1. Avoiding the Banks
    Sellers and buyers do not incur transaction costs without reason. Although the international banking industry’s systems for paying and collecting for the international sale of goods is less expensive than other secure regimes (couriers carrying cash in a briefcase, insurance industry bonds, or the like), using the banking system involves bank charges and other transaction costs. Sellers and buyers therefore only use the international banking system when they need it, and sometimes they do not.

  1. Cash on the Barrelhead
    In a cash-on-the-barrelhead sale, there is no need to incur bank collection charges. The seller receives payment from the buyer against delivery of the goods. A Latvian buyer who takes delivery of goods from a German seller at the seller’s plant can examine the goods, determine whether they are compliant and pay the seller in euros. To the extent the payment is by bank check or debit, credit or stored-value card, bank charges are minimal and both parties are protected. The fact is, however, that such cash transactions are not possible in most international sales, as the seller and the buyer are remote from one another.

  1. Open Account Sales
    In mature and well-rationalized industries, the remote commercial parties may each know enough about the other to use the open account sale, a simple and inexpensive way of doing business in which the seller ships goods to the buyer and the buyer pays the seller’s invoice, usually under standard credit terms. A seller in the aerospace industry can package precision parts for a buyer/manufacturer per the buyer’s order, ship the parts and invoice the buyer, with payment to be, say, “net 30 days”. The buyer will receive the parts, examine them and, usually, wire transfer payment within the 30 days. Note how efficient the practice is. Because these parties know one other, the industry being relatively small and the parties relatively stable and financially strong, little risk lies in shipping the goods before payment (see Illustration 4-1).

  1. Credit Reporting Agencies
    In mature economies, independent credit agencies often collect and report financial information on business enterprises. A seller who receives a fax order from a buyer with whom the seller has never done business can access the credit reports of the buyer and, finding a solid balance sheet, ship under open account terms. The seller’s credit manager will have on-line access to the credit reporting agency in the buyer’s country, will determine whether the information satisfies the seller’s credit standard and will ship or reject the order (see Illustration 4-2).