What should payment terms specify?
For each payment, record amount, currency, due date, beneficiary and the document or event that triggers it. Check whether the method is actually available through the relevant bank or provider.
- 01Amount and currency
- 02Trigger and date
- 03Verified payee
Start with the transaction details
Identify buyer and seller, amount, currency, production and delivery timing, required documents and each party’s risk. A payment method cannot be chosen sensibly from its name alone. Clarify when funds become due and what evidence triggers each payment.
Compare how the methods actually work
With an advance, money is paid before the agreed part of performance. Instalments can be tied to defined order stages. Compare each method’s charges, documents and actual availability with the relevant provider.
Under documentary collection, banks exchange documents according to collection instructions; this is not itself a bank guarantee of payment. A letter of credit uses a different mechanism and depends on documents complying with its terms. Checking documents does not replace a physical quality inspection.
If escrow is proposed, identify the provider and conditions for releasing funds. Check whether it is accessible and workable for this transaction, including its cost; the method’s name alone does not answer those questions.
Verify the beneficiary independently
Match the legal payee to the seller and transaction documents. Check any change in bank details through a separate, trusted contact method rather than replying only to the change request. Keep approvals and payment instructions traceable.
Confirm execution before payment is due
Map the payment calendar to production, inspection, shipment and document receipt. Confirm who issues each required document and what happens if dates change. Resolve feasibility and regulatory questions before the contractual deadline.
What does “pay before shipment” mean?
Ask whether payment falls after production readiness, an agreed inspection or freight booking, and what document proves that point. Record the answer in the agreed terms.
Common mistakes
- Approving an account change only by replying to the message announcing it.
- Assuming bank document checks verify the goods’ physical quality.
- Fixing a due date without confirming the documents and payment method are workable.
Your checklist
- Define parties, amount, currency and payment milestones.
- Match each milestone to goods and documents.
- Ask the bank or adviser about current availability and requirements.
- Verify payee and account changes independently.
- Keep written approvals and a dated payment plan.
Questions and answers
Does one payment method suit every purchase?
No. Counterparty trust, timing, documents, availability and risk differ across transactions.
Do Incoterms determine the payment schedule?
No. They address delivery-related responsibilities and risk; payment terms need their own agreement.
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