IM - Terms of Payment and Financing in International Business

Cash in Advance

Payment in advance, where the buyer pays the seller before goods are shipped, minimizing the seller's risk of non-payment.

Letter of Credit

A payment method where the buyer's bank promises to pay the seller once specified shipping documents are presented and conditions are met.

Documentary Collection

Payment method where the seller ships goods and sends the buyer a draft requiring payment on a specified date, with the buyer's bank or the buyer accepting it.

Open Account

Payment terms in which the buyer pays for goods after they have been received, typically within an agreed number of days, such as net 30 or net 60.

Trade Finance

A short-term, self-liquidating bank loan that a buyer or seller uses to finance goods during shipping, repaid from the sale proceeds.

Bank Guarantee

A financial instrument, often issued by a bank, that guarantees payment to the seller if the buyer fails to fulfill contractual obligations.

Bill of Lading

A legal document issued by a carrier that serves as a receipt for goods, evidence of the contract of carriage, and sometimes a document of title.

Incoterms

A standardized set of international trade terms published by the International Chamber of Commerce that defines the responsibilities of buyers and sellers for delivery, risk, and costs.

EXW (Ex Works)

An Incoterm meaning the seller makes goods available at the seller's premises, and the buyer bears all costs and risks of transport and export clearance.

FCA (Free Carrier)

An Incoterm meaning the seller delivers goods to the carrier at a named place in the seller's country, with risk passing to the buyer at that point.

CIF (Cost, Insurance and Freight)

An Incoterm meaning the seller pays for carriage of goods to the port of destination, while risk transfers to the buyer once goods are loaded onboard the vessel at the port of shipment.