International Trade: Payment Methods & Documents

Posted on Mar 15, 2025 in Transport and Vehicle Maintenance

International Payment Terms

  1. Cash in Advance: The exporter requests money from the customer before any shipment of goods takes place.
  2. Open Account: The exporter sends an invoice to the importer with the shipment and trusts the customer will pay.
  3. Letter of Credit (LC): Issued by a bank at the request of the importer, stating that the bank will pay money to a beneficiary (normally the exporter) upon presentation of specific documents. This involves trusting a third party.
  4. Documentary Collection: The exporter asks a bank in the importer’s country to safeguard the exporter’s interests. Documents like the Bill of Lading are not released until payment is made or a document is signed.
    • Draft:
      • Sight Draft: Pay on presentation to the drawee.
      • Time Draft: Allows for delayed payment.
    • Instruction Letter: The exporter tells the bank what they want to accomplish.
  5. Forfaiting: A way to extend credit.
  6. Procurement Cards: Similar to normal credit cards, these allow departments to make purchases directly from vendors, ensuring fast payment to the exporter upon shipment.
  7. Trade Cards: Combine a letter of credit with cards; payment is not made until all documents are in order.
  8. Bank Guarantee: A request to secure the seller’s performance.

International Commercial Documents

1. Proforma Invoice

Not an invoice, but a quote. If payment is by LC, the information in the proforma will be used by the issuing bank. It’s important to include an expiration date.

Invoice: A bill the exporter sends to the importer.

Commercial Invoice: The invoice that accompanies the shipment. Depending on the terms of payment, it will be sent directly or through a bank.

2. Export Documents

  1. Export Licenses: Express authorization by a country to export a specific product before it is shipped (e.g., old products or weapons).
  2. Export Controls: For dual-use items (international security).
  3. Shipper’s Export Declaration (SED): A data collection document required by the US government to record US exports. It doesn’t go with the rest of the documents like an LC; it’s presented to Customs Service at the port of export.
  4. Export Declaration – SAD: Documentary basis for customs declarations in the EU and EFTA.

3. Import Documents

  1. Certificate of Origin (CoO): Used in international trade, completed by the exporter, and certified by an issuing body (e.g., Chamber of Commerce), attesting that goods have been produced in a particular country. CoOs are often used by importing countries to determine tariffs or for trade statistics.
  2. Certificate of Manufacture: Similar to the CoO, but attests to the location of the manufacturer of the exported product.
  3. Certificate of Inspection: Signed by a third-party company, attesting to the authenticity of the shipment and confirming there are no problems with the product.
  4. Certificate of Certification: Attests that the product purchased meets the quality standards to pass all certification procedures.
  5. Phytosanitary Certificate: Required by the importing country for agricultural products to ensure they are free of diseases.
  6. Certificate of Analysis: Attests to the composition of certain products (e.g., alcohol percentage).
  7. Certificate of Free Sale: Attests that the product sold by the exporter can be legally sold in the country of export.
  8. Import License: Issued by the government, authorizing the import of certain goods into its territory in a given quantity.
  9. Consular Invoice: Like a commercial invoice, but printed on stationery provided by the importing country’s consulate.
  10. Certificate of Insurance: Depending on the Incoterm chosen, the importer may require it.

4. Transportation Documents

(Contract of carriage between the exporter or the importer and the shipping line)

  1. Bill of Lading (BL): (For shipments by air, it’s an Air Waybill; by road, it’s a CMR). A fundamental international shipping document used in ocean transportation. It’s the contract of carriage for container shipments that don’t need the entire capacity of the ship. When the entire capacity is required, another document is issued: the Charter Party.

    The BL is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes:

    1. It’s a receipt (signed because goods are received in good condition).
    2. It’s a contract: The carrier is obligated to provide transportation in return for a certain charge.
    3. It’s a document of title: It can be used to obtain payment or a written promise before the merchandise is sent to the importer.
  2. Packing List: A detailed document provided by the exporter that shows how many containers are included and what merchandise they contain.
  3. Shipper’s Letter of Instruction: A document in which the shipper specifies steps to be carried out during transport.
  4. Cargo Manifest: A document that lists all cargo on board the transportation vehicle.

Failure to provide these documents can delay shipment and create additional costs. An alternative way to send documents is EDI, developed by SWIFT to facilitate the exchange of banking documents.