1、 Terms of Payment Characteristics of International Payment Issues Risks in International Trade Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection Procurement Cards TradeCard Terms of Payment as a Marketing Tool Terms of Payment Characteristics of Intern
2、ational Payment Issues Risks in International Trade Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection Procurement Cards TradeCard Terms of Payment as a Marketing Tool Terms of Payment Characteristics of International Payment Issues Reduced Credit Infor
3、mation Lack of Personal Contact Difficult and Expensive Collections No Easy Legal Recourse Higher Litigation Costs Mistrust Characteristics of International Payment Issues Risks in International Trade Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection P
4、rocurement Cards TradeCard Terms of Payment as a Marketing Tool Terms of Payment Risks in International Trade Country Risk Country risk is also known as political risk.The probability of not getting paid by a creditor,because the creditors country has:Insufficient foreign exchange reserves.Not allow
5、ed the creditor to pay the debt(political embargo).Political risk can also mean the probability of nationalization of a firms subsidiary by the host country.Risks in International Trade Commercial Risk The probability of not getting paid by a creditor,because this creditor does not have the funds to
6、 pay the debt or because the creditor refuses to pay the debt.Exposure The relative consequences of a bad-debt risk for an exporter;the risk of a$50,000 loss would represent a greater exposure for a small exporter than for a large exporter.Characteristics of International Payment Issues Risks in Int
7、ernational Trade Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection Procurement Cards TradeCard Terms of Payment as a Marketing Tool Terms of Payment Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection Procu
8、rement Cards TradeCard Alternative Terms of Payment Table 7-1:Advantages and Disadvantages of Several Terms of Payment Term of payment Probability of Losing the Business because of the Choice of Method of Payment Probability of loss due to Non-Payment Cash in Advance High Nil Letter of Credit Fairly
9、 High Almost Nil Documentary Collection Low Low Open Account Nil Relatively High TradeCard Low Almost Nil Characteristics of International Payment Issues Risks in International Trade Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection Procurement Cards T
10、radeCard Terms of Payment as a Marketing Tool Terms of Payment Cash in Advance Definition In a Cash in Advance transaction,the exporter requests that the customer provide payment in advance,before shipment of the goods can take place.It is the ultimate“risk-free”alternative for the exporter.In a Cas
11、h in Advance transaction,the risk is completely transferred to the importer.Cash in Advance Applicability This method is only justified in rare cases.It could be used when the importer is perceived as being very high risk(commercial or country risk).It should be avoided.Characteristics of Internatio
12、nal Payment Issues Risks in International Trade Alternative Terms of Payment Cash in Advance Open Account Letter of Credit Documentary Collection Procurement Cards TradeCard Terms of Payment as a Marketing Tool Terms of Payment Open Account Definition In an Open Account transaction,the exporter cond
13、ucts international business in a manner similar to the way it conducts business domestically.The exporter ships the goods,accompanied by an invoice,and expects the importer to pay within a defined time period(30-60 days).Open Account Applicability The exporter is confident that the importer will pay
14、(e.g.long-standing business relationship).The exporter is competing with companies that offer Open Account terms.The exporter wants to create goodwill.In cases where the exporter is unsure of the importers credit,the exporter can use credit insurance.Open Account Credit Insurance An insurance policy
15、 under which commercial risk is covered.The insurance company bears the risk of non-payment by the importer,deducting a slight percentage of the receivable.Credit insurance does not cover political risk,unless the exporter has explicitly asked for additional political coverage that is obtained throu
16、gh the Ex-Im Bank.Open Account International Factoring A means of financing international receivable accounts.The firm can ask a factoring company to advance funds on a receivable account:With recourse where the owner of the account receivable is still responsible for collecting it.Without recourse where the collection responsibility entirely shifts to the factoring house.Characteristics of International Payment Issues Risks in International Trade Alternative Terms of Payment Cash in Advance Ope