Payment methods in international trade and problems arising in application

The main purpose of this study is to provide a general understanding of payment methods, their use and application in international trade. The choices of the payment method on the basis of which the payment shall be effected under an international trade contract, shall be determined by the parties?agreement. The most fundamental methods of payment are cash in advance, open account, consignment sales, documentary collections and letter of credit. Due to the physical distances between buyer and seller, and the fact that the transaction may have taken place without the two parties actually meeting, minimizing exposure to risk is on the minds of both parties. The buyer wants to make sure they receive their order in acceptable condition and on time, and the seller needs to know they will get paid for it. The letter of credit is the most common method of payment for goods in international trade because of the security it offer to the exporter and the importer. Its use has been considered so important that it is referred to as the ?lifeblood? of international commerce. A documentary credit, also known as a letter of credit is written undertaking by a bank on behalf of a buyer to pay the seller an amount of money within a specified time provided the seller presents documents strictly in accordance with the terms laid down the in the L/C. 109 Payment under a documentary letter of credit is based on documents, not on the terms of sale or the physical condition of the goods. L/C is purely documentary transaction that seperate and independent from the underlying contract between the buyer and seller. Letters of credits used in international transactions are governed by the International Chamber of Commerce the Uniform Customs and Practice for Documentary Credits(UCP). The newly revised edition of the UCP 600, 2007 revision will be effective as July 01, 2007. When we analyzed the payment method distributions in Türkiye concerning import and export per years, we get remarkable conclusions and these conclusions didn?t verify our assumption in which we assumed that the level of the risk determines the choice of payment method. In the analysis, it was seen that, importers were using cash in advance, exporters were using open account in international trade. In Türkiye, the importers and exporters aren?t taking into account the risk factor when they are choosing the payment methods and they are using the method that entertains the highest risk. KEY WORDS 1. International Trade 2. Payments Methods 3. mport 4. Export 5. Letter of Credit / Documentary Credits