Trade Credit

As everybody is aware, in any trade transaction, there will be two parties 1- Buyer and 2-Seller In a trade transaction following are type of payment and risk. Type of Payment and Risk: Advance: Seller has no risk while Buyer has to rely on seller (100%). Open A/C: Seller has to rely on buyer while buyer has no risk. D/P Collection:Seller has a risk of non payment of draft while buyer has to depend on seller to supply of goods ordered. Assurance of shipment would be there. D/A Collection: Seller has more risk as non payment of bill of exchange, even though Buyer has the mechandise. While Buyer has minimal risk and may refuse to pay at maturity. Sight L/C:Seller has minimum risk as issuing/conforming bank's obligation to pay if documents conform to lc while buyer has assurance of shipment, but depends on seller to supply goods ordered. Usance L/C:Seller has minimum risk as issuing/conforming bank's obligation to pay if documents conform to lc while buyer has to pay at maturity regardless of product quality. Above are only illustrative purpose only.