International means of payment

International means of payment: what the parties to a foreign trade deal use to settle with each other. They include the settlement currencies and the instruments used to transfer money or obligations to pay.

Currencies

A contract is concluded in the currency the parties agree on. Traditionally, this is the US dollar or the euro. In settlements with Asia, it is increasingly the yuan; with the Middle East, the dirham; with EAEU countries, the rouble. The price currency and the payment currency may differ if the contract says so.

Instruments

• Bank transfer. The most common method: simple and inexpensive, but risky for whoever pays first.
• Letter of credit. The bank pays the seller when the seller presents documents that meet the terms. Reliable for both parties, but expensive and slow.
• Documentary collection. The bank releases the documents for the goods to the buyer only against payment or acceptance.
• Bill of exchange and check. A written obligation to pay. They are less common in modern trade.
• Bank guarantee. Not a payment but security: the bank will pay if a party fails to perform its obligation.

Current limitations

For companies from Russia, the choice has narrowed. Some foreign banks do not accept payments from Russia. Letters of credit and collections are not available in every country and take longer to arrange. So the main method now is a transfer through a bank or a payment agent.

What it means in practice

The instrument is chosen based on the deal’s risk and on what actually works in the supplier’s country. For a transfer through an agent, three things matter: the terms are written down before payment; it is clear where the money is until execution; and the payment comes with documents for currency control. How paying through a bank, a single agent and a broker differ: Broker, agent or bank.