Exporting Fact Sheet - Payment Options

Summary

What Banks Can Do

Virtually all direct transactions between Canada and other countries are handled by Canadian chartered banks on behalf of their customers. The major banks have international banking divisions and offer a wide range of specialized services such as financing and investment, advisory services on market conditions, and more. Furthermore, through direct or indirect representation in the principal money market centres abroad, the banks are equipped to deal in foreign exchange, accept deposits and make loans in foreign countries.

Methods of Payment

Most export sales agreements stipulate, in some manner, that certain collection documents must be submitted in advance by the exporter to the buyer or its bank in order to generate payment once the goods have been received. The main documents include commercial invoices (the exporter's bill of sale), consular invoices (required by some foreign countries), certificates of origin (attesting to the origin of the exported goods), import licences (some countries require importers to obtain these), inspection certificates (health or sanitary certificates are required by many countries for animals, animal products, plants, and other agricultural products), and dock and insurance receipts.

The main methods of payment are:

• Letter of Credit

A legal document to arrange payment between an importer and exporter. It acts as security for both parties, giving the exporter confidence that the importer is able to pay for the goods while assuring the importer that payment will be made to the exporter only after the terms outlined in the letter of credit have been met.

Once the letter of credit has been drawn up and the application is accepted, the importer instructs the bank to transfer the payment to the exporter. The importer's bank passes this information to the exporter's bank, who then notifies the exporter that payment has been arranged. The exporter sends out the goods and later presents the required invoices and shipping documents to the bank in order to receive payment. There is no risk involved with the exporter receiving payment as long as the terms of the agreement have been followed.

The letter of credit ensures that:

1. Payment to the exporter will only be made after the terms of the agreement have been met.
2. The documents, which have been reviewed by the bank's experienced staff, are in order.
3. The exporter is assured of the importer's ability to pay and, as a result, a better price and more advantageous terms of payment may be offered.
   

• Alternatives to the Letter of Credit

For further information regarding exporting, see the document  Exporting Info-Guide   , visit the Trade and Export section on our Web site  Canada-Saskatchewan Business Service Centre  or contact the

Prepared by: Canada/Manitoba Business Service Centre