TERMS OF PAYMENT

&
METHODS OF PAYMENTS
By
Shaukat Orakzai

TERMS OF PAYMENT
When negotiating with the buyer, the seller needs
to determine the detailed terms of payment to be
included in the sales contract. This can be a
complicated process in which, initially, both
parties could have different views.
In order to enter negotiations it is essential to
know what details the terms of payment must
contain and what minimum requirements the
seller must adhere to in order to maintain the
expected level of security.

REQUIREMENTS
When payment should take place (time of
payment)
Where payment should take place (place of
payment)
And
How payment should take place (method of
payment).

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Time of payment

The negotiations will determine when the payment will

take place.

To avoid future disputes it is important that all events in

the terms of payment are related to certain clearly dened
points on the time axis of a contract.

The size of the transaction, the delivered goods and the

length of the credit discussed and the security for it will
nally decide what credit terms can be offered and may
bridge the gap between the different views of time of
payment.

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Place of payment

The question of where payment should take place must be

dened, since it determines the fulllment of the
obligations of the buyer. This also relates to what form of
payment is used.

The buyers interest that the place of payment is stated in

the terms of contract, particularly with larger amounts,
when every day when interest can be earned may be of
importance.

The place of payment should therefore be dened as being

at the premises of the sellers chosen bank and account
number, and the corresponding SWIFT BIC should always
be included in the terms of payment to secure accurate and
rapid transfer.

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Methods of payment
How payment is made depends on the role of the
banks involved and affects the security offered to both
buyer and seller
Popular methods of payment used in international
trade include:

Cash with Order (CWO)-the buyers pay cash when he places

an order.
Cash on Delivery (COD)-the buyer pays cash when the
goods are delivered.
Documentary Credit (L/C)-a Letter of credit (L/C) is used;
gives the seller two guarantees that the payment will be made
by the buyer: one guarantee from the buyer's bank and another
from the seller's bank.

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Bills for Collection (B/E or D/C) -here a Bill of Exchange

(B/E)is used; or documentary collection (D/C) is a
transaction whereby the exporter entrusts the collection of
the payment for a sale to its bank (remitting bank), which
sends the documents that its buyer needs to the importers
bank (collecting bank), with instructions to release the
documents to the buyer for payment.
Open Account- An open account transaction is a sale
where the goods are shipped and delivered before payment
is due, which in international sales is typically in 30, 60 or
90 days. This method can be used by business partners who
trust each other; the two partners need to have their
accounts with the banks that are correspondent banks.

Thank You