By In the world of international trade, choosing the right international payment methods greatly affects the smoothness and security of cross-border transactions. With the global economy becoming increasingly interconnected, companies and individuals can now conduct international transactions more easily, though risks still remain.
Therefore, understanding the various types of international payment methods is essential so you can choose the one that best fits your needs. In this article, we will review 10 commonly used international payment methods in cross-border trade.
Also read: Things You Need to Know Before Making an International Transfer
1. Cash Payment
Although cash payments are no longer used for large transactions, this method is still used in small-scale international trade or when buyers and sellers are in the same location. The payment is made by handing over physical money, whether in local or foreign currency.
Advantages:
- Fast and direct: The transaction process does not require a third party.
- No risk of default: Once payment is made, the transaction is completed without outstanding debt.
Disadvantages:
- Theft risk: Cash payments are more vulnerable to loss or theft.
- Impractical for large transactions: Limits on how much cash can be moved make it inefficient for high-value transactions.
Although rarely used in large international transactions today, cash payments are still relevant for low-volume deals.
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2. Letter of Credit (L/C)
A Letter of Credit (L/C) is a financial instrument issued by a bank that guarantees payment to the exporter if all agreed terms and conditions are met. This payment method is frequently used in international trade involving high-value goods, such as commodity imports and exports.
Advantages:
- High security: Exporters are assured of receiving payment as long as the L/C terms are fulfilled.
- Reduces trust issues: Payment is guaranteed by a bank, making both parties feel more secure.
Disadvantages:
- Complex administration: Requires many documents and strict compliance with procedures.
- High costs: Banks often charge significant fees for using an L/C.
This method is very suitable for companies that frequently engage in international trade and need assurance that payment will be made as agreed.
3. Bill of Exchange
A Bill of Exchange is a written order from the buyer to a bank to pay a specified amount to the seller at a future date. This method is often used for transactions with longer payment terms, such as 30, 60, or 90 days.
Advantages:
- Payment flexibility: Buyers can pay within the agreed period.
- Tradable: Bills can be transferred or sold in financial markets.
Disadvantages:
- Complex administration: Requires clear agreement on terms and deadlines.
- Risk of default: If the buyer fails to pay at maturity, the seller may incur losses.
This method is fairly common in international transactions involving delayed payments within a specific timeframe.
4. Credit and Debit Cards
Credit and debit cards are now among the most popular international payment methods. Many businesses, especially in the e-commerce sector, accept payments via credit or debit cards from customers abroad.
Advantages:
- Fast and easy: Payments can be made instantly online or using a physical card.
- Widely accepted: Many businesses worldwide accept payments through credit or debit cards.
Disadvantages:
- High transaction fees: Some international credit cards apply extra charges, especially for overseas payments.
- Credit limits: Payments are limited by the card’s available credit limit.
Credit and debit cards allow overseas customers to make purchases quickly and conveniently without carrying cash or waiting for bank transfers.
5. Telegraphic Transfer (Cable Order)
Telegraphic Transfer (TT) is an electronic money transfer method between banks using a communication network to send payment instructions abroad. It’s faster than traditional methods like checks or money orders.
Advantages:
- Fast and secure transfers: Funds can be sent directly to the recipient’s account in a short time.
- Flexible: Can be used for transactions in various currencies.
Disadvantages:
- High costs: Banks often charge fees for telegraphic transfers, especially for international transactions.
- Requires bank access: Both parties need to have bank accounts to complete the transfer.
Telegraphic transfers are commonly used in international transactions that require quick and efficient settlement.
Read also: Make Transactions Easier, Automated, and Real-Time with API Disbursement
6. Countertrade / Barter
Countertrade, also known as barter, is a payment method where goods or services are directly exchanged without using money. This method is often used in international trade between countries facing foreign currency shortages or economic sanctions.
Advantages:
- Avoids using foreign currency: This is highly beneficial for countries facing foreign exchange deficits or economic restrictions.
- Reduces reliance on banking systems: Transactions are carried out directly between parties without going through banks.
Disadvantages:
- Valuation challenges: Determining equivalent value between goods or services can be difficult and time-consuming.
- Lacks flexibility: This method is not suitable for all types of transactions.
Although rarely used in major international markets, countertrade still plays a role in certain trade relationships.
7. Check
A check is a more traditional payment instrument and was commonly used in international transactions, though it’s less common today due to the rise of electronic methods. A check instructs a bank to transfer a specific amount of money to the recipient listed on it.
Advantages:
- Clear proof of payment: A check provides official proof that a payment has been made.
- Safer than cash: Lower risk of theft compared to paying with physical cash.
Disadvantages:
- Slow clearing process: Checks may take several days to clear, especially international ones.
- Can be rejected by banks: If there are insufficient funds, the bank may reject the check.
Checks are often used in international transactions involving payments of specific nominal amounts.
8. Gold
Gold has been used as a payment method since ancient times and is still considered a stable form of currency today. Countries experiencing hyperinflation or those wanting to avoid currency fluctuation often turn to gold in international trade.
Advantages:
- Stable value: Gold retains its value regardless of inflation or economic instability.
- Recognized globally: Gold is accepted in nearly every country as a form of payment.
Disadvantages:
- Difficult to transport: Moving large amounts of gold requires tight security.
- Not practical for small transactions: Gold is more suitable for high-value transactions.
Gold is commonly used by countries or companies looking to avoid the risks of currency exchange rate fluctuations.
9. Open Account
An open account payment method allows buyers to receive goods first and pay within a certain period after shipment. It’s a favorable option for buyers since they don’t need to make payment upfront.
Advantages:
- Flexible payment: Buyers can pay after receiving and selling the goods.
- Buyer-friendly: Buyers have more time to sell the goods and earn revenue first.
Disadvantages:
- Risk for seller: Sellers take on the risk if buyers fail to pay on time.
This method is often used in international trade where buyers and sellers already have established trust.
10. International Remittance
International remittance is a fast and efficient method to send money abroad, widely used by migrant workers or companies for cross-border payments. Services like Wise, Transfez, and Remitly offer easy transfers at competitive fees, although some services have high costs and are restricted by local regulations.
Advantages:
- Fast process: Money can be received almost instantly in the destination country.
- Many service options: A wide range of money transfer providers offer flexible solutions.
Disadvantages:
- High fees: Some remittance services charge high fees, especially for international transfers.
- Country regulations: Certain countries impose strict regulations on remittance services.
International remittance is a practical solution for sending money overseas, though the cost may be a consideration.
Use Jack for Your Business Needs
Choosing the right international payment method is key to smooth cross-border transactions. Jack offers advanced solutions through its International Transfer feature, allowing you to send money to over 50 countries with transparent and competitive fees. With a flat transaction fee and competitive exchange rates, Jack simplifies global transfers for businesses without hidden costs.
Jack also offers other premium features like Corporate Card, Local Transfer, and Bill Payment, all accessible from one platform. Register your business today and take control of your financial operations with Jack.
