METHODS OF PAYMENT
There are many methods of payment.
CREDIT CARDS permit to buy goods and services and to pay them the following month.
SWITCH CARDS are plastic cards issued by a bank to bank account holders. They are used in cash machines and in shops to buy the goods. The money spent is directly deduced from the bank account.
A CHEQUE is an order to a bank to pay a sum of money to a named person or organisation.
The person who makes the order is the Drawer.
The bank that pays the money is the Drawee.
The person who gets the money is the Payee.
A BANK TRANSFER is an irrevocable order of payment issued by the debitor's bank to a bank in the creditor's country. It can also be called SWIFT because it is sent electronically by SWIFT (Society for Worldwide Interbank Financial Telecommunication)
TheDRAFT (also called Bill of Exchange) is the document that orders a bank to pay a fixed sum of money on demand or a certain date.
the drawer: the company that orders the draft and will receive the money
the drawee: the company that receives the draft and who will pay.
the payee: usually the same as the drawer.
A draft must contain: the name of the drawer, the drawee and the payee; the signature of the drawer and the drawee; the sum of money due; the date and place of issue and the date of maturity
A draft can be:
- a sight draft
- draft at 30/60/90/120 days
- at a fixed date
We talk about BANK GUARANTEE when the bank guarantees payment of a sum of money that an importer must give to on exporter if the importer doesn’t pay. A bank guarantee is made through a letter of credit.
In case of letter of credit, the importer asks his bank to open credit terms in favor of the exporter. The issuing bank issue a letter of credit that is irrevocable, that means that the bank guarantees payment and sends the letter of credit to the exporter's bank (advising bank). The advising bank informs the exporter about it. The exporter sends the goods to the importer and gives all documentation to the advising bank. The advising bank sends these documents to the issuing bank. The issuing bank controls the documents and issues a draft for the exporter, so that he can get a payment for the goods. At the end, the importer receives the draft, returns it to the exporter and honors it and collects the goods.