Terms of payment

There are 4 basic terms of payment in foreign trade.
 
1)  payment in advance (down payment) (předčasně)
2)  payment by means of L/C
3)  payment against documents D/P – document against acceptance D/A
4)  payment after delivery

payment in advance
Is usually effected by a mail or telegraphic transfer from the buyer’s account to the seller’s banking account.
a)  In the export trade payment in advance is the most favourable for the seller because the risk of non-payment for the goods is totally excluded. But payment in advance is not too frequent in foreign trade because the buyers are generally unwilling to pay for the goods before they can lay hands on them. If they agree to it they insist on a special discount on the price.
b)  In the import trade on the other hand payment in advance is the least advantageous of all terms of payment because it is a credit transaction with all its risks.
 
More frequent than payment in advance is therefore a combination of this term of payment with other terms. For example part of the total value of the goods is paid in advance and the remaining parts are paid either by a L/C or against documents or after delivery. This method of payment is used especially when the goods form big investment unit such as factory equipment.
 
a letter of credit – L/C
Is the most current and one of the best means of payment. The buyer instructs his bank to open an account with a bank in the seller’s favour. The seller may draw it against presentation of certain documents stated in the L/C – called shipping documents. The L/C is opened for a fixed sum and its validity may be extended. Irrevocable (neodvolatelný) L/C means that it cannot be recalled before the date of expiry ... (uplynutí)
In foreign trade payments are usually made by irrevocable L/C against shipping documents. There are 2 kinds of L/C.
a)  personal L/C is available against the signature of the owner and against presentation of his passport or identity card. It is used mostly by travellers.
b)  documentary L/C is called so because it is available against presentation of shipping documents.
 
D/A – Documents against Acceptance (doklady proti přijetí), the buyer receives the documents after his accepting a Bill of exchange drawn (vystaveny) on him for the price, at a given period may be 30, 60, or even 90 days.
 
D/P – documents against payment (proti platby) means (cash against documents) The specified documents with a copy of the invoice are handed over to the buyer on payment of the full price in cash.
 
Payment on credit – payment after delivery.
In the export trade selling on credit is usually the worst term of payment. After the buyer has taken possession of the goods it depends only on him when and how much he will pay. It is difficult for the seller to force him to do so often even by legal action. Therefore before the buyer is granted credit the seller must get a complete Credit Report (informace o úvěroschopnosti). It is information about his financial standing, yearly turnover (roční obrat), regularity of payments to other sellers. If the seller does not find the buyer reliable (spolehlivý) enough, he either insist on another tem of payment or he asks for banker’s guarantee.