Paying for goods you are importing internationally is totally different than paying domestically. If you purchase domestically, the most common payment method is by check, credit card or wire transfer. Paying internationally might be more complicated because the importer is concerned they will loose their money and the seller is concerned they will not get paid for the product they are shipping. Each party must agree to a payment method before the order is placed.
Below I listed some of the most common payment terms when buying internationally;
1. Pre payment
Pre payment can be used only if you are buying FOB or Ex-Works. It is recommended only if you are buying small shipments. Basically the buyer pays for the goods in advance. There is a big risk for the buyer if the shipper does not send the goods after getting paid.
2- Wire transfer
This method of payment eliminates opening a letter of credit. The shipper and buyer must have a previous relationship since a degree of trust is involved.
The importer’s forwarder issues a bill of lading consigned according to the order of the shipper once the cargo is arranged. Shipper holds the legal right of the cargo until he actually gets paid. Shipper send a copy of the bill of lading to the importer showing that the goods have been shipped. The importer can double check the information with his freight forwarder, then wire the funds to the seller after verifying that the cargo is shipped. Upon receipt of payment, the shipper releases the original bill of lading to the importer and once this is done, legal rights of the cargo switches from the shipper to the importer.
There is always risk involved for both the importer and the seller. What if the shipper does not release the cargo to the importer even after receiving payment or what if the importer refuses to take the cargo after it’s been shipped?
3- Letter of Credit (L/C)
The letter of credit is a legal binding agreement between an importer and a foreign seller. The shipper automatically gets paid once they have met all the terms of the L/C. The buyer’s bank (issuing bank) sends the funds to the seller (advising bank) within the terms of letter of credit.