3 payment methods in international trade and their character

By justchinait
December 30, 2020

There are many ways to receive and pay in foreign trade. Today, I will introduce how OA, DA, and DP make payments and their characteristics.

OA is the abbreviation of an open account

That is, cash on delivery, in international trade is a very risky foreign trade payment method, can be used for reputable old customers. In this way, foreign investors’ credit and operating conditions (regardless of new and old customers) should be investigated in a timely manner to ensure safety. The risk of OA is relatively high, and it is not recommended to do this.

A netizen in the forum said that a customer of his clothing who did OA with a Brazilian was cheated by more than 4 million. At the beginning of 2019, a client of a Foshan trading company was cheated by more than 1.8 million Vietnamese.

Documents against payment (D/P)

It means that the seller’s delivery must be based on the buyer’s payment terms, that is, when the exporter delivers the bill of exchange together with the shipping documents to the bank for collection, the bank instructs the bank to deliver the shipping documents only when the importer has paid for the goods. If the importer refuses to pay, the shipping documents cannot be obtained from the bank, and the goods under the papers cannot be retrieved.

According to the payment time, the document against payment is divided into two types: the document against sight payment and the document against forwarding payment.

The document against sight payment means that the importer presents the bill of exchange and shipping documents to the importer through the bank. The importer must pay when the invoice (or see the bill) is seen, and receive the shipping document after the payment has been paid.

The business flow chart of document delivery at sight has the following 8 steps:

1. The exporter delivers goods and obtains relevant shipping documents.

2. The exporter submits a collection application to the collection bank, fills in the collection application form, issues a draft, and delivers it to the consigning bank to collect the payment and the shipping documents.

3. According to the collection application form, the collection bank will prepare a collection power of attorney together with the bill of exchange and shipping documents and submit it to the collection bank at the place of import to commission the payment for the goods.

4. The collecting bank presents the draft and documents (or only the documents) to the importer in accordance with the instructions in a power of attorney.

5. Receiving bank collection and presentation.

6. The payer picks up the goods after obtaining the shipping documents.

7. The collecting bank handles the transfer and informs the collecting bank that the payment has been received.

8. The collection bank pays the exporter.

Forward payment documents indicate that the importer presents the bill of exchange and shipping documents to the importer through the bank. The importer will accept the bill of exchange, and the collecting bank will present it to the collecting bank again on the due date of the bill of exchange. Obtain the receipt. Before the bill of exchange is due for payment, the bill of exchange and shipping documents are in the collecting bank’s hands.

Compared with the business process of delivery by sight payment, only the fifth step is different: the contemporary collecting bank will present the bill of exchange and shipping documents to the importer. The importer will accept it on the bill of exchange. The receiving bank reminds it again to obtain the receipt from the collecting bank after payment. Therefore, the fifth step is additional acceptance, and then the payment is due.

Documents against acceptance (D/A)

which means that the importer’s documents are subject to the importer’s acceptance. After the importer accepts the bill of exchange, he can obtain all the bank’s shipping documents, pending the due date of the bill of exchange pay. It can be seen that the difference between D/A and D/A is that the importer has different payment terms, one is paid, and the other is acceptance.

Compared with the business process of the document against payment, it is also different in the fifth step: the contemporary receiving bank prompts the importer with the draft and shipping documents, and the importer can obtain all the shipping documents from the bank by accepting the draft, and then wait until the draft On the due date, payment will only be made when the collecting bank prompts it again.

What are the characteristics of documents against payment (DP) and documents against acceptance (DA)?

1. The bank does not provide a credit guarantee in the documentary collection, so it is still commercial credit.

2. There is a greater risk for the seller.

3. At the same time, exporters have a certain financial burden.

4. The collection is a settlement method in which the seller gives the seller preferential financing.

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