International Payment Methods: A Practical Guide

TradeToolsBox Editorial TeamJuly 25, 20262 min read

Getting paid — or paying — safely across a border is a different problem than doing it domestically. There's no small-claims court that easily reaches a supplier or buyer on another continent, so the payment method you choose is your main risk-management tool.

The four common methods, ranked by risk to the seller

1. Advance payment (lowest seller risk)

The buyer pays before goods ship. Safest for the seller, riskiest for the buyer — they're trusting the seller to actually ship as agreed. Common for smaller orders or new relationships where the seller holds more negotiating leverage.

2. Letter of credit (balanced risk)

A letter of credit shifts payment responsibility to the buyer's bank, which pays once the seller presents specified documents exactly as required. It's more expensive (banks charge fees) and document-heavy, but it's the standard for new relationships where neither side wants to extend blind trust.

3. Documentary collection

The seller ships goods and routes shipping documents through banks, releasing them to the buyer only against payment or a signed payment commitment. Cheaper than a letter of credit, but the banks don't guarantee payment — they just control document release, so the seller still carries real risk if the buyer refuses to pay.

4. Open account (highest seller risk)

The seller ships goods and invoices the buyer, who pays on agreed terms (e.g., 30 or 60 days) after receipt. Cheapest and simplest, but the seller extends real credit risk. Reserved for established, trusted relationships.

How to choose

Match the payment method to how well you know your trading partner:

New relationship, seller has leverage → advance payment
New relationship, balanced leverage → letter of credit
Established relationship, moderate trust → documentary collection
Long-standing, trusted relationship → open account

Frequently asked questions

Can payment terms be mixed?

Yes — a common structure is a percentage advance payment (e.g. 30%) with the balance due against a letter of credit or before shipment.

Does the Incoterm affect which payment method I should use?

Not directly, but they're negotiated together in practice — a buyer taking on more delivery risk (e.g. under EXW) may push back on also extending full trust on payment.

Who pays the bank fees for a letter of credit?

This is negotiable and should be specified in the sales contract — commonly split, or assigned to whichever party requested the letter of credit.

Conclusion

There's no single "correct" international payment method — only the one that matches the actual trust and leverage between you and your specific trading partner. As a relationship matures, it's normal for payment terms to shift from advance payment or letters of credit toward open account.

Ready to formalize your terms? Draft a proforma invoice →

Last updated: July 25, 2026