Navigating International Payments

By Attorney Chris Callaghan

Venturing into the global market can be exciting, but it comes with its challenges—especially when it comes to getting paid. Many international businesses prefer to be paid in full before shipping products overseas. While this eliminates the risk of non-payment, it can also mean losing sales to competitors with more flexible payment options. Let’s dive into the world of international payments and explore the best methods to keep your global customers happy and your cash flow steady.

Payment Methods: A Spectrum of Options 

To thrive and outshine foreign competitors, you need to offer attractive sales terms backed by appropriate payment methods. The goal? Get paid in full and on time while minimizing risk and accommodating your buyer’s needs. Here are the five main methods of payment in international transactions, each with its own perks and pitfalls.

The Risk Game: Exporters vs. Importers 

In international trade, the timing of payments can be a game of tug-of-war:

Exporters: For you, a sale is a gift until you see the money. You want to get paid as soon as possible, ideally before the goods leave your hands.

Importers: For them, any payment is like a donation until they get the goods. They want the goods first and prefer to delay payment until they’ve sold them and made some money.

1.  Cash-in-Advance: The Secure Option 

Cash-in-Advance means you get paid before you ship the goods. This eliminates credit risk but isn’t very attractive to buyers, as it affects their cash flow. Common options include wire transfers and credit cards, with escrow services becoming popular for smaller deals. However, insisting on this method might drive your buyers to competitors offering better terms.

2.  Letters of Credit (LCs): Bank-Backed Security 

Letters of Credit are one of the most secure methods available. An LC is a bank’s promise to pay you, the exporter, provided you meet the terms and conditions laid out in the LC. This method is excellent when you can’t get reliable credit information about the buyer but trust their bank. LCs also protect buyers since payment is only required once the goods are shipped as agreed.

3.  Documentary Collections (D/Cs): Bank-Facilitated Transfers 

In a Documentary Collection, your bank collects payment from the buyer’s bank in exchange for documents needed to obtain the goods. This method uses a draft requiring payment either on sight (document against payment) or on a specified date (document against acceptance). While cheaper than LCs, D/Cs offer no verification process and limited recourse if the buyer doesn’t pay, making them less secure.

4.  Open Account: Buyer-Friendly Terms 

An Open Account transaction means you ship the goods and deliver them before payment is due, typically in 30, 60, or 90 days. This method is great for buyers in terms of cash flow but risky for you. However, due to fierce competition, many buyers push for open account terms. You can mitigate non-payment risks by using trade finance techniques and export credit insurance.

5.  Consignment: Payment Upon Sale 

Consignment sales mean you get paid only after the foreign distributor sells the goods to the end customer. While this is risky, it can make you more competitive due to better product availability and faster delivery. Success in consignment depends on partnering with a trustworthy distributor and having insurance to cover goods in transit or with the distributor, reducing the risk of non- payment.


For both importers and exporters, choosing the right payment method is crucial to balancing risk and staying competitive. While cash-in-advance offers the most security for sellers, more flexible terms like letters of credit, documentary collections, open accounts, and consignment can attract more buyers and secure international sales. By understanding and strategically using these payment methods, you can navigate the global market with confidence and success.

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