International Trade
Contents
- Mail transfer
- Telegraphic transfer
- Guaranteed mail transfer
- Travelers cheque
- Documentary credit
- Bank drafts
- Letter of hypothecation
- Factoring
- Foreign bill exchange
1. Mail transfer: Mail transfer is a means or methods of payment in international trade in which an order to pay a foreign creditor a sum of money is given by a bank to it’s foreign agent by means of letter or air mail. Mail transfer is similar to cheque but cannot be transfered.
2. Telegraphic transfer: Telegraphic transfer is an order for settlement of debt in international trade by means of telegraph or cable sent by a bank in from one country to another country.
It can also be defined as the transfer by telegraph or cable of bank deposits from one country to another as a means of making payment in foreign trade. It is the quickest method of transferring money. A bank will, at it’s customers request and risk, send a cable with the necessary particulars to it’s foreign agent who will act on the instructions in order to make payments.
3. Guaranteed Mail Transfer: Guaranteed Mail transfer is an order to pay sent by Mail. This is similar to Mail transfer but here the remitting bank will guarantee payment on the agreed date.
4. Travelers Cheques: Travelers Cheques are orders drawn on Commercial Bank which travelers can use to settle their bills. The beneficiary is thus enabled to obtain foreign currency when traveling abroad to settle their indebtedness. To prevent their misuse, they have to be signed in the presence of the bank clerk who issue them and countersigned when you use as a means of payment.
5. Documentary credit: Documentary credit is another methods of payment in international trade. Is a method payment or financing foreign trade. The importer opens a credit in favour of the exporter at a bank in the exporter’s country. The documentary bill is then drawn by The Importer in favour of the exporter.
6. Bank drafts: Bank draft is a cheque drawn on a bank by itself or it’s agent. It is used by a debtor when is creditor is not willing to accept a personal cheque. This can also be used in international trade.
7. Letter of hypothecation: This is a form of authority given to a banker, often in connection with a documentary bill, authorizing it to sell the goods that have been pledge to it if payment or acceptance of bill is refused.
8. Factoring: A firm can purchase the trade debt of it’s client and then claim payment for them. This is also a means of financing export. A factoring company will take over the collection of trade debts after he had bought them.
9. Foreign Bill Exchange: This is another methods of payment in international trade, and is a bill of exchange which is used for making payment arising from international trade. It is drawn by a creditor and accepted by the debtor.
Kindly visit my next article on TRADE and types of trade here