Advantages and Disadvantages of International Payment Methods
|International payment methods||4|
|Cash in advance (nature, advantages, disadvantages)||5|
|Open account (nature, advantages, disadvantages)||6|
|Letters of Credit (nature, advantages, disadvantages)||7|
|Documentary collections (nature, advantages, disadvantages)||8|
|Consignment (nature, advantages, disadvantages)||9|
(Nature, advantages, disadvantages)
Consignment in international trade is a variation of the open account method of payment in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer. An international consignment transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells the goods for the exporter who retains title to the goods until they are sold. Payment to the exporter is required only for those items sold. Goods not sold after an agreed upon time period may be returned to the exporter at cost. Exporting on consignment is very risky as the exporter is not guaranteed any payment and someone outside the exporter’s control has actual possession of its inventory. However, selling on consignment can provide the exporter some great advantages which may not be obvious at first glance.
• Consignment can help exporters compete on the basis of better availability and faster delivery of goods when they are stored near the end customer;
• It can also help exporters reduce the direct costs of storing and managing inventory, thereby making it possible to keep selling prices in the local market competitive.
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