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Prepayment occurs when the payment of a debt or installment payment is done before the due date. A prepayment can include the entire balance or any upcoming part of the entire payment paid in advance of the due date. In prepayment, the borrower is obligated by a contract to pay for the due amount. Examples of prepayment include rent or loan repayments.

Letter of Credit

One of the oldest methods of trade financing.A Letter of Credit is a letter from a bank that guarantees that the payment due by the buyer to a seller will be made timely and for the given amount. In case the buyer cannot make payment, the bank will cover the entire or remaining portion of the payment.


Sight Draft − It is a kind of bill of exchange, where the exporter owns the title to the transported goods until the importer acknowledges and pays for them. Sight drafts are usually found in case of air shipments and ocean shipments for financing the transactions of goods in case of international trade.

Time Draft − It is a type of foreign check guaranteed by the bank. However, it is not payable in full until the duration of time after it is obtained and accepted. In fact, time drafts are a short-term credit vehicle used for financing goods’ transactions in international trade.


It is an arrangement to leave the goods in the possession of another party to sell. Typically, the party that sells receives a good percentage of the sale. Consignments are used to sell a variety of products including artwork, clothing, books, etc. Recently, consignment dealers have become quite trendy, such as those offering specialty items, infant clothing, and luxurious fashion items.

Open Account

Open account is a method of making payments for various trade transactions. In this arrangement, the supplier ships the goods to the buyer. After receiving and checking the concerned shipping documents, the buyer credits the supplier's account in their own books with the required invoice amount.

The account is then usually settled periodically; say monthly, by sending bank drafts by the buyer, or arranging through wire transfers and air mails in favor of the exporter.

Accounts Receivable Financing

It is a special type of asset-financing arrangement. In such an arrangement, a company utilizes the receivables – the money owed by the customers – as a collateral in getting a finance.

In this type of financing, the company gets an amount that is a reduced value of the total receivables owed by customers. The time-frame of the receivables exert a large influence on the amount of financing. For older receivables, the company will get less financing. It is also, sometimes, referred to as "factoring".

Banker’s Acceptance

A banker’s acceptance (BA) is a short-term debt instrument that is issued by a firm that guarantees payment by a commercial bank. BAs are used by firms as a part of the commercial transaction. These instruments are like T-Bills and are often used in case of money market funds.

BAs are also traded at a discount from the actual face value on the secondary market. This is an advantage because the BA is not required to be held until maturity. BAs are regular instruments that are used in international trade.

Working Capital Finance

Working capital finance is a process termed as the capital of a business and is used in its daily trading operations. It is calculated as the current assets minus the current liabilities. For many firms, this is fully made up of trade debtors (bills outstanding) and the trade creditors (the bills the firm needs to pay).


 a service providing medium-term financial support for export/import of capital goods. The third party providing the support is termed the forfaiter. and can purchase of the amount importers owe the exporter at a discounted value by paying cash. The forfaiter that is the buyer of the receivables then becomes the party the importer is obligated to pay the debt.


It is a form of international trade where goods are exchanged for other goods, in place of hard currency. Counter-trade is classified into three major categories – barter, counter-purchase, and offset.

  • Barter is the oldest counter-trade process. It involves the direct receipt and offer of goods and services having an equivalent value.

  • In a counter-purchase, the foreign seller contractually accepts to buy the goods or services obtained from the buyer's nation for a defined amount.

  • In an offset arrangement, the seller assists in marketing the products manufactured in the buying country. It may also allow a portion of the assembly of the exported products for the manufacturers to carry out in the buying country. This is often practiced in the aerospace and defense industries.

Accounts receivable insurance (ARI)An insurance policy purchased from a financial institution or export credit agency (ECA) that exporters may obtain to help secure their receivables in case of non-collection. Accounts receivable insurance can also help maintain regular cash flow.


Charges incurred when a shipment must be stored in a warehouse during transit from the exporter to the importer. These charges may be incurred in the event of dispute between parties to a letter of credit (L/C) and can become substantial in a short period of time.
International Chamber of Commerce (ICC) A Paris-based organization that plays a key role in international trade through its Uniform Customs and Practice for Documentary Credits (UCP) and other quasi-regulatory articles that provide the infrastructure for trade among over 160 nations that have voluntarily agreed to be bound by these articles. The ICC has several key expert groups, and provides interpretations and opinions on the UCP as well as arbitration services in the event of disputes between parties involved in international commerce.
FactoringA type of finance where a company sells its account receivables (e.g. incoming invoices) to another company called a factor. This allows the receiving company to get faster payment for an invoice not due yet but at the cost of a discount/fee. 


LC = Letters of Credit

BG = Bank guarantee

BL = Bill of Lading

CWO = Cash with order

COD = Cash on delivery