Methods of Payment

Methods of payments

 

There are a number of flexible payment forms:

 

For small transactions/orders


 PayPal  / Prepaid cart / Visa / Master cart / Other carts


PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to traditional paper methods. A PayPal account can be funded with an electronic debit from a bank account or by a credit card. The recipient of a PayPal transfer can request a check from PayPal, establish their own PayPal deposit account or request a transfer to their bank account.

 

For bigger transactions/orders

 

T/T or Cash in Advance or telegraphic transfer or wire transfer (Pre-Payment)

Payment in advance is the simplest and easiest way of payment, but it presents high risks to the buyer/importer if the supplier/exporter proves to be unreliable and insolvent and either does not send the goods at all or sends out substantially different items.

The greatest risk to the buyer/importer is that either the goods will have legal and material defects or that the seller/exporter will not ship the bills of lading together with the goods so that he can become the buyer's ownership. For this reason, it is common practice to make a partial payment, 50-50 or 20-80.

 

For the buyer, advance payment tends to create cash flow problems and to increase risks. Furthermore, cash in advance is not as common in most of the world. Buyers are often concerned about the possibility that goods paid for in advance will not be sent; another consideration is the reduction in leverage with the seller if goods do not meet specifications. Exporters who insist on advance payment as their sole method of doing business may find themselves losing out to competitors who offer more flexible payment terms.

There are advantages and disadvantages with Cash in Advance terms. This method of payment involves direct Buyer/Seller contact without commercial bank involvement and is therefore inexpensive.

 

Down Payment

The Buyer pays the Seller a portion of the cost of the goods "in advance" when the contract is signed or shortly thereafter. There are advantages and disadvantages of down payment terms. The down payment method induces the Seller to begin performance without the Buyer paying the full agreed price in advance. The disadvantage is that there is a possibility the Seller may never deliver the goods even though it has the Buyer's down payment. This option must be combined with one of the other options to cover the full cost of goods.


Open account 

Is a transaction in which the goods are shipped and delivered to the buyer before the payment is due.  This is the most beneficial payment method for the importer due to the delayed payment but is the riskiest for the exporter.