Ordinary people can now buy goods from overseas, source trade leads unavailable in their own country and trade on the markets with advanced training aids and software.

When you trade wholesale then the extra volume of sales demands a different approach. Paying for goods in your own country is a straightforward affair. You know the address, you pay in the same currency and if anything should go wrong you protected by the laws of your country.

When dealing with overseas suppliers it is not so straightforward. You cannot trade face to face; you may not even speak the same language, the currency is different and having no way of actually verifying the seller’s identity or even physical existence you accept a risk in buying goods unseen.

There are three ways of minimising risk when trading overseas.

The first method only to be undertaken if you absolutely trust the other person is to send cash and trust that you will receive goods by return. Fortunately in these modern times organisations such as Paypal offer a form of security if things do go wrong.

If you are in the position of being a seller then you are fortunate in being able to wait for payment to be received before sending any goods overseas.

This is called ‘open credit’ terms and is usually between buyers and sellers who have known each other for some time. It is not recommended for any new entrant into overseas trade.

The second means of arranging a trade with overseas partners is a Documentary Collection through your Bank. If you are importing goods the seller will forward all the documents you need through his Bank, who will pass them to your Bank who will only release them to you against payment, or any other agreed arrangement.

If you are exporting goods then you can ship the goods but the documents of title (in other words confirmation of ownership) are submitted through your Bank who will arrange to collect the funds on your behalf and pay you when received.

Documentary Collection works very well for buyers and sellers who have been dealing with each other for some time. If selling then you have the opportunity to forward goods against a bill of exchange. If you have extended a number of days credit to the buyer before he must make payment then the accepted Bill of Exchange can be discounted (sold) at your Bank (or any other) and you receive money earlier less the interest sum charged on the Bill.

The third method and that favoured by most importers and exporters is an Irrevocable Documentary Letter of Credit. These are discussed in the next section. There are Revocable Documentary Letters of Credits but as the name suggests these can be cancelled at any time by either party and are rarely seen.

Next : Irrevocable Documentary Letters of Credit

A Guide to International Trade

A Guide to International Trade - Introduction