What aspect of the exporting business do you find most challenging? It is indeed difficult to navigate the marketing, logistics, and regulatory aspects of international trading. However, many exporters will agree that not receiving funds on time can be exasperating.
Must-Know Terms in the Export Industry
To better understand the payment process of exporting, here are ten terms you should know:
- Open Account (O/A): In international trade, an open account transaction is a sale that has goods shipped and delivered before issuing payments, usually 30-90 days after delivery.
- Letter of Credit (L/C): The term "international letters of credit" refers to a bank's commitment to pay an exporter if the terms of the L/C are followed by a foreign buyer.
- Uniform Customs and Practice for Documentary Credits: The Uniform Customs and Practice for Documentary Credits (UCP 600) is a group of regulations used by banks for letters of credit and other payments.
- Consignment: Consignment is a variety of open accounts where the exporter receives payment following the sale of goods by the foreign distributing partner to customers. It's perilous for exporters.
- Cash in Advance: Exporters remove credit risk or the possibility of non-payment because payment comes before the transfer of goods to the buyers' ownership.
- Collections: Also known as documentary collection, this payment type involves using banking mediums to take care of more than the fund transfer for the exporter's payments. The bank also controls the product until it receives remittance.
- Bank Draft and Transmittal Letters: Bank draft and transmittal letters assist the delivery of exported goods; they are vital for the correct documentation for organizing shipping goods in the proper routes.
- Telegraphic Transfer: Also referred to as wire transfer, the telegraphic transfer is a standard method used to receive payment when making international exports.
- Arbitration: Rather than having one party suing another, arbitration is agreed upon by both parties. As a result, each side submits a dispute to arbitration.
- EXIM Bank: The Export-Import Bank of the United States (EXIM Bank) is the authorized agency in charge of export credit in the US. It ensures that US businesses can take advantage of exporting opportunities through improved access to funds.
With a firm grip on these ten terms, exporters can approach the payment aspect of their business better and make profits sooner.
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