10 International means and means of payment and more

Weaccounting - International Payment Tools | Economic activity in human life leads to trade transactions. A payment instrument is required in a trading transaction or to make a payment process. In international trade, transactions will be more complex because it involves producers and consumers from two or more countries.

International Payment Instruments

The process of international trade activity raises the import and export process. And considering each country one with another sometimes have different currency types. So required international payment instruments include:

1. Foreign exchange

Understanding of foreign exchange is a number of foreign exchange used in financing international trade transactions.

An entrepreneur (exporter/importer) in conducting foreign economic transactions typically uses foreign exchange as a means of payment. Foreign exchange used as a means of payment of foreign currency is known as foreign exchange. The purpose of using country foreign exchange in more detail is as follows:

1. To pay for capital goods
2. To finance official travel of government officials abroad
3. To repay debt and interest on foreign loans
4. To donate donations to other countries requiring funds such as disaster-stricken countries and so forth.
5. To fund national development programs in general.

2. Foreign Exchange (Foreign Exchange)

Foreign exchange or foreign exchange is foreign currency and other means of payment normally used to finance or conduct international economic and financial transactions.

The amount of foreign exchange held by the government and private sector in a country is called foreign exchange reserves. In a country, the foreign exchange reserves are grouped into 2 (two) namely official forex reserve and country forex reserve.

The price of a currency against another currency is known as the exchange rate. Exchange rate plays an important role in international trade, why? because the exchange rate allows comparing the prices of all goods and services produced by various countries.

Currency that becomes unity count in international economic and financial transactions and also often used as a means of payment is called hard currency. Hard currency is a currency that is widely used as a count unit in international transactions. Currency in question is usually derived from developed countries whose economy is strong and tend to be stable. Compared to other currencies, this currency often gets appreciation (increase in value).

In addition, there is also a currency that is rarely used as a unit of calculation and means of payment because its value is relatively unstable or often experience a decline in the value called soft currency. This currency comes from developing countries such as Malaysia, Philippines, and Thailand.

International Payment Method

International payments can use several ways:

1. Cash Payment

Payment by cash in general by using the currency of the country (domestic) or with foreign currency. Through banks, cash transactions between countries concerned can be directly done.

Payment in this way is usually done when the goods are shipped by the exporter by check, why? Because:

1. Require a large cash supply.
2. Must be based on the trust and honesty of the exporter.
3. Likely to lose capital due to goods received later.

Looking at the existing conditions, many use payment in this way, on the other hand, it alleviates importers who have financial constraints (financially).

2. Open Account

Payments with open accounts are the opposite of cash. With open account payments, the goods are sent to the importer without being equipped with a pay warrant or other official documents. 

The risk of payment in an open account is borne entirely by the exporter. If the seller and the buyer know each other, this way will certainly be more efficient, stable economic and political circumstances that will avoid the risk of changing the exchange rate.

This payment method is done by sending the goods to the importer without any document or payment order. Plus the payment depends on the discretion of the importer, So such risks must be enough capital because to reduce the risks arising.

3. Letter of Credit (L / C)

The way of payment with the letter of credit (L / C) is widely used by sellers and buyers in general in export or import transactions. Letter of credit is a guarantee letter on intercompany transactions issued by the bank (issue bank). 

When using L / C payments, there are requirements that must be completed such as documents issued by a shipping company that contains a notice of the goods delivered (bill of lading) and certificate of origin.

4. Commercial Bills of Exchange or Trade Bill

Bills of exchange or drafts or trade bills is a warrant to the buyer to pay a certain amount of money at a specified time. Another definition specifies that the Commercial Bills of Exchange is a deal made by an exporter with an importer by withdrawing a money order from an importer of a price amount of goods contained in a trade contract.

The withdrawal of this money order must be accompanied by several documents such as Bill of Lading, invoice, certificate of origin, customs certificate and others contained in the trade contract.

A money order itself is a payment order instructed by a person to pay a sum of money in accordance with the date and amount in the draft to the drawer.

5. Personal Compensation

Personal compensation is the method of settling debt transaction between the importer/exporter by transferring it to a person who is still in one country.

6. Payment by Consignment

Payments made after the goods shipped are sold in whole or in part a consignment payment method. If between seller and buyer or someone already know each other well, usually will perform this consignment payment transaction. So the status of the goods to be sold is goods with a certain period of time and concerning payment.

In this field, we can also use bank services in the delivery of billing documents and bonded warehouses for goods cargoes, with these services the possibility of seller risk can be minimized.

If the goods are sold, the buyer pays the amount of money on the value of the goods to the bank, and the bank will deliver delivery instruction to the bonded warehouse to issue the goods.

7. Advance Payment

This payment is by the buyer providing funds to the seller before the item is shipped.

8. CounterTrade

This payment is also referred to as reciprocal trade because the seller will send a number of goods to the buyer as well as buy back the goods from the counterpart in accordance with the value of goods that have been sold.

That's the last 10 Tools and Payment Methods International (Cash, Oppen Account) and Others. Hopefully useful and Thank you very much for visiting. Like and share yaa!

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