It is intermediary service offered by a Bank for the collection of the export prices of the exporters in accordance with predetermined payment method.
It is a payment method where the importer transfers the cost of goods in cash and in advance before the actual shipment of the goods by the exporter. This method is generally preferred by the parties who have previously done business and established a trust relationship with each other. The importer has the risk of losing money due to no-delivery or risk of receiving low quality goods while the exporter has no risk since it receives the cost of goods in advance and in cash.
Cash Against Document
Cash Against Document is a payment method where the exporter ships the goods and sends the document representing the ownership of the goods to the importer’s bank through banking system and where the delivery of the document to the importer is subject to the payment of the document price.
Cash Against Document transactions are subject to “Uniform Rules for Collections” numbered 522 of International Chamber of Commerce.
Cash Against Goods
Cash Against Goods is a payment method where the exporter ships the goods and sends the document representing the ownership of the goods directly to the importer and where the cost of goods is paid with a predetermined maturity/term. Since the buyer receives the goods before the payment, the main risk belongs to the exporter. This payment method can be preferred where there is a fiduciary relationship between importer and exporter.
Letter of Credit
The letter of credit is an irrevocable payment guarantee provided to the exporter (beneficiary) by a bank (the issuing bank) upon the instruction of the importer upon the submission of the documents complying with the conditions defined in the Letter of Credit.
Since the relation between applicant/orderer and beneficiary is regulated by the banks, it can be seen a safer payment method when compared to other payment methods.
Letter of Credit transactions are subject to “Uniform Principles and Applications for Letters of Credit, 2007 Revision, numbered 600 ICC Publishing” of International Chamber of Commerce.