Simple guide for handling international payments in the plastic industry

Below is a simple guide for handling international payments in the plastic industry

Common Payment Methods:

Letter of Credit (LC):

• Bank guarantees payment
• It is under a strict documentation
• It is the safest method
• It costs more
• ideal for new relationships (buyer, seller)

Wire Transfer/T/T: 

Wire Transfer/T/T (Telegraphic Transfer) is a direct electronic transfer of money from one bank account to another, commonly used in international trade to send payments between buyers and sellers.

• Direct bank transfer
• Common payment method
• Different terms: 30% advance, 70% before shipping, 100% advance, Net 30/60/90 days
• Faster than LC

30% advance, 70% before shipping: Buyer pays 30% of total cost upfront when ordering, and must pay remaining 70% before goods are shipped

100% advance: Full payment is required upfront before the order is processed or manufactured
Net 30/60/90 days: Payment is due within 30, 60, or 90 days after the invoice date or delivery of goods, with no advance payment required

LC (Letter of Credit) is a bank-issued document that guarantees payment to a seller if specific conditions are met, reducing risk in international trade by having the bank act as an intermediary between buyer and seller.

Payment Terms:

New Suppliers:

• 100% advance payment
• 30/70 split payment
• LC for large orders
• Sample payment first
• Small trial orders

Established Suppliers:

• Net 30/60/90 terms
• Open account
• Regular payment schedule
• Volume-based terms
• Credit line options

A credit line is a preset borrowing limit that a bank or lender extends to a customer, allowing them to borrow money up to that limit whenever needed and repay it over time.

Open account is a payment method where goods are shipped and delivered before payment is due, based on trust between the seller and buyer. The buyer typically pays within an agreed timeframe (like 30, 60, or 90 days) after receiving the goods.

Risk Management:

Documentation:

• Have a proforma invoice
• Purchase order
• Bank documents
• Shipping documents
• Ask for quality certificates

A proforma invoice is a preliminary bill of sale sent to buyers before a shipment, outlining the goods, the quantities, and the prices to be paid, but is not a final or official invoice for payment.

Safety Measures:

• Use trusted banks
• Verify supplier details
• Document everything
• Start small
• Build relationship

Practical information:

Cost Considerations:

• Consider the bank charges
• Consider the exchange rates
• Consider the transfer fees
• Take into account the documentation costs
• Take into account the insurance costs

Best Practices:

• Have clear payment terms
• Have clear written agreements
• Have regular communication with suppliers/customers
• Keep records of transactions
• Monitor transactions

Things to watch out for:

• Unusual bank accounts
• Pressure for quick payment
• Sudden change of payment details
• Unclear documentation
• Too low prices