International shipping requires you to follow strict rules, especially when it comes to freight payment methods. So, how do you pay for your shipment? Fortunately, there is a useful rule of thumb you can follow.
Remember to select a payment option that fits your particular customer needs. It’s also possible for you to further break down these options as some freight payments are designated for imports and some for exports.
4 Common Im-Export Freight Payment Options
- Cash Against Goods (CAG)
The Bill of Exchange governs this particular shipment payment method. The non-interest-bearing order can be used for international trade. A Bill Of Exchange binds one party to the payment of a fixed sum of money to the other party at a predetermined date.
In a CAG import, the export agrees to relinquish control over the cargo post shipment. The importer’s bank guarantees the shipment to protect the exporter. This happens when the importer agrees to pay for all the goods mentioned in the Bill of Exchange. As a result, after the receipt of goods, the bank of the importer becomes liable to the exporter.
- Cash Against Documents
Similar to CAG, this payment option involves the Bill of Exchange and is similar to CAG in many other ways. In Cash Against Documents the exporter allows the importer’s bank to control the goods. The bank can release the shipment and all relevant documents upon its discretion.
These items are released only when the receipt of payment is provided by the importer. You essentially ship your cargo to an overseas company which then pays the bank. The bank in turn, pays you so that you can take possession of your container (s).
- Cash In Advance
Cash in Advance is a simple form of international trade transaction. The importer is required to pre-pay for the complete shipment of goods.
- Letter of Credit (L/C)
This freight payment option is very popular and works much like a typical credit card. When a party orders x number of container loads from the exporter, the importer receives a Letter of Credit from their bank. The importer’s bank forwards this L/C to the exporter’s bank. Once the importer receives the shipment, the exporter’s bank pays the exporter.
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