Analysis of the pros and cons of foreign trade payment methods, which one is most suitable for you

2023-05-05|99 views|Development skills

For the foreign trade orders that are about to be concluded,we are concerned about two points: the first is the transaction price, and the second is the payment method.

Since there is payment, it is natural to worry about the safety of funds. Whether it is us or customers, we hope to reduce our own risks. Today I take this opportunity to share with you some common payment methods in foreign trade business, as well as some misunderstandings that you have.
First of all, let’s talk about L/C and D/P. These two payment methods are basically the same in terms of operation. They are both document transactions and endorsed by the bank’s credit.
Many foreign traders think that L/C is safer than D/P, because L/C will have a letter of credit. In fact, this is just a psychological effect.
In many cases, it is precisely because of the letter of credit that there will be discrepancies, which will make foreign traders worry about being refused payment. In fact, there is no need to worry at all, as long as the information is complete, the bank will not refuse to pay.
Since D/P has no letter of credit, there is no discrepancy, and at the same time, the cost of discrepancy will not be deducted. Of course, if some foreign traders can't pass the psychological barrier, they can continue to choose to use L/C.
Secondly, T/T is a payment method that many foreign traders like. Because compared with others, the operation of T/T is simpler and more convenient, but its security risks are also more obvious.
Like the L/C and D/P mentioned above, due to the participation of the bank, if the customer defaults and refuses to pay, the bank will generally not agree without reasonable reasons. T/T is different, it is the customer directly transfers money to the bank account, if the customer has financial problems, or the customer cheats, the risk is very high.
Therefore, many foreign traders will adopt the method of collecting deposits to share risks with each other, but one thing that needs to be reminded is that the operation process must be standardized.

One of my friend made a custom order before, and the value of the goods was about 7,000 US dollars. At that time, he agreed with the customer that the production would be arranged after paying the deposit in the second week.
As a result, the payment slip has not arrived, and the customer has been looking for reasons to shirk. The goods have been ready for two months, but he still has not received the payment, and the deposit has not been rescheduled. Ask again later, the customer no longer wants this batch of goods, because it is a customized model, it is difficult to sell even at a low price.
This is the result of improper operation. No matter how extravagant the customer says, you must wait until the money arrives before you can arrange subsequent matters.
Finally, be sure to avoid O/A, aka credit, in all payment methods. O/A can be called post-T/T, which is very popular among American buyers. However, since this method allows the seller to bear all the risks, most salespersons will try to avoid this payment method.
For example: if you ship a batch of goods and the customer finds a problem after receiving the goods, even if it is the last day of payment when they contact you, then you will not receive the payment. You can only wait until the problems raised by the customer are solved before the customer pays you.
Therefore, if the customer has just cooperated and wants to do O/A, it must be cautious and cautious.
If you are an old customer who has cooperated with you many times, or a big buyer with a good reputation, and you are not short of money, you can consider doing O/A. If you decide to do O/A, you must also do a good job in risk control, and it is best to do credit insurance. In case something goes wrong, the insurance company can also pay part of the compensation, trying to minimize your own risk.
In fact, there is no perfect payment method, and each payment method has its advantages and disadvantages, so choose the one that suits you according to your own actual situation.

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