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As globalisation makes international trade more and more accessible, moving money safely and cost-effectively across borders is becoming an important consideration for many. Businesses and individuals alike need to be knowledgeable about the different international payment methods available. This will help them alleviate risk and reduce their money transfer costs.

In this article, we explore the most common and trusted international payment methods, as well as what to consider when making or receiving payments.

International payment method considerations

When selecting international payment methods the following criteria must be taken into account:

  • Security;
  • Buyer/seller acceptability;
  • Cost; and
  • Ease of use

As with all trade, there are some risks associated with international trade. These include:

Commercial risks: Exporters run the risk of non-payment for merchandise after it is exported. Importers run the risk of making payment and then not receiving the merchandise, or receiving faulty merchandise.

Political risks: If the country supplying or purchasing merchandise undergoes political instability or war, trade with that country may no longer be possible.

Transfer risks: When currencies are exchanged, the bank in the local country needs to have a sufficient amount of each currency to make the exchange. Occasionally banks in Third World countries run out of foreign currency. Should this happen, the bank will delay payment until the foreign currency is available.

A number of payment methods are available to meet the various needs of buyers and sellers. These are discussed below.

In addition to choosing a suitable payment method, a valid contract between buyer and seller is required. In trade law, two agreeing documents, such as the purchase order and invoice, are deemed a valid contract. Alternatively, for large transactions, an international trade lawyer may draw up a sales contract.

Payment methods used in international trade

Cash before or after delivery of merchandise

Importers favour cash on delivery for merchandise, as it eliminates risk and improves their cash flow. For the same reasons, exporters prefer merchandise to be paid in full before it leaves their premises. When considering payment before or on delivery of goods, carefully evaluate the reliability of the supplier or buyer. Cash before/after delivery is a convenient payment method and is often used when there is a strong trust relationship between buyer and seller.

Typically, buyers use bank transfers or credit cards to facilitate payment.

Open account

If the buyer is well-established, has a long and favourable payment record, or has been thoroughly checked for creditworthiness, an open account is a simple and convenient way to conduct payment. With this method, the buyer orders the merchandise as required and makes payment after an agreed period.

The seller carries all the cash flow pressure and risk when using an open account. Open accounts are generally only used when business from the buyer is significant enough to outweigh this downside. Open account payments are typically made by bank transfer.

Letter of Credit (LC)

Letters of credit (LCs) are often used to protect both the buyer’s and seller’s interests.

LCs are a guarantee of payment issued from the buyer’s bank upon receipt of all documents required by the terms and conditions stipulated in the letter of credit. Typical documents required by a letter of credit include:

  • Shipping documents;
  • Insurance documents; and/or
  • Inspection documents

The seller is protected, as he is guaranteed payment after providing the required documents. The buyer is protected, as the bank will only pay after proof that the terms and conditions in the LC are met.

In practice, this is how a LC works:

  1. The buyer arranges with his bank to have a LC issued.
  2. The LC lists the terms and conditions of payment.
  3. The LC is given to the seller.
  4. The seller chooses to accept the LC and sends the merchandise to the buyer.
  5. The seller then takes the shipping documents and any other required documents stipulated in the LC to the bank.
  6. The seller’s bank checks that the documents comply with the LC and sends the documents to the buyer’s bank.
  7. Upon receipt of the documents, the buyer’s bank checks that the documents comply with the LC and pays the seller.

Check the following when working with LCs:

  • LCs are governed by an international body called the Uniform Customs and Practice for Documentary Credits (UCP). This must be stated on the letter of credit.
  • LCs normally have an expiration date. Ensure that the date stated on the LC gives the seller enough time to send the required documents to the buyer’s bank.
  • If the documents presented to the buyer’s bank are incorrect, the bank is under no obligation to pay.
  • If you are not experienced in working with LCs, it is recommended that you use a company, freight agent, banking consultant, or legal consultant who is experienced in LC terms and conditions. This will help you avoid any problems with making and receiving payments.
  • If the seller is concerned about the inability of the buyer’s bank to pay due to political instability or lack of foreign exchange in the buyer’s country, then the seller can request that the LC be confirmed by a second bank. This is called a confirmed letter of credit. The second bank guarantees payment should the first bank not be able to make payment. The second bank is typically a bank in the seller’s country or a First World country.
  • Take into consideration that banks charge fees for LCs. The fees, as well as the entity responsible for payment of the administration fees, should be stated on the LC and/or agreed upon by the buyer and seller.

Documentary bank collections

Documentary bank collections are similar to LCs in that banks collect payment from the buyer on behalf of the seller against the delivery of required documents. The major difference between the LC and documentary bank collections is that for documentary collections, the buyer’s bank does not guarantee payment.

The seller obtains payment security in one of two ways:

  1. Withholding documents: As per the LC, the required documents are sent to the buyer’s bank. The buyer’s bank agrees to give the documents to the buyer only after the buyer has authorised payment. Without these documents, the buyer cannot clear the merchandise at customs.
  2. Bill of exchange: The bank agrees to give the buyer the required documents upon the buyer signing a bill of exchange. A bill of exchange is an unconditional order to pay. It is acceptable in the international court and enforcement upon non-payment is immediate. A bill of exchange is often used to ensure payment after an agreed period, such as 30, 60, or 90 days.

