Methods of Trade payments

There are 4 classical methods of trade payments or settlements, in local and cross border trade. The usage of each method entirely depends on the following….

1. Relationship between the buyer and the seller
2. Financing options available
3. Economics – buyers market / sellers market
4. Market risks
5. Country risks

The following 4 methods of trade payment are as follows…

1. Open Account
2. Advance Payment
3. Documentary Collections
4. Letters of credit

Occasionally, other than the above 4 methods, the following are also used, as a quasi method of payment, which acts more as a security for non-payment, than as an actual method of payment/ trade settlements…

1. Guarantees
2. Standby letters of credit

I will extensively cover these in my further blogging…..