For any trade finance transaction, it is imperative that the buyer and seller agree upon the correct or appropriate form of settlement.
These payment terms include:
|
Method of Payment |
Receipt of goods by buyer before payment |
Settlement date |
Risk rating for seller |
Risk rating for buyer |
|
Open account
|
Yes |
As per contract terms |
Highest |
Lowest |
|
Consignment Account
|
Yes |
After sale by the consignee to a third party |
High |
Low |
|
Usance Collection
|
Yes |
At maturity as per contract terms |
Medium to high |
Low to medium |
|
Sight Collection
|
Yes |
After presentation of documents |
Lower |
Low to medium |
|
Documentary Credit
|
No |
After presentation of documents at sight or maturity as per contract terms |
Low (against compliant documents) |
High |
|
Payment in Advance
|
No |
Prior to shipment |
Lowest |
Highest |