METHODS OF PAYMENT
Several basic ways of securing payment are offered, which will be employed in international trade to receive overseas payments for merchandise sold-out into the export market. A serious issue that determines the strategy of payment to be used, is that the money standing of the export client and also the level of trust in his ability and disposition to pay.
Determining the proper payment choice, therefore, conjointly depends upon many different factors. Listed below and hierarchic so as from most secure for the Producer/Exporter to least secure, are the fundamental (most unremarkably used) ways of payments:-
o   Profit advance.
o   Letter of credit.
o   Documentary assortment or draft.
o   Open account.
o   Different payment mechanisms, like consignment sales.

Details of every payment, choices are provided within the section below. Fulfill to mention, obtaining absolutely paid and on time ought to be of predominant concern to native Producers/Exporters. Altogether export transactions, the risk may be a major thought that must be decreased altogether business dealings. There are several factors that build commerce risk than domestic sales, however, there also are many ways of reducing risks, particularly in relevance payments. One amongst the foremost necessary factors in reducing risks is to grasp what risks exist, not simply at a money level, however conjointly in relevance business and technical aspects of the export business.
Payment Mechanisms

A.    Benefit Advance
Cash in advance, before cargo, is maybe the foremost fascinating technique of all. During this case, the Producer/Exporter is eased of assortment issues and has immediate use of the cash if a telegraphic transfer (TT) is employed. Payments by cheque, even before cargo, could end in a set delay of 4 to 6 weeks and, therefore, frustrate the first intention of receiving payment before cargo has been undertaken. Whereas this technique of payment provides early positive income for the Producer/Exporter, however, conversely, advance payment might produce income issues for the export client and will increase his level of risk.

Generally, benefit advance lacks fight and will, in some circumstances, enlighten the client that there's a scarcity of trust on the part of the Producer/Exporter. It's additionally potential that the export client could refuse to pay till such time as he has received the product ordered from the KSA company.
B.    Letters of Credit & Draft
Letters of credit (L/C) and drafts area unit employed in cases wherever export customers area unit involved that their product order might not be sent if the payment is formed on a benefit advance basis. This payment mechanism protects the interests of each Producer/Exporter and his export client. Beneath this technique of payment, documents area unit needed to be conferred to a nominative and in agreement bank within the KSA (confirming bank), before payment is formed. Each L/C and documentary drafts are also paid straight off, at sight, or at a later date. Drafts that area unit to be paid once conferred for payment area unit referred to as sight drafts. Normally, the nine ` Producer/Exporter expects the export client to pay the costs for the L/C or documentary draft, however, it's potential that some customers might not settle for terms that need this extra price. In such cases the KSA company should either absorb the L/C/draft prices or presumably lose the potential sale.

Since payment beneath these 2 ways is formed on the idea of documents, all terms of sale ought to be clear, such that and in agreement to avoid confusion and delay in payment. Within the same manner, the currency of payment ought to even be such that - if payment is to be created in Saudi Rials or U.S. dollars. International banks will usually supply alternative suggestions if terms can't be in agreement between the 2 parties to the sales contract.
Essentially, the KSA company is sometimes not paid till the advising or Confirming bank (KSA bank that pays the native company) receives the funds from the provident bank (customers' bank in his home country). It's going to be potential for the Producers/Exporter to be able to receive his funds earlier by discounting the L/C through a bank ñ this involves paying a fee to the bank for this service.
To undertake this kind of dealings, banks (both provision and confirming banks) can charge a fee for handling letters of credit and drafts (usually a tiny low share of the full quantity of payment). If fees for each the foreign and native banks assortment services area unit to be charged to the account of the Producer/Exporter (or the export customer), then this time ought to be expressly explicit within the KSA Company’s quotation/proforma, and eventually in any documentary L/Cs or draft that maybe raised.

In essence, an L/C adds a bank's promise to pay the Producer/Exporter (on behalf of the export, customer) once the KSA company has complied with all in agreed terms and conditions of the L/C that have been raised. Payment beneath a documentary L/C relies on the presentation of specifically in agreement documents to the bank and not on the Producer/Exporters terms and condition of sale of the product oversubscribed. Therefore, before any payment is formed, the bank answerable for creating the payment verifies that every one the conferred documents area unit precisely as needed by the terms of the L/C. After they aren't as needed, a discrepancy exists, that should be corrected before the payment may be created. The banks' role in corroborating documentary needs could be a mechanism that is necessary to make sure the total compliance of submitted documents with those per the L/C.
A L/C is also either irrevocable (this signifies that it can't be modified unless each the Producer/Exporter and therefore the export client comply with create the change) or revocable (meaning that either involved party could unilaterally create changes, ten ` while not seeking approval from the other). A revocable L/C is inadvisable as changes may be created to that while not initially agreeing with the KSA company. Besides, the L/C is also in sight, which implies cash upon presentation of documents to the confirming bank, or it's going to be a time or date L/C with payment to be created at a such that date/time within the future more details are a unit within the Drafts section on the subsequent pages.
Any changes created to an L/C once it's been issued is termed Associate in Nursing modification this might arise, as an example, if the Producer/Exporter is delayed, for a few reasons, in presenting the L/C documents to the bank or if the client desires to alter his commercial document. The fees charged by the banks concerned in amending the L/C is also paid by either the KSA company or the export client - however, WHO is to pay explicit charges ought to be per the first L/C. Since changes may become long and dearly-won, each effort ought to be created to make sure that the L/C is properly issued the primary time.
Details of a typical L/C dealings area unit show within the hooked up APPENDIX one, whereas data on however an L/C may be used is provided in APPENDIX two.

