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PAYMENT 1
PAYMENT TERMS
FOCUS 1. Read and discuss the lead-in and the letters.
LEAD-IN
| Standard forms have been developed not only for delivery terms, but also for the terms of payment that should be agreed upon. However, no clear and internationally applicable definitions of the various terms of payment have so far been laid down by the International Chamber of Commerce or similar institutions; instead, certain terms of payment have become established as commercial practice. The Buyer and the Seller pursue different interests when agreeing on terms of payment. The Seller will try to obtain payment as quickly as possible to finance some part of the production costs and avoid the risk of non-payment. The Buyer of the goods, in contrast, has an interest in delaying payment as long as possible, preferably until receipt of the goods themselves, to minimize his financing delay costs and to exclude delivery and quality risks. Terms of payment can be assessed according to different criteria depending on the objectives embraced; e.g. according to the due date of payment, the place of payment, the security of payment for the exporter, the security of delivery for the importer, the interest charges incurred through financing the sale or purchase, and the transaction costs. | ||
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| These are the terms of payment commonly used in foreign trade: · Advance payment. Downpayment. Payment before delivery of the goods. (CBD – cash before delivery, CWO – cash with order). · Payment on invoice. Payment due upon receipt of invoice or goods. (COD – cash on delivery). · Open terms at some days upon receipt of the invoice or statement of account. · Collection arrangements: – D/P – Documents against payment: payment for collection and documentary credit; – D/A – Documents against acceptance of bills of exchange. | ||
NEGOTIATING THE TERMS OF PAYMENT
Payment on invoice is to be effected within some time upon receipt of the invoice, i.e. at some days.
A Proforma Invoice is a detailed statement of costs, which is sent to the Buyer as a request to pay for the goods in advance, or as confirmation of quotations, or as information records to estimate the coming charges, or as a Customs document.
THE BUYER OFFERS NEW TERMS OF PAYMENT
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