Risk of non-L / C payments

There are two kinds of payment methods in export-import transactions, namely Non L / C and with L / C. that is

Advance Payment

Namely, the importer pays in advance to the exporter for either partial payment or full payment before the goods are sent, and after receiving payment, the new export sends the goods.

Advantages:

This method of payment benefits exporters, because:

1. Before sending goods, the exporter has received payment in advance
2. Exporters can use the funds received for working capital, namely for the production process of goods to be sent
3. The exporter is in a safe position, because he has received payment before sending the goods

Losses:

1. While the loss from the advance payment method is the importer because of the risk:
2. Goods are not sent by the exporter so the importer does not receive the goods
3. Received goods are not in accordance with the order (the quality is poor or the amount is not suitable)
4. Goods received in a long time
5. There is a possibility of export bans from exporting countries

Consideration

1. The considerations that cause this method of payment are still widely carried out are:
2. The transaction value is relatively small
3. Exporters and importers already trust each other
4. Importer is a subsidiary of an exporter
5. Importers really need goods, while other options don’t exist (maybe because the items are rare)
6. Exporters are not sure of the credibility of importers

Coverage

To cover this transaction, you can use the following methods:

1. Request standby L / C from the exporter to guarantee that the shipment of goods will definitely be carried out
2. Ask the exporter for payment not full payment, but (for example 25%: 75%, 50%: 50%)

Open Account

This method of payment is the opposite of an advance payment, ie the exporter sends the goods first to the importer. After the goods arrive / documents are received, the new importer makes a payment to the exporter.

Advantage

This method of payment benefits the importer, because the importer gets credit from the exporter, namely receiving the goods in advance, so the importer can sell the item and the funds are used for the cash flow and only paid to the exporter if the cash flow is sufficient.

Loss

This method of payment is detrimental to the exporter because of the risks involved:

1. Does not accept payments from importers
2. Receive payment but not full amount because it is usually deducted by the importer with various reasons made
3. If there is an Exchange Control in the country of the importer, so that the importer cannot make payments because of
4. the rules of his country’s government, and the impact that the exporter does not receive payment

Consideration

The background of the transaction by means of payment like this is:

1. Exporters are absolutely sure that importers will pay
2. Exporters have good liquidity
3. Possibly the item is not sold in the country
4. The relationship between the importer and the exporter is very good, for example a subsidiary with a parent company

Coverage

To cover the transaction by means of this payment is to ask the importer to issue standby L / C.

Please note that this method of payment still dominates export-import transactions, even though it is actually very risky. Therefore, before signing the contract the exporter and importer are advised to choose the method of payment that is most appropriate and profitable for him