Payment terms influence both cash flow and commercial risk. Common methods include advance payment, telegraphic transfer (T/T), documentary collection and letter of credit (LC). Open account arrangements may also be used between established trading partners. The right method depends on the relationship, market, transaction value and risk tolerance.
Advance payment gives the exporter stronger cash-flow protection, while the buyer carries more risk before shipment. Open account gives the buyer more flexibility but can expose the exporter to payment risk. A letter of credit can provide structured bank-controlled conditions, but it requires careful document compliance and may involve additional banking costs.
Before agreeing payment terms, confirm the currency, bank charges, payment milestones, required documents and the date on which payment becomes due. Make sure the beneficiary and bank information is independently verified to reduce fraud risk.
For larger transactions, consider professional trade finance advice. Your bank can explain available instruments and compliance requirements. Never rely on a generic online explanation for a high-value transaction without checking the rules and terms that apply to your specific deal.