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When you are in the business of doing cross border trade international trade, or in the other words, import export, you need to be familiar with key definition terms in international trade. There are two categories of international trade terms, i.e., sales terms and payment terms. Sales definition terms define how the goods you plan to import are logistically handled and how product liabilities are classified. On the other hand, payment definition terms define the formats of payment for the goods to be imported and when and how payment transactions are to be made on a contractual basis. All these trade terms have legal biding according international trade laws and regulations.

As international trade  involves goods exchanges between parties in  two different parts of the world where banking financing and credit systems are likely quite different, traditional domestic terms of trade such as pre-paid terms and cash on delivery or COD terms are very difficult to enact. As a results, standardized international trade terms became available to protect the interests of both importers and exporters. Needless to say, the risk for importers will be a security for exporters. Therefore, there will always be negotiations involved between importers and exporters before any agreements on the terms are reached.

Definition Terms - Terms of Trade - International Trade Terms

Free On Board - FOB,  least secured way of transferring goods from importer's stand in international trade

Cost and Freight - CFR or CNF,  medium secured trade term from importer's stand 

Cost, Insurance and Freight - CIF, most secured terms of trade international from importer's stand

Ex works - EXW,  an idea trade term if the importer has own freight agent to handle shipping on the both sides

Free Alongside -FAS, a similar to FOB trade terms except supplier is not responsible for loading vessel

Free Carrier - FCA, secured trade terms from importer's stand

 Common Payment Definition Terms in Cross Border Trade International Trade

Documentary Credit - Letter of Credit - L/C

Documentary Credit - Leased Bank Guarantee   or   Demand Guarantee

Bill For Collections  - Documents against Payment   or   Documents against Acceptance

Advance Payment - Wire Transfer  - T/T   or   Cashier's Check

International Trade Credit - Open Account

 Global Trade International Trade Payment Definition Terms Risk Analysis

 Definition Terms of Money Transfers in Regional Trade International Trade

SWIFT Inter-Bank Transfer - now firmly established as standard practice in the major trade international nations. In this money transfer definition terms, the buyer will instruct their bank to make payment to any bank account specified by the exporter. It is good practice, therefore, for the exporter to include their account details on their invoice heads.

Buyer's Check - an unsatisfactory method of settlement for the exporter as it carries the risk of dishonor upon presentation as well as the added inconvenience of being slow to clear. There is also the very real danger of the check being lost in transit as well. A check is also unsatisfactory if it is in the currency of the buyer, as this will take longer to clear and will involve additional bank charges. Exporters should only use this method if they have an established trading history with their customer or in cases where the profit margin has been increased to offset cash flow problems anticipated by the delay in receiving payment.

Banker's Draft - this is the terms arranged by the buyer who asks their bank to raise a draft on its corresponding bank in the exporter's country. Provides additional security to a buyer's check, but they can be costly to arrange. This is common payment terms of trade in import export.

International Money Orders - these are similar in nature to postal orders. They are pre-printed therefore cheaper to obtain than a Banker's Draft, although again there is the risk of loss in transit.

Tags: trade terms, terms of trade, definition terms, trade international, China trade, global trade

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