FORMS OF INTERNATIONAL PAYMENT

It is important to state a certain form of payment since the trade laws vary from country to country.

Main forms of payment
There are several forms to carry out or to receive a payment in the international market; some of them are the following, classified by their level of security:

Check
Bank transfer
Payment order
Automatic debit transfer system
High letter of credit

The selection of the way of payment depends on the level of experience and trust between the partners. The letter of credit is the securest way of payment, it is assured that the exporter receives its money.

Check
It is not very common since it requires a lot of trust for the collection without difficulty. The bank will only complete the payment order, if the required amount is available in the account at the moment of the presentation of the check and if the signature is identical to the one that the bank has registered.

If the exporter decides to accept this form of payment, he should pay a lot of attention to the following:

That the beneficiary's name is spelled correctly
That the quantities and numbers coincide
That the document doesn't present amendments or alterations.

Bank transfer
A bank transfer is a check sent by a bank to another bank for liquidation. It is considered a perfect check when the other bank has liquidated it; it reduces the possibility that payment is not carried out by the importer. Other advantages are:

- The check can be bought by any bank; it is not required to be client.
- It can be emitted almost in any foreign currency.
- They are normative
- They cannot be charged by a third person because banks only receive them for invoice payment.

It is advisable to receive the original of the check before the merchandise leaves the country.

Payment order
The payment order is an operation that is settled down directly between the local and the foreign bank, with which the first one maintains relationships, so that a certain amount of money can be deposited in the salesperson's account.

The parts that intervene are:
-advisor: person that buys the payment order.
- Bank advisor: the one that sells the payment order and receives the amount of money.
- Bank payer: the one that accepts to make the payment by means of the deposit to one of their clients.
- Beneficiary: person that will receive the amount in their account.

International Bank collection
For the handling of this payment form the banks are ruled by the Uniform Customs and Practice for Documentary Credits (UCP) published by the International Chamber of Commerce.

The collection is divided in:

1. Simple collection: if only financial documents are handled
2. Documental collection: this is more common. Besides the financial documents one also includes the commercial documents.

The parts that intervene in the bank collection are:

- Beneficiary: this is the salesperson (exporter) that demands the collection.
- Beneficiary bank: this is the bank that receives the order to start the collection.
- Representative bank: the one that presents the documents to the beneficiary bank.
- Obliged: this is the buyer (importer) who will be charged for the documents.

Letter of Credit
Among the different payment forms, the letter of credit is the one that offers the highest security for both parts.

The Uniform Customs and Practice for Documentary Credits (UCP) regulates the relationship among buyers, salespersons and bankers in all aspects of the documental credit. This documental credit is defined as an agreement in which a bank, at the request of a client, obligates the importer to make a payment, beneficiating the client. He can also accept a bill of exchange issued by the beneficiary, as soon as the documents are delivered in terms and conditions of the letter of credit.

Operating with a letter of credit, it is advisable that one studies and examines this document carefully and, if necessary, takes the advise of a specialist.

The secret of the letter of credit in the export is to known how to interpret its terms and conditions appropriately, as well as that the documents are elaborated the way they are required to. The letter of credit in the import has to indicate very precisely the documents needed and their conditions.

In the letter of credit participate:

- The exporter or salesperson: Their action begins once the exporter has signed a sales contract, establishing the terms and conditions of the letter of credit. The next step is that the advising bank informs the exporter that a letter of credit has been opened to his favor. In this moment the exporter will have to embark the goods agreed upon in the contract.
- Importer or buyer: the importer is the one that takes the first step to settle down the payment via letter of credit through an issuing bank. He opens up the letter of credit in favor of the exporter.
- Issuing bank: is the one that emits the letter of credit.
- Intermediary bank: can be advising if it only announces that the letter of credit has been opened up, and confirming if it confirms the letter of credit to their client.
To carry out the procedure of a letter of credit, banks can use the support of a bank abroad, which are called " correspondents ". Their main function is the evaluation and qualification of the documents required by a letter of credit in order to guarantee the success of the operation.

Modalities of the letter of credit:

1. Revocable letter of credit: the issuing bank can, in any moment, modify or cancel the revocable letters of credit, a previous warning to the beneficiary is not necessary.
2. Irrevocable letter of credit: its main characteristic is that the issuing bank commits totally and definitively to pay, to accept, to negotiate or to fulfill the payments, whenever the respective documents fulfill the terms and conditions quoted in the letter of credit. The only form to cancel or modify them is when all the parts that involved agree on this. When a letter of credit doesn't indicate if it is revocable or irrevocable, it will be considered as irrevocable. This is because of the security of the exporter.

3. Notified letter of credit: it exempts to the banks, others than the originator bank, a payment commitment with the beneficiary, since they only are limited to notify about the terms of the operation; the only bank that commits to pay is the originators.
The disadvantage of this type of letter of credit, is that the exporter cannot be sure that the notifying bank carries out the payment. However, if the bank accepts to notify the credit, it will take care of the validity of the credit.

4. Confirmed letter of credit: different from the above mentioned letter of credit, this type provides the exporter with a high level of security. The payment is assured so much by the issuing bank as by the confirming bank, given that the terms and conditions of the operation are fulfilled.

5. Moment of payment: all bill of exchanges should indicate clearly if they will be paid at sight, by differed payment, acceptance or negotiation. A lot of bill of exchanges are paid at sight, which means that the beneficiary will obtain the corresponding payment as soon as he presents the documents, which will be examined by the bank. Each bank that participates in the operation of the letter of credit has no longer than seven workdays, starting from the date of reception of the documents, to examine them and to decide if they accept them or reject them.

6. Renewable letter of credit: the letter of credits generally expire as soon as they are used; however, it happens that buyers and sellers require to use them very frequently. In this case it is not advisable to issue a letter of credit for each shipment, but rather use the same one for various shipments and change the data (dates, amount of money etc.).
7. Transferable letter of credit: they authorize the beneficiary to transfer the complete amount of money or partial payments to one or more beneficiaries. It is important to point out that the bank is not forced to make the transfer. The transfer can also be made just one time, therefore a second beneficiary cannot assign it to third.
8. Stand by: they guarantee the payment to a creditor if their debtor has not completed his contractual obligations. The only requirement that the beneficiary has to fulfill is to prove with the documents that his debtor did not pay his debts.