International Transport - Documentation and payments
International trade documentation and payments
The right paperwork plays an important part in making and receiving payment.
Documentary collections and documentary credits are payment methods often used in international trade. By using special paperwork, the risks of the customer failing to pay or the supplier failing to deliver are reduced:
- With a documentary collection, the exporter prepares a bill of exchange stating how much is to be paid and when. Once the customer accepts this bill of exchange, they are legally liable for payment. Only then does the exporter, usually through the bank in the overseas country, allow the customer to have the transport documents needed to take possession of the goods.
- With a documentary credit, the customer arranges a letter of credit from their bank. The bank agrees to pay the exporter once all the right documentation - such as transport documents showing the right goods have been despatched - is received. The exporter must provide the required paperwork within the agreed time limit and with no discrepancies.
If you are using one of these payment methods, it's important to understand what documentation is required and ensure it is accurate. Payments under letter of credit can be particularly problematic as the exporter must provide exactly the right documentation in order to get paid.
Regardless of what payment method you agree, you should have a clear written contract stating what amount is due, in what currency, and when. The contract should also make it clear who is responsible for any bank charges.