International payment is an activity associated with the process of importing and exporting goods. Currently, there are many international payment methods applied to bring convenience to businesses. Join Kin Kin logistics to learn more about popular international payment methods in today’s article.
What is international payment?
International payment in English is International Payment. This is understood as the payment activity between the parties to the contract for the international sale of goods. In addition, in the case of signing a service contract with foreign elements, international payments will also be required.
International payment operations will usually be done by banks through sending promissory notes, checks, banknotes, etc. These transactions will often be associated with foreign exchange currency exchange activities.
What is international payment?
Features of current international payment methods
Entities engaged in international payments will reside in different countries. In fact, each international payment transaction will need to involve at least 2 countries. International payments will involve the legal systems of different countries. The parties will often have to choose uniform legal norms. The most popular language used in international payments today is English. International payments use the currency of the buyer’s country, the seller’s country or the currency of a third country. Currencies will exist as means of payment.
The role of international payments
International payment is an activity that directly affects the user business and the whole economy.
The role of international payments in the economy
The world is currently in an integrated economy, so international payment activities play an important role for the economic development of each country. In fact, to develop in the current context, no country can apply a closed-door policy.
International payments play the role of an indispensable link in the chain of economic activities. This is the most important stage of the transaction of buying and selling goods and services between individuals and organizations. Through international payment, the relationship between goods and money will be cohesive and continuous.
International payments also help strengthen the economic exchange relationships between countries and make the payment process safe. With payment intermediaries being banks, customers will be guaranteed their interests and receive more thorough advice.
Role for banks
International payments not only play an important role in the economy, but also have a great influence on banks today. Through international payments, banks can better meet customer needs for related financial services. Thereby, helping the bank increase revenue and improve its reputation.
The international payment activities performed well by the banks will help the import and export credit activities to develop more. Other related activities such as foreign currency trading, bank guarantee in foreign trade, etc.
International payments also help banks modernize technologies. Accordingly, the bank will apply advanced technology so that payment activities can be done in the shortest time and safest. Thereby, increasing the bank’s competitiveness compared to other banks.
Compare popular international payment methods
Guarantee and standby credit
Guarantee is the fact that the third person or guarantor will commit to the guarantee recipient about the performance of obligations on behalf of the guarantor. In import and export transactions, there are usually contract performance guarantees, advance payment guarantees, machinery and equipment guarantees, delivery guarantees without original bills of lading, etc.
Standby Letter of Credit is an irrevocable, independent and binding undertaking upon issue. The issuer will have to commit to the beneficiary to pay the document on suitable terms and conditions.
Guarantee and standby credit
Money transfer method
The method of money transfer is a method that often brings many risks to the parties involved. This method of money transfer is usually where the importer asks the bank to transfer a certain amount of money to the exporter. The place and means of remittance shall be determined by the importer.
However, there are many cases where the importer will not transfer the goods to the exporter until the goods are fully received. This can be seen as an advantage for the importer but a risk for the exporter.
Payment of Documentary Credits
Payment of Documentary Credit is also known as Letter of Credit. This international payment method is quite popular today. LC is considered as a payment method with a balance of interests between the two parties when exporting and importing goods.
This payment method will transfer the responsibility for payment from the importer side to the authorized bank. From there, the exporter delivers and receives money in a short, safe time.
However, LC payment often poses many complicated regulations. You need to comply with some relevant legal features. LC is an independent document from the international sale of goods contract. The bank will be obliged to pay the exporters when they present all the appropriate documents within the stipulated time period.
Method of asking for collection
Collection method is the payment with the funds from the payment instruments entrusting to the collecting bank on behalf of the money stated on the payment instrument. Current international payment instruments will usually include drafts, commercial promissory notes, international bills, and receipts. Currently, there are 2 methods of payment for collection: by smooth collection and by collection with documents.