C.    Drafts or Bill of Exchange
A draft, typically conjointly known as a bill of exchange is analogous to receiving the export customers cheque, issued by a bank in his country (i.e. Receiving a cheque from afar off bank). Like all cheques, drafts typically carry the danger that they will not be honored by the bank e.g. Because of lack of funds within the customers' accounts.
D.     Sight Drafts
A draft is employed once the vendor desires to retain title to the cargo till it reaches its destination and is then obtained by the client. During this case, before the merchandise, cargo will be free, the first ocean bill of merchandise should be properly supported by the export client and relinquished to the shipping carrier, since it's a document that evidences title. Air waybills (AWB) of merchandise, on the opposite hand, don't have to be compelled to be bestowed so as for the export client to assert the products. For this reason, there's a bigger risk once a draft is being employed with Associate in Nursing air cargo.
In actual observe, the bill of merchandise or Associate in Nursing AWB is supported by the shipper and sent via the shipper's bank to the export customer's bank or to a different go-between at the side of a draft, invoices, and alternative supporting documents mere by either the client or needed by his country ís trade laws (e.g., packing eleven ` lists, diplomatic building invoices, insurance certificates, etc.). During this case, the bank notifies the client once it's received these documents, and as before long because the quantity of the draft is paid, the bank releases the bill of merchandise, facultative the export client to get the merchandise cargo. In actual observe, the bill of merchandise or Associate in Nursing AWB is supported by the shipper and sent via the shipper's bank to the export customer's bank or to a different go-between at the side of a draft, invoices, and alternative supporting documents mere by either the client or needed by his country ís trade laws (e.g., packing eleven ` lists, diplomatic building invoices, insurance certificates, etc.). During this case, the bank notifies the client once it's received these documents, and as before long because the quantity of the draft is paid, the bank releases the bill of merchandise, facultative the export client to get the merchandise cargo.

When a draft is being employed to manage the transfer of title of a product cargo, some risk remains as a result of the purchasers' ability or temperament to pay could amendment between the time the products area unit shipped and also the time the draft area unit bestowed for payment. Also, the policies of the mercantilism country could amendment. If the client cannot or won't get and claim the shipped product, then returning or taking them out becomes the matter of the native Producer/Exporter.
In this respect, Producers/Exporters ought to conjointly contemplate that foreign bank ought to talk over the draft for payment. If the negotiating bank is additionally the customer's bank, the bank could favor its customer's position, thereby golf stroke the KSA Company at an obstacle. For this reason, Producers/Exporters ought to consult their native international bankers to work out Associate in nursing acceptable strategy for negotiating drafts.

E.     Time & Date Drafts
If the Producer/Exporter desires to increase credit to his client, a draft will be won’t stipulate that the payment is due at intervals a the precise time when the client accepts the draft and receives the products e.g. Sixty days when acceptance. By linguistic communication and writing accepted on the draft, the client is formally indebted to pay at intervals the explicit time in agreement. Once this can be done the draft is termed a draft and might be either unbroken by the Producer/Exporter till the due date, or oversubscribed to a bank at a reduction for cash.
A date draft differs slightly from a draft therein it specifies a date on that payment is due (e.g. Dec thirty, 2004), instead of a fundamental quantity when the draft is accepted. It ought to be noted that once a draft or draft is employed, the export client will delay payment by delaying acceptance of the draft. A date draft will stop this delay in payment, however, it still should be accepted by the client.
When a bank accepts a draft, it becomes Associate in nursing obligation of the bank and A negotiable investment referred to as a draft is formed. A draft can even be oversubscribed to a bank at a reduction for cash.



F.    Open Account
In a foreign sales dealing, Associate in Nursing open account may be a convenient technique of payment and will be satisfactory if the export client is well established, has incontestable a protracted and favorable payment record, and/or has been totally checked for trustworthiness. Beneath Associate in Nursing open account, the Producer/Exporter invoices his export client, the United Nations agency is predicted to pay, beneath in agreement terms and at intervals a mere and in agreement time frame within the future.
Open account sales do, however, create some levels of risk, since the absence of documents and banking channels could create a legal social control of claims troublesome to pursue. During this state of affairs, the KSA Company could ought to pursue an assortment of payment abroad, which may be troublesome and expensive.
Before issuance a quotation/proforma invoice to Associate in Nursing export client, Associate in Nursing KSA company considering an Associate in Nursing export sale on an open account basis, ought to totally examine the political, economic, and business risks and consult their bankers if funding is required to undertake the dealing.