How to Manage International Payment Methods and Risks?
The payment methods used in international trade directly affect the distribution of risk between the buyer and the seller. Methods such as advance payment, open account, documentary collection, and letters of credit (L/C) each carry different advantages and risks. A wrong choice can turn a seemingly profitable transaction into a loss.
For example, an open account payment may seem advantageous for the buyer but significantly increases the seller’s collection risk. Conversely, advance payment is safe for the seller while creating risk for the buyer. Letters of credit, which proceed through banks, are generally safer; however, if they are not structured correctly, they may lead to significant costs and delays. Therefore, the payment method should be chosen carefully according to the nature of each transaction.
In international trade, there is no “single correct payment method”; the right choice is the one that best fits the parties involved, the product structure, and the country risk.
IABOC provides consultancy on selecting the most suitable payment method by considering criteria such as buyer reliability, country risk, product value, and trade volume. We also support companies in preparing critical documents such as contracts, proforma invoices, and bank instructions, helping minimize collection risks throughout the process.