It's a kind of payment in which exporting company sends the goods to the purchaser prior to payment and the payment is paid in a previously specified period. In this payment method, after the exporter ships the goods to the purchaser, it sends the representation documents to the importer. So, this method is preferred when exporter and importer have a mutual confidence.
Importer is advantageous because it clears the goods from customs and has a chance to control them without making any payment.
Exporters can guarantee their payment by using the policies they issue on which the importer's bank will add a bill of guarantee.
How Does It Work?
Exporter sends the goods to the importer prior to payment.
Importer makes the payment in a previously specified period after it clears the goods from customs.
1. Do not inspect loading documents.
2. Do not get into the liability of payment unless they add any bill of guarantee in the policy.
3. Do act independently from sales contract.
1.Low cost – it enables cost controlling with the help of low expenses of the banks
2.It's a simpler and easier payment method compared letter of credit.
3.It provides guarantee to the exporter.
Exporter faces the risk that importer may not make the payment
(unless there is a policy having any bill of guarantee)