What conditions favor the use of each form of payment?
What will be an ideal response?
Payment in advance is favored when the exporter has strong bargaining power and the importer is unknown to the exporter. An open account is favored when the exporter has complete trust in the importer and/or the exporter and importer are part of the same corporate family. Documentary collection is favored when the exporter trusts the importer to pay as specified and/or when the risk of default is low. A letter of credit is favored when the exporter lacks knowledge of the importer and/or when the importer has good credit with a local bank. Credit cards are favored when the transaction size is small. Countertrade is favored when the importer lacks convertible currency and/or the importer or exporter wants access to foreign distribution network.
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