Types Of Payment

Types Of Payment

For an amount of money transferred during purchase/selling process, creating a system/payment method that benefits both parties (minimizing risks, confirm security, accommodating needs and etc) is no doubt, essential, with the goal of getting paid in full and on time.

Payment Risks Between Buyer And Seller




As shown here, the risk varies and inverse between the exporter and the buyer. For the seller/exporter, any advance payment is not considered as a total sale until it’s been paid in full, while for the buyer/importer the amount given is not considered as a payment, until the goods are received, safe and sound.

During the interval, the advance payment paid/received are nothing more than an intention to make a transaction. For the sellers, it’s a gift; for the buyers, it’s a donation.

Concerns Regarding Payment

Thus when it comes to giving money/anything valuable to others, concerns do come by hand in hand. The risks are far greater compared to business done locally or at least within the same country. Plus, you may not know the financial condition or credit worthiness of the other party, not to mention potential natural disaster that may occur during business that may affect your company’s balance report.

Types Of Payment Available

There are various types of payment options for your import-export business where each of them have their own differences of convenience (either to buyer, seller, or both), flexibility, cash flow effect to the account, and history of past transactions with the particular buyer/seller.

Prepayment/Advance Payment

One of the most common type of payment, where the consignment is paid through a cheque or online banking transfer (for out of country, it’s known as international cheque and telegraphic transfer: TT). This type of payment is the most ideal for seller as the payment can made in full at the soonest, as well as providing convenience for the seller to do the business efficiently.

To the buyer it can be risky in terms both of money and the goods, especially for the first time. To minimize the risk, a deposit (usually not more than 20% of the total sale) is made, with the balance is paid after the shipment has arrived according to initial condition.

Letter of Credit

This type of payment is issued by the buyer’s bank of choice, acted on the buyer’s behalf that it guarantees a payment when all of the conditions regarding the shipment is fulfilled. For example, the product arrives in whole with no defects or loss during shipment.

Although this type of payment also carries it’s own disadvantages, it’s still favored by both importer and exporter.

Types of LC

For more info on Letter of Credit, click on the links below.

The advantages of Letter of Credit to Exporter and to Importer.

What are the disadvantages of LC to an exporter and to Importer.

Checking the authenticity of Letter of Credit with Prime Banker.

Documents against Payments

A type of payment (DP/DAP for short, also known as Cash Against Documents) is a payment arrangement, made where the documents regarding the shipment is delivered by the carrier – either by sea, land, or air from seller’s instructions – to buyer ONLY after the seller/exporter collects the payment of the goods, in exchange of all of the required documents (bills, invoice, packing/shipment list, bill of lading, and etc), at the seller’s/buyer’s bank, where the bank will send the documents to the buyer.

Hence, the goods are with the carrier/agent for the time being, until the buyer provides all of the necessary documents for the shipment to be released.


Under a DP terms of payment (DAP terms of payment), the buyer collects original shipping documents from his bank after making necessary payment against sale of goods.

Interesting, real case study about Documents against Payments.

For more info on types of payment.

So, Which Types of Payment Is The Most Secure?

Following the real case study here you might wonder which type of payment is provides the most peace of mind, for both suppliers and buyers. As mentioned before, concerns arising from not knowing who you’re doing business with in real time is understandable.

Hence, certain protective measure are need to be taken, to ensure that the law is our side, and maintaining the integrity our our business.

For our part, our team work tirelessly to ensure that the business relationship is made with trust and reliability – no big speech here – we are inclined to long term business relationship, hence keeping it transparent and trustable at all times.

Given choice, our preferred payment is certainly through TT, Letter of Credit, as well as Document Against Payments, with Incoterms used either FOB or CIF, as shown here on how we work and the charges related.

Read more on Incoterms here.

Read here to know more on our policy, regarding fraud practices.

Source: 1,2,

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