Trade Arrangements Using the Cheque and Bank Draft

Open Account

In an open account trade arrangement, the goods are shipped to a buyer without guarantee of payment. Quite often, the buyer does not pay on the agreed time. Unless the buyer's integrity is unquestionable, this trade arrangement is risky to the seller.

Consignment

In a consignment trade arrangement, the seller ships the goods to the buyer when there is no purchase made. The buyer is obliged to pay the seller for the goods when sold. The seller retains title to the goods until the buyer has sold them.

Cash In Advance (CID)

The cash in advance, which is the safest term of payment, most often is effected using the cheque or bank draft. In some cases, the CID term is paid using the telegraphic transfer (T/T).

Telegraphic Transfer (T/T)

The telegraphic transfer---cable transfer or wire transfer---is the equivalent of a cash payment that can be credited directly to the seller's account (the name and address of the seller's bank and the seller's bank account number are required by the buyer's bank). It is fast and safe. Unlike a payment by cheque or bank draft, in which the mailing time alone may take several days to few weeks, plus the clearing time of 3 to 4 weeks for a total of about 4 to 6 weeks before the seller may receive the cash, by means of T/T the seller may receive the cash in a few hours or days.

It is important to wait until the T/T has been received before making the shipment, especially when the integrity of the buyer is unknown.