Check the following when working with documentary bank collections:

  • Documentary bank collections are governed by an international body called the Uniform Rules for Collection (URC). This must be stated on the sale contract.
  • The terms and conditions of the documentary bank collections need to be agreed upon in the sale contract.
  • If you are not experienced in working with documentary bank collections, it is recommended that you use a company, freight agent, banking consultant, or legal consultant who is experienced in documentary bank collection terms and conditions to avoid any problems with making or receiving payments.


An escrow is often used in conjunction with trade that originates from internet-based business-to-business trading platforms.

Internet escrow places money in an independent and licensed third party’s control to protect both buyer and seller in the transaction. When both parties verify that the transaction has been completed per the set terms, the money is released. If at any point there is a dispute between the parties to the transaction, the process moves along to dispute resolution governed by the third party. The outcome of the dispute resolution process will decide what happens to money in the escrow.

Payment to the third party is typically made by bank transfer.

Tools used for international money transfer

Bank transfers

1. Transfers through a local bank

The foreign exchange division of your local bank can facilitate international payments or receipts. Some banks also have international payment facilities as part of their Internet banking offering. Alternatively, you can also contact your private banker, or business banker, or visit your closest bank branch with a foreign exchange division. Not all bank branches have a foreign exchange division – be sure to find out which bank branches in your area have one before making the trip.

Your bank will require the following documentation from you:

  • Your FICA information. If you are using your local bank, they should already have these documents.
  • The reason for the international transfer.
  • If you are importing or exporting, the bank will need the banking details, SWIFT code, and address of the receiving bank.
  • A signed international transfer form from the bank.

Once submitted, the bank will process all the relevant information and book the exchange rate. The bank may contact the applicant to confirm that the exchange rate has been booked. Exchange rates fluctuate constantly and there is little control in regards to exactly when the rate is booked. This results in a small exchange rate exposure risk for the duration of the process. After the exchange rate is booked, the bank will arrange payment. The whole process usually takes between 2-5 days.

The banks have a set fee structure for foreign exchange transactions. Clients are charged as follows:

  • Administration fees. An administration fee is charged for the transaction. This fee varies depending on the amount that is exchanged. Both the buyer’s and seller’s banks charge a fee. The buyer can choose whether or not he will pay the seller’s bank’s fee.
  • Mark-up: The banks add a margin or mark-up on the foreign exchange. The exchange rate quoted by the bank is usually the SPOT exchange rate plus 1.5%-2.5%.

If the volume and frequency of foreign exchange are sufficient, a better fee structure can be negotiated with the bank. The more money transferred, the better the fee structure.

2. Transfers through a local bank using a private exchange broker

Private exchange brokers negotiate a better exchange rate and lower admin fees with the local banks due to the large volumes of foreign exchange they manage.

Transferring money with a foreign exchange broker works in the same way as transferring money through a bank, but with the following advantages:

  • Savings. You save on the bank’s foreign exchange rate and bank administration fees.
  • Convenience. All documents can be provided electronically to your broker. You can also contact your broker telephonically during office hours, which means you never need to leave your office.
  • Control. You decide on the time and date to book the spot exchange rate. This way, you avoid paying higher exchange rates due to the timing when the bank books your rate.

Due to our customer base of over 18,000 importers and exporters, Import Export License has secured favorable exchange terms with local private exchange brokers to bring these benefits to you. Set up your account and start trading.

Credit card payments

Using a credit card for international payments is a popular payment method for smaller transactions. Credit card payments are quick and convenient. Payment is typically made using an online secure payment portal. Payment typically takes between 1-2 days.

Credit card foreign exchange administration fees are charged according to the standard fee structure from your credit card supplier and cannot be negotiated. Credit card payment costs are typically higher than bank transfers.

Due to fraudulent activities associated with credit card transactions, it is important to make sure that your merchant and the portal you are using are both valid and secure.

In conclusion

By weighing up the risks and benefits around security, acceptability to the buyer and seller, cost, and ease of use for each of the above payment methods, you can make a calculated decision on the international payment methods best suited to your business or transactions.

Tracy Venter

Tracy transitioned from industry to founding Import Export License in 2011, aiding importers and exporters with customs compliance. In 2014, she launched Trade Logistics, focusing on supporting startups and SMMEs in international trade. Since then, Tracy's team has assisted 35,000+ businesses, reaching 32,000 traders monthly through newsletters. She's contributed to publications like Entrepreneurs Magazine and SME Toolkit, spoken at trade events, and participated in customs forums. Import Export License helped with the pilot trial to launch customs' new online registration platform (RLA). Through Trade Logistics she has launched 3 online import-export training courses. She holds an Honours degree from Stellenbosch University and a Cum Laude Masters from Middlesex University. In her spare time, Tracy enjoys running, mountain biking, playing piano, and cherishing moments with her husband and four children.