Making cash payments is the remittance basis of two methods of payment; namely, payment in advance and open account. Cash can be transferred in the following ways:
- Importer’s own cheque
The importer (the payer or debtor) may choose to pay you, the exporter, using a cheque issued by them. This is not common in exporting especially between countries that have little common ground in as far as their banking systems are concerned. Your risk is that the cheque may ‘bounce’ (go unpaid) and it is a cumbersome means of payment because when you attempt to deposit the cheque, your bank will almost certainly want to send the cheque back through the banking channels to the importer’s bank to request them to transfer the funds to your bank, only after which they will pay you (unless they have an existing relationship with the overseas bank). This will take time and cost you money (assuming that no administative problems raise their head). This method of cash payment is to be discouraged.
- Banker’s demand draft (D/D)
This is a better form of cash payment than an importer’s cheque and involves the importer’s bank arranging a demand draft (a special written bank instruction) which is issued to the importer for him/her to send by post or courier or to deliver personally to the exporter. It is the importer’s responsibility to ensure that the demand draft gets to the exporter. When the exporter receives the demand draft, he/she will approach the importer’s bank’s correspondent bank in South Africa for payment (or ask their own local bank to make the approach to the correspondent bank for payment). As the demand draft may be posted or delivered by hand, it may get lost or damaged in the process. A banker’s draft cannot be stopped and a new draft will only be issued with a guarantee of indemnity from the importer/exporter.
- Mail transfer (M/T)
In the case of a mail transfer payment, the importer will request his/her bank to instruct their correspondent bank in South Africa to pay you a given amount. The instruction is sent to the correspondent bank through the post office or courier company. This is low cost form of payment, but is also very slow.
- Telgraphic transfer (T/T)
This remittance method works the same way as with a mail transfer, except that the message is transmitted by cable or telex instead of airmail.
- SWIFT transfers
SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, is a computerised system which replaces both the telex and mail for bank to bank transfer. Very common today in our computerised world, most larger (and urgent) amounts are transferred using SWIFT. It is (relaively) quick, secure and convenient.
- Credit card
Credit cards are often used to make payments for smaller amounts. There is a well-established payment system for credit card transactions and it is a very easy and relatively safe method of payment.
- International Money Orders
These are similar to postal orders and are pre-printed. They are therefore cheaper to obtain than a Banker’s Draft but, again, run the risk of loss in transit. Perhaps one of the most well-known companies dealing in international money orders, is Western Union.