Understand Payment Terms on Invoice Example for Logistics

Payment terms on invoice example for Logistics

welcome to daily Logistics in this video we are going to talk about what are international payment terms dot you pay for the goods you buy from the local market same as that you need to pay for the goods and services you buy from the international market one business generally a buyer from one country buys goods from a few businesses or we call a supplier from another country for the production of another good or for sale for that there are methods we make the payment to those suppliers those methods are internationally recognized and agreed upon commonly known as International payment terms these terms avoid disputes between suppliers and customers with regard to the payments unlike in local payments whatever the payment term you use there should be a tenor to count the payment date what are the common terms of payment here is the list of payment method which are internationally recognized and we are going to learn about one Advanced payment two DP documents against payment three da documents against acceptance four LC letter of credit five open account six Consignment basis now let's learn about the international payment terms in detail first we will look into the Advan payment as the name reflects payment or ranges in advance sometimes supplier starts production after the customer made the payment there are times where the supplier request buyer to pay a percentage from the invoice value before the mass production and pay the rest of invoice value after production completion Goods shipped to the conone or after goods are on board in some cases you may have seen 80% Advance Plus 20% after 30 days from invoice date here payment term is a mix of advanced and da payment terms you may have seen cases where payment term mentioned is 100% on BL or TT on BL here the customer requests to make the payment only after they received the draft BL and still payment term goes as advanced payment remember if payment should make upon receiving the BL conson should present the BL to the bank in order to arrange the payment if the payment is on draft BL 100% TT on draft BL in such payment should arrange once the customer receives the draft BL instead of waiting for the final BL however if the payment for the goods does before shipping it consider as an advanced payment in international payment terms let's see what is telx you might have heard people saying telx telegraphic payment or TT payment did you ever wonder about the difference between telx and advanced payment Telex or the telegraphic transfer TT is the method used by Banks to inform another bank about payments made by one party to another most people call Telex to the advanced payment do remember Telex is only a method uses to do interbank communication and payment term should properly mention as advanced payment so what are the documents need to arrange Advanced payments it's only the performa invoice signed or stamped by the seller do remember Advanced payments arrange against the performa invoice not against the commercial invoice request a performa invoice from your supplier please check whether the supplier has mentioned the payment term as advance and their Bank details in performa invoice properly what you should do after the payment make sure to collect the payment advice debit advice or the Swift copy from the bank as you need it for Customs clearance remember you do not have to present original documents for shipment clearance when the payment term is 100% Advanced endorsing copy documents from the bank would be enough hence you can ask supplier just to email scan copies of original documents to save waiting time for original documents what is endorsing copy documents present the copy of original invoice packaging list BL and payment advice to the bank then they will chop it with their seal and confirm the payment you made beforehand is tally with the commercial invoice and payment is properly made to the supplier bank will mention the reference number in debit advice or the Swift copy in the invoice that indicates payment you have made under the mentioned reference number is for the invoice bank has chopped let's check on the documents against payment in order to clear the shipment from Customs you need the original documents of the cargo under DP term supplier send the original commercial documents to the buyer Bank through supplier's bank you can collect the original documents after you make the payment for invoice value DP term is also known as CAD where CAD stands for cash against documents or encad where encad stand for net cash against documents there are cases supplier directly send original commercial documents to buyer bank without going through supplier's bank in such situations the supplier should include their Bank details separately to the document set in order to affect the payment under DP term in common the supplier sends the original BL with the documents without surrendering most of the banks have their own formats for the supplier to fill and include into documents set when suppliers send documents directly to buyer Bank we call this format as direct covering letter or direct collection order next payment term we are going to learn is the documents against acceptance this term goes as documents against acceptance where supplier offer a credit period to the buyer most commonly DA 30 days da 60 days and da 120 days use as da terms the supplier will offer the credit period from the invoice date or the BL date when the term is Da the supplier sends the original documents through their Bank to the buyer's bank without making the payment Bank chop the original set of documents and release to the buyer to clear the shipment buyer is entitling for an agreed credit period at the same time obliged to arrange the payment within the agreed period when the payment term mention is net 30 days net 60 days that means payment should arrange within 30 days 60 days from invoice date keep in mind to mention the tenor in your payment term same as in DP term supplier might send an original set of documents to buyer's Bank directly without going through their bank with the direct covering letter when the term is Da include the bill of exchange to the documents remember the buyer must sign the bill of exchange and hand over to the buyer's bank one more thing to remember if the BL is surrendered first need to go to the shipping line and collect the delivery order presented to the bank for the bank to release the original documents if the BL is original first collect documents from bank and hand over one original BL to shipping agent when obtaining delivery order from them the next payment method we will talk about is open account payment open account is also a DA payment term but a more convenient way for buyers here no Bank involves for the transfer of documents supplier directly sends the original documents to buyer and buyer do the clearance with the payment term open account here the supplier gives a credit period to the buyer upon completing the given credit period buyer present the commercial invoice cus deck and bl to bank and arrange the payment this method can practice when there is a good relationship between supplier and buyer the reason is there is a risk for the supplier on receiving the payment since no Bank involved guaranteeing the payment what if the payment term is a mix of advanced and DP da payment terms consan needs to arrange the agreed percentage of the invoice value in advance if there is a balance to be paid as documents against payment or documents against acceptance original documents set should be sent to the buyer's Bank by the seller for cargo clearance original documents should be present further the balance payment should be made as agreed under DP or da bank will will endorse the documents as per the payment terms mentioned in the commercial invoice and release them to the buyer the next payment and term we are going to talk about is letter of credit we have done a separate video for letter of credit due to the importance and wide usage of the payment term hence suggest you refer the video on LC we have mentioned the link to the video below for easy reference next we will talk about the consignment account basis here transactions happen in both ways the conone in one transaction becomes the seller in another transaction same goes with the seller too in Consignment accounts both parties agree on a date to settle their account this time period can be a year once in every 3 months or whatever the date preferred by parties I know you need to see below example to have a clear picture on the consignment account basis imagine person person a from country C deal with person B in country da send T to B while B send garments to B under this payment term A and B don't arrange payments for each shipment at the end of the agreed period they check the goods flow and find who should pay to whom then they will settle the account so we talked about the payment terms used in international transactions this image shows the risk distribution in each payment term for both buyer and seller and letter of credit stays is the middle balancing the risk distribution of both buyer and seller it is important you to be thorough on these payment terms to handle safe transactions that's it for this video what are your thoughts let me know in the comment section and don't forget to check out our other content if you like our Channel consider subscribing to the channel for more content like this thank you for watching