Types of Payments/Types of Payments
|Unit 4.6-Types of Payments
Types of Payments
This type of payment indicates immediate payment to the buyer after
- presentation of sight draft (bill of exchange)
- presentation of conforming documents
- the stipulated (advising, confirming or issuing) bank has had reasonable time to examine documents
- the documents are found to be in order
It is important to recognize that “immediate” does not mean within hours, but within a reasonable period of time. To be on the safe side, it is wise to anticipate a minimum of 72 hours/3 business days after the above steps have taken place.
In this situation, payment is made to a buyer at a specified or determinable future date stipulated in the letter of credit or documentary collection, providing that the documents are found to be in order. An example is 60 days after date of transport document or invoice date. No draft is called for under this type of payment. It is important to remember that a buyer will have credit/collateral/cash tied up until payment is made; and if a deferred payment is made through a letter of credit, it is guaranteed to a seller just as if it were made immediately. The risk increases for a seller if the remitting bank is located in a risky country.
The payment type known as an acceptance is similar to a deferred payment. In this case, however, a “term” or “usance” draft is presented together to a stipulated bank along with the other required documents. Once the documents and draft are accepted, then the draft will be drawn on and payable at a future date as stipulated in the letter of credit. For example 30 days’ sight would mean payment will be made to the seller 30 days after “sight” (the remitting bank has looked at, reviewed and accepted) of the documents.