Payment Terms In International Trade

How to pay in International Trade is another important subject for discussion.

Cash In Advance (CIA)
In this type of payment value of the goods is transferred by buyer when official order is transacted. It means first payment is done than goods are being produced. Generally, buyer receives goods 3-4 week later than payment. It is the safest way of sales from supplier point of view.

Cash Against Documents (CAD)
In this payment term, supplier prepares goods and delivers to buyer. At the same time documents such as Invoice, Bill of Lading, Certificate of Analysis are being sent to buyer’s bank.
For example, Supplier in Italy delivers goods to customer in Bursa and sends all the documents to customer’s bank in Bursa. When goods arrive in Bursa, buyer transfers the payment and receives the documents by his bank. Then he can clear goods and bring them into his premises.

Letter of Credit (LC)
In LC payment, buyer’s bank guarantees payment. According to agreement, bank realizes the payment. If LC is prepared as irrevocable, buyer can not change, delay or postpone the payment. It is done by local bank automatically. To get additional guarantee, supplier can ask his bank to ensure this transaction. In this case, LC becomes a confirmed one.
For example, Our company, based in Istanbul agrees with a German supplier to purchase some goods valued € 25,000. In this case, we ask our bank to prepare an irrevocable LC with this amount. Our bank realizes the payment when it is due. Let’s assume that both our company and our bank was collapsed due to a big economical crisis in Turkey. Than, German bank realizes the payment if it was a confirmed and irrevocable LC. It means German bank is liable of Turkish bank too.

Due Date, … days
In this payment term, supplier should fully trust to customer. Supplier prepares and delivers goods and sends all the documents directly to customer. Buyer makes the payment 30-45 or previously agreed days later than the invoice date. According to Turkish Import Regime, imports with due date payments are subject to a certain tax. Rate of this tax is 6% for the time being.