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Payment Method

In: Business and Management

Submitted By shapla
Words 17822
Pages 72
The volume of trade transactions is gradually increasing in the international arena. To secure the international trade payment is particularly very crucial. There are so many factors that may affect the matter of securing payment for an international transaction. Most important among them are the potential risk and cost that the exporters and the importers are willing to face or share between them. There are four methods in international trade payment: Cash in Advance or prepayment; Open Account; Documentary Collection; and Documentary Credit. Under Cash in Advance or prepayment method payment is expected by the exporter, in full, prior to goods being shipped. This is the most secure method of payment for the exporters and consequently the least attractive for importers. On the other hand, open account is the least secure method of payment for the exporters. But it is the most attractive method for the importers. Documentary collection is more secure method for an exporter than open account trading, as the exporter’s documents are sent from the exporter’s bank to the importer’s bank. However, among all the mentioned methods, documentary credit method distributes risks in most balanced way in which both importers and exporters are almost equally protected.
Letter of Credit (L/C) or the Documentary Letter of Credit is the most popular international trade payment method in Bangladesh, which covers the issues like potential risk that the parties in international trade namely the importers and exporters wish to face or share between them. Choudhury and Habib (2006) noted that Documentary Credit method distributes risks in most balanced way in which both exporters and importers are almost equally protected. They indicated the Documentary Credit process as “the life blood of international commerce” that is governed by a widely recognized and popular guiding framework of…...

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