9 Kinds of International Payment Instruments

Timesofummah.com – The development of the world or globalization that has occurred has changed economic development, be it in the financial or trade sectors. Most countries experience economic changes, especially through international trade. By conducting international trade each country can promote economic growth.

Therefore, countries that carry out international trade make adjustments to their policies and implementation of international trade. By doing these two things, the international trade carried out will get mutually beneficial results or reciprocity.

International trade not only helps the economic growth of a country, but also participates in meeting the needs of other countries’ citizens. This is because no country can meet the needs of its citizens without conducting international trade. Therefore, every country must establish good relations with other countries.

However, do you know about the meaning of international trade itself?

Definition of International Trade

9 Kinds of International Payment Instruments

International trade is the exchange of goods or services carried out by two or more countries and what needs to be underlined in international trade is that all transactions must be mutually beneficial and can provide benefits between countries.

Basically, no country can produce all natural resources and goods or services to meet the needs of that country so it is necessary to carry out international trade between two or more countries. Thus, each country must see what is needed by the community or its inhabitants.

Forms of transactions carried out in international trade, such as investment in factory construction, export-import between two or more countries, shopping for raw materials from other countries, and many other forms of transactions.

International trade can run well if each country pays attention to the driving and inhibiting factors. These two factors will determine whether international trade can go according to plan or fail. Read more in the article: Understanding International Trade

Methods and Types of International Payment Instruments

Maybe for some people do not know how to make payments in international trade. When conducting international trade with other countries, international payment procedures will appear.

International payments are payments made by way of borrowing from abroad so that several ways are needed to settle these debts.

The international payment instruments used when conducting transactions or trading with other countries. Here are some international payment instruments and their methods.

1. Cash

Cash payments need to be made if the exporter and importer do not know each other well because it can build trust between exporters and importers. Cash payments made by the importer can use the currency of the exporter.

Transactions on cash payments make exporters get their money faster, so this transaction is very favored by exporters.

However, on the other hand, importers do not like this kind of transaction because they have to prepare a large amount of money. Though the money can be used or allocated for other activities.

2. Payment Later

Payments can then be made or applied when exporters and importers find it difficult to know each other.

Payment is then very favored by the importer because it is the exporter who bears the risk of shipping. It can be said that later payment is a method of payment made when the goods have arrived and are received by the importer.

3. Personal Compensation

Personal compensation is an international payment made by a citizen of one country with another citizen.

Personal compensation can be said to be a practical payment because it can be applied indirectly and without having to change places (countries) or can be done in their respective countries.

4. Letter of Credit (L/C)

In international trade, the importer can apply for a loan from the bank and if the bank agrees with the request made by the importer, a Letter of Credit (L/C) will be issued. Thus, a Letter of Credit (L/C) can be regarded as a substitute for credit and payment guarantees for exporters.

The processes that occur when making international payments using L/C are:

  1. Importers apply for L/C (opener/applicant);
  2. L/C issued by the bank (issuer);
  3. Exporters receive L/C (beneficiary/accredited);
  4. The bank forwards the L/C to the exporter (advising bank);
  5. The bank that will guarantee the payment of the L/C at the request of the issuer (confirming bank).

Types of L/C, namely, revocable letter of credit, irrevocable letter of credit, confirmed irrevocable letter of credit, transferable letter of credit, back to back letter of credit, red clause letter of credit, green ink cause letter of credit, and stand by letter of credit.

5. Consignment

Producers will entrust their merchandise and get paid according to the number of goods sold, called consignment. However, in international trade, consignment is also chosen as an international payment instrument.

In its application in international trade, consignment is in the form of export goods which are deposited with domestic importers and will pay (money) according to the sales of exported goods. In consignment, the exporter still has the right to the goods that are deposited.

6. Money Order

Actually, making payment transactions using money orders has been done for a long time. The convenience of using a money order is that you can make payments at home or abroad easily and when you have chosen a money order as a means of payment, the money recipient or money sender does not need to use a bank account.

If you want to make international payments by money order, you must send a money transfer form to the money order provider. In Indonesia, money orders are provided by Pos Indonesia or conventional banks.

7. Gold

One of the international payment instruments that has the same function as cash is gold. The thing to note when making international payments is that the weight of the gold must be equal to the value of the goods being sold.

One of the advantages of international payments in gold is that gold is not easily damaged and will not be bothered by inflation.

8. Check

Check is an international payment instrument that can be used. The method that needs to be considered when making payments by check is that the importer will give a check to the exporter with the bank that has been selected in the exporter’s country.

In using a check, the money will be transferred to the account of the recipient of the check when the check has been validated with the signature of the owner of the check or there is an official stamp from the authorizing party.

9. Paypal

The development of increasingly advanced technology, especially in terms of “online transfers” has created a virtual account that can be used as an international payment instrument and this payment instrument is often referred to as “Paypal”. The convenience of using “Paypal” is being able to make transactions from different countries online.

Until now, “Paypal” is an international payment instrument in the form of a virtual account that is most widely used by many citizens. The use of “Paypal” can be said to be safe because the level of security is quite good and the network on “Paypal” has spread in various countries.

The development of relations between two or more countries, especially in terms of international trade, is getting wider. From this development, the benefits or disadvantages of international trade arise. Check out the advantages and disadvantages of international trade.

Benefits of international trade

The following are the benefits that will be obtained when conducting international trade.

  1. Export goods that become superior products can be increased over a certain period to make them more salable.
  2. Goods and services that are not or have not been produced, especially the domestic industrial sector, can be fulfilled.
  3. Reducing unemployment because international trade activities require a lot of labor.
  4. The market for selling domestic products is becoming wider.
  5. Make it easy for consumers to get imported products with the best quality and cheap.
  6. Transferring the progress of science and technology (science and technology) to the country.

Conclusion

International trade is the exchange of goods or services carried out by two or more countries and what needs to be underlined in international trade is that all transactions must be mutually beneficial and can provide benefits between countries.

In international trade, there are nine payment instruments that can be used, namely cash payments, later payments, personal compensation, letters of credit (L/C), consignments, money orders, gold, checks, and paypal.

International trade has two sides of a coin. The point is that international trade can provide benefits to domestic industries, but on the other hand it can provide losses to domestic industries.

About robert fernandez

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