Expanding overseas

Payment methods in international trade

1 min read

To succeed in today’s global marketplace, exporters must offer their customers attractive sales terms supported by the appropriate payment method to win sales against foreign competitors.

As getting paid in full and on time is the primary goal of each export sale, an appropriate payment method must be chosen carefully to minimise payment risk, while also accommodating the needs of the buyer.

As shown on the diagram, there are four primary methods of payment for international transactions (open account, documentary collections, letters of credit and cash-in-advance).

During or before contract negotiations, it is advisable to consider which method is mutually desirable for you and your customer.

Payment Risk

Key Points

• International trade presents a spectrum of risk, causing uncertainty over the timing
of payments between the exporter (seller) and the importer (foreign buyer)
• To exporters, any sale is a gift until payment is received
• Therefore, the exporter wants payment as soon as possible, preferably as soon as an order is placed or before the goods are sent to the importer
• To Importers, any payment is a donation until the goods are received
• There the importer wants to receive the goods as soon as possible, but to delay payment as long as possible, preferably until after the goods are resold to generate enough income to make payment to the exporter

Payment Risk

Key Points

• International trade presents a spectrum of risk, causing uncertainty over the timing
of payments between the exporter (seller) and the importer (foreign buyer)
• To exporters, any sale is a gift until payment is received
• Therefore, the exporter wants payment as soon as possible, preferably as soon as an order is placed or before the goods are sent to the importer
• To Importers, any payment is a donation until the goods are received
• There the importer wants to receive the goods as soon as possible, but to delay payment as long as possible, preferably until after the goods are resold to generate enough income to make payment to the exporter

If you’re in the business of exporting, you need to manage the risk of dealing with trade and foreign exchange.

Our Foreign Currency Accounts, International Payment options and Trade Finance can all help.

We also work with the New Zealand Export Credit Office (NZECO) which offers New Zealand government backed trade credit insurance and financial guarantees to mitigate against payment risk, secure overseas contracts and gain access to additional Trade Finance solutions from BNZ. For example, NZECO may underwrite payment terms required by your foreign buyer. Or, if you are able to negotiate an advance payment but need to provide an advance payment bond to your buyer, NZECO may also help you secure this bond with the BNZ. You can visit NZECO’s website for more detailed information about the type of assistance that NZECO provides to exporters.