Comparison of Payment Methods

Product highlights

Assess the pros and cons of Payments in Advance, Open Account Payments, Documentary Credits and Documentary Collections.

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Four key ways to make payments

The main difference between these payment methods is the level of risk faced by the importer and exporter:

  1. Payment in Advance – before goods are shipped

  2. Open Account Payment – after goods are shipped or received

  3. Documentary Credits – payment is guaranteed by a bank subject to the fulfilment of certain terms and conditions by the importer and exporter

  4. Documentary Collections – payment is handled by banks acting as agents for the importer and exporter

Quick Guide to choosing a Payment Method

Payment in Advance Documentary Credit Documentary Collection Open Account Payment
Bank Charges Low High Medium Low
Payment Risk Exporter has concerns over the ability and willingness of importer to pay Payment is guaranteed by issuing bank if terms of credit are met Payment risk unchanged but mitigated by control over goods Exporter is comfortable with the reliability of the importer to pay
Country Risk High

Exporter requires payment before shipment
High

Exporter requires confirmation from a bank in a low risk country
Medium

Exporter mitigates risk by using the banking system to retain control over the goods by holding on to title documents
Low

Does not mitigate country risk in any way
Credit Facilities Not required Required Not required Not required
CashFlow Importer has a good cash position
Exporter needs cash as early as possible
Importer wants to delay cash outflow
Exporter's cash flow must be able to support the delay
Importer wants to delay cash outflow
Exporter's cash flow must be able to support the delay
Importer wants to delay cash outflow
Exporter's cash flow must be able to support the delay
Price Importer may be able to negotiate a discount Price may be lower in exchange for added security of bank guarantee Effect on price depends on collection terms Importer may pay a premium for supplier credit

Disclaimer:
Global Trade and Receivables Finance transactions may be subject to credit approval. Other restrictions, including specific country regulations, may apply. Foreign currency exchange rates may apply to certain trade transactions.

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