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last updated: 29th July 2011

A number of methods of payment have been developed to manage the payment process for international trade. These methods can, of course, also be used be in national transactions. The main ones are:

A banker's draft is normally drawn on the currency of the selling country and is paid on presentation of an invoice or pro-forma invoice.

A telegraphic/wire transfer makes payment directly into the supplier’s nominated bank account.  It is paid on presentation of a pro-forma invoice. Details that are required to set up a telegraphic/wire transfer include the name of the supplier’s bank, sort code and its address; the account number and account title.

Documentary credit, usually known as a letter of credit is an agreement between the purchaser’s and supplier’s banks to make payment on the production of certain documents.  Letters of credit may be revocable (ie can be cancelled) or, more commonly irrevocable (ie cannot be cancelled). Payment may be made in agreed instalments (stage payments), for example, payment of 30% on presentation to the purchaser’s bank of shipping documents; 50% on presentation to the purchaser’s bank of the signed delivery docket and the remaining 20% within 30 days of completion of acceptance tests.

Note: there is usually a bank charge associated with setting up both wire transfers and letters of credit.

It is recommended that you liaise directly with your Finance Department and Head of Procurement.
 

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