International Payment Terms

International Payment Terms used in Foreign Trade

Group 1 – Documentary Credits

Irrevocable documentary credits

CREDOC – Unconfirmed, period of time for payment unspecified
CREDOC/nM – Unconfirmed, period of time for payment stated
CONCREDOC – Confirmed, period of time for payment unspecified
CONCREDOC/nM – Confirmed, period of time for payment stated

Revocable documentary credits

RECREDOC – Period of time for payment unspecified
RECREDOC/nM – Period of time for payment stated

Group 2 – Collections

COLLECT – Clean collection 2.2 Documentary collection
DOCOLLECT – Period of time for payment unspecified
DOCOLLECT/nM – Period of time for payment stated

Collection of documentary payments (CMEA)

INNO – With immediate payment and later acceptance
INPA – With prior acceptance

Group 3 – Payment by instalments – PARTS

Group 4 – Other types of payment

Payment on an agreed date

AAAA/MM/JJ – Payment on a fixed date

Date of payment determined by delivery of the goods

ANTICIP – Payment in advance 4.1.2.2 CASH – Payment on delivery
REMBURS – Payment to the carrier on delivery
ULTIMO – Payment by end of month of delivery
ULTIMO/nM – Payment at the end of a period following the end of the month of delivery
DEL/nM – Payment at the end of a period following delivery

Date of payment determined by receipt of the invoice

CASHFAC; CASHINV – Payment on receipt of the invoice
FACULTIMO; INVULTIMO – Payment on the last day of the month of receipt of the invoice
FACULTIMO/nM; INVULTIMO/nM – Payment at the end of a period following the last day of the month of reciept of the invoice
FAC/nM; INV/nM – Payment at the end of a period following receipt of the invoice

Optional dates

DIS n% nM; ESC n% nM – Discounts
INT nM n% – Interest for delayed payment
COMPENS – Compensatory payment
CONSIGN – Payment on consignment

Group 5 – Special arrangements

AGREE – Payment by agreement
HABIT – Payment on customary terms

Group 6 – Without payment – NOPAY

Source: Unece

International Payment Terms by Foreign Trade

Method	Usual Time of Payment	Goods Available To Buyer	Risk to Seller	Risk to Buyer	Comments
CASH IN ADVANCE	Before shipment	After payment	None	Complete. Relies on seller to ship exactly the goods expected, as quoted and ordered	Seller’s goods must be special in one way or another, or special circumstances prevail over normal trade practices (e.g., goods manufactured to buyer-only specification).
LETTER OF CREDIT (L/C)(See next two items.)			Commerical Invoice must match the L/C exactly. Dates must be carefully headed. “Stale” documents are unacceptable for collection.		Letters of Credit require total accuracy in conforming to terms, conditions, and documentaion. Consult your United Shipping Associate member for determining feasibility of terms and conditions.
CONFIRED IRREVOCABLE CREDIT	After shipment is made, documents presented to the bank.	After payment	Gives the seller a double assurance of payments. Depends on the terms of the letter of credit.	Assures shipment is made but relies on exporter to ship goods as described in documents. Terms may be negotiated prior to L/C agreement, alleviating buyer’s degree of risk.	The inclusion of a second assurance of payment (usually a U.S. Bank) prevents surprises, and adds assurance that issuing bank has been deemed acceptable by confirming bank. Adds cost and an additional requirement to seller.
UNCONFIRMED IRREVOCABLE CREDIT	Same as above	Same as above	Seller has single bank assurance of payment and seller remains dependent on foreign bank. Seller should contact his banker to determine whether the issuing bank has sufficient assests to cover the amount.	Same as above	Credit can be changed only by mutual agreement, as stipulated in a sales agreement. Becomes open account with buyer’s bank as collection agent. Foreign bank may have problems making payment in sum or timeliness.
DRAFTS(See next two items.)	Remittance time from buyer’s bank to seller’s bank may still take one week to one month.		Drafts, by design, should contain terms and conditions mutually agreed upon.		A draft may be written with virtually any term or condition agreeable to both parties. When determining draft tenor (terms and conditions), consult with your banker and freight forwarder to determine the most desirable means of doing business in a given country.
SIGHT DRAFT (with documents against acceptance)	On presentation of draft to buyer.	After payment to buyer’s bank.	If draft not honored, goods must be returned or resold. Storage, handling, and return freight expenses may be incurred.	Assures shipment but not content, unless inspection or check-in is allowed before payment.	A draft can be a collection instrument used to exchange possession and title to goods for payment. Seller is essentially drawing a check against the bank account of the buyer. Buyer’s bank must have pre-approval, or seek approval of the buyer prior to honoring the check. Payble upon presentation of documents.
TIME DRAFTS (with documents against acceptance)	On maturity of the draft	Before payment, after acceptance	Relies on buyer to honor draft upon presentation.	Assures shipment but not content. Time of maturity allows for adjustments, if agreed to by seller.	Payable based upon the acceptance of an obligation to pay the seller at a specified time. Although a time draft has more collection leverage than an invoice, it remains only a promissory note, with conditions.
OPEN ACCOUNT	As agreed, usually by invoice	Before payment	Relies completely on buyer to pay account as agreed	None	All terms of payment, including extra charges and terms should be mutually understood and agreed upon prior to open account initiation. Companies conducting ongoing business are candidates for open account terms of payment. Seller must measure not only buyer’s credit reliability but the country’s as well.