Method of Payment | When You are Paid | When Goods are Available to Buyer | Your Risk | Buyer’s Risk |
Advance Payment | Prior to shipment of goods | Upon arrival of shipment | No payment risk | Goods not shipped. Late arrival of goods. Goods not as ordered. |
Confirmed Sight Letter of Credit | Upon the presentation of correct documents after shipment by confirming bank | Upon payment of drawing under LC and arrival of shipment | Inability to produce correct documents. Inability of confirming bank to pay. | Goods not as called for in LC |
Confirmed Term Letter of Credit | Upon maturity or discounting of accepted draft by confirming bank | Upon acceptance of draft and arrival of shipment | Inability to produce correct documents. Inability of confirming bank to accept or pay draft at maturity. | Goods not as called for in LC |
Unconfirmed Sight Letter of Credit | Upon the presentation of correct documents after shipment by issuing bank | Upon payment of drawing under LC and arrival of shipment | Inability to produce correct documents. Inability of issuing bank to honour LC. | Goods not as called for in LC |
Unconfirmed Term Letter of Credit | Upon maturity or discounting of accepted draft by issuing bank | Upon acceptance of draft and arrival of shipment | Inability to produce correct documents. Inability of issuing bank to accept or pay draft at maturity. | Goods not as called for in LC |
Documentary Sight Collection (Documents Against Payment) | Upon payment of draft by buyer after shipment by collecting bank | Upon payment of draft and arrival of shipment | Failure of buyer to pay leading to warehousing and insurance expenses. | Goods not as ordered |
Documentary Term Collection (Documents Against Acceptance) | Upon maturity or discounting of accepted draft by collecting bank | Upon acceptance of draft and arrival of shipment | Failure of buyer to pay at maturity. Loss of title to the goods, leading to legal expenses. | Goods not as ordered |
Open Account (Open Credit) | Upon receipt of goods or at an arranged future date by buyer | Upon arrival of shipment | Full reliance on buyer to pay. Loss of title to the goods, leading to legal expenses. | No payment risk |
Source: The Bank of Nova Scotia (Scotiabank) www.scotiabank.com