The paper “ Global Trade Operations” is an engrossing example of a business assignment. Payment is made in exchange for the provision of goods and/or services or for the fulfillment of a legal obligation (Bishop, 2004: 78). Legally the payer is the party that makes a payment’ while the payee receives the payment. This is also applicable to goods in international trade that can be facilitated through the following four ways that are recognized by banks: Cash with order/cash in advance: - where the buyer provides funds for the goods to be bought plus the transportation costs in advance before the seller allows for the goods to be transported.
The country or buyer risk is thus avoidable. It is thus the most suitable mode of payment. Open account: - is also free from the risks since it also entails the depositing of funds to an account (seller’ s) by the buyer before the goods are released. This form of payment guarantees the seller in receiving the funds for the goods he provides regardless of the presence of both risks. Documentary credit: - here the bank(s) provides a Letter(s) of Credit (L/C); this letter of credit is driven by the buyer’ s agreement to the seller’ s requirement for this method of payment.
The buyer asks his bank to open a documentary credit that is in favor of the seller. The seller required to study this document thoroughly to ensure everything matches. The L/C is only suitable if both parties fulfill their parts in the agreement and therefore the presence of both risks is reduced. Documentary collection: - this pertains to the Bill of Exchange (B/E) an unconditional demand for the payment of a specific amount of money by the buyer to the seller.
The collecting bank uses this method of payment to collect from the buyer especially if a credit period is provided. The lack of detailed scrutiny here as with the Documentary Credit brings about the presence of both country and buyer risks that can lead to the buyer withdrawing from the transaction without payment when the goods have arrived at the destination. The lack of ‘ guarantee’ from the banks increases the seller’ s chances of loss-making in case the buyer defaults (Grath, 2005: 56).
Bishop, E., 2004. Finance of international trade. New York: Butterworth-Heinemann.
Grath, A., 2005. International trade finance: the complete guide to risk management,
international payments, guarantees, credit insurance, and trade finance. London: Nordia Publishing Limited.
Incoterms 2010: ICC rules for the use of domestic and International Trade Terms