International Payment Instruments – The development of the world or globalization that has occurred has also changed economic development, be it from the financial or trade sector. Most countries experience economic changes, especially through international trade. By conducting international trade each country can promote economic growth.
Therefore, countries that carry out international trade make adjustments to policies and implementation of international trade. By doing these two things, the international trade that is carried out will get mutually beneficial results or reciprocity.
International trade not only helps a country’s economic growth, but participates in meeting the needs of citizens of other countries. That’s because no country can meet the needs of its citizens without international trade. Therefore, every country must establish good relations with other countries.
However, do you already know about the meaning of international trade itself?
Definition of International Trade
International trade is the exchange of goods or services carried out by two or more countries and what needs to be underlined in international trade is that all transactions must be mutually beneficial and can provide benefits between countries.
Basically no country can produce all natural resources and goods or services to meet the needs of that country, so it is necessary to carry out international trade between two or more countries. Thus, each country must see what is currently needed by the people or residents.
Forms of transactions carried out in international trade, such as investing in factory construction, export-import between two or more countries, shopping for raw materials from other countries, and many other forms of transactions.
International trade can run well if each country pays attention to the driving factors and inhibiting factors. These two factors will determine whether international trade can go according to plan or fail. Read more in the article: Understanding International Trade
Methods and Types of International Payment Instruments
Maybe some people don’t know how to make payments in international trade. When conducting international trade with other countries, an international payment procedure will appear.
International payments are payments made by borrowing from abroad, so several ways are needed to settle these debts.
The means of international payment used when conducting transactions or trading with other countries. Here are some international payment instruments and their methods.
1. Cash
Cash payments need to be made if exporters and importers do not know each other well because it can build trust between exporters and importers. Cash payments made by importers can use the currency of the exporter.
Transactions on cash payments make exporters get money faster so that these transactions are very liked by exporters.
However, on the other hand, importers don’t like transactions like this because they have to prepare quite a lot of money. Even though the money can be used or allocated for other activities.
2. Payment later
Payments can then be made or applied when it is difficult for the exporter and importer to know each other.
Payment is then highly favored by the importer because it is the exporter who bears the shipping risk. It can be said that later payment is a payment method that is made when the goods arrive and are received by the importer.
3. Personal Compensation
Personal compensation is an international payment made by citizens of a country with citizens of other countries.
Personal compensation can be said to be a practical payment because this payment can be applied indirectly and without having to move from place to place (country) or it can be done in each country.
4. Letter of Credit (L/C)
In international trade, importers can apply for loans to banks and if the bank agrees with the application made by the importer, a Letter of Credit (L/C) will be issued. Thus, a Letter of Credit (L/C) can be regarded as a means of substituting credit and payment guarantees for exporters.
The process that occurs when making international payments using L/C, namely:
- Importers apply for L/C (opener/applicant);
- L/C issued by the bank (issuer);
- Exporters receive L/C (beneficiary/accredited);
- The bank forwards the L/C to the exporter (advising bank);
- The bank that will guarantee the payment of the L/C at the request of the issuer (confirming bank).
Types of L/C, namely, revocable letters of credit, irrevocable letters of credit, confirmed irrevocable letters of credit, transferable letters of credit, back to back letters of credit, red clause letters of credit, green ink cause letters of credit, and stand by letters of credit.
5. Consignment
Producers will deposit their merchandise and get paid according to the number of items sold which is called a consignment. However, in international trade, consignment is also chosen as a means of international payment.
In its application in international trade, consignments in the form of export goods are deposited with domestic importers and will be paid (money) in accordance with the sales of the exported goods. In a consignment, the exporter still has the right to the goods deposited.
6. Money order
Actually, making payment transactions using money orders has been done for a long time. The convenience of using money orders is that you can make payments at home or abroad easily and when you have chosen a money order as a means of payment, the recipient or sender of money does not need to use a bank account.
If you want to make an international payment by money order, you must send a money transfer form to the money order service provider. In Indonesia, money order provider services are at Pos Indonesia or conventional banks.
7. Gold
One of the international means of payment that has the same function as cash is gold. The thing that needs to be considered when making international payments is that the weight of the gold must be equal to the value of the goods being sold.
One of the advantages of international payments with gold is that gold is not easily tampered with and will not be disturbed by inflation.
8. Check
Check is an international means of payment that can be used. The method that needs to be considered when making payments by check is that the importer will provide a check to the exporter with the selected bank in the exporting country.
In using a check, money will be transferred to the check recipient’s account when the check has been validated with the signature of the check owner or an official stamp from the authorizing party.
9. Paypal
The development of increasingly advanced technology, especially in terms of “online transfers”, has led to a virtual account that can be used as a means of international payment and this means of payment is often referred to as “Paypal”. The convenience of using “Paypal” is that you can make transactions from different countries online .
Until now, “Paypal” is an international means of payment in the form of a virtual account that is most widely used by many citizens. The use of “Paypal” can be said to be safe because the level of security is quite good and the network in “Paypal” is spread in various countries.
The development of relations between two or more countries, especially in terms of international trade, is increasingly widespread. It is from this development that the benefits or losses of international trade arise. Check out the advantages and disadvantages that exist in international trade.
Benefit from international trade
The following are the benefits that will be obtained when doing international trade.
- Export goods which are superior products can be increased during a certain period so that they are more salable.
- Goods and services that are not or have not been produced, especially in the domestic industrial sector, can be fulfilled.
- Reducing unemployment because international trade activities require a lot of manpower.
- The market for selling domestic products has become wider.
- Facilitate consumers to get imported products with the best quality and cheap.
- Transfer the progress of science and technology (science and technology) into the country.
Conclusion
International trade is the exchange of goods or services carried out by two or more countries and what needs to be underlined in international trade is that all transactions must be mutually beneficial and can provide benefits between countries.
In international trade there are nine means of payment that can be used, namely cash payments, later payments, personal compensation, Letters of Credit (L/C), consignments, money orders, gold, checks, and paypal.
International trade has two sides of a coin. The point is that international trade can provide benefits to the domestic industry, but on the other hand it can cause harm to the domestic industry.
Also read articles related to “International Payment Instruments” :
- International Organization
- Meaning of Summons
- Example of a column balance
- Example of Bank Reconciliation
- Economic Principles
- Definition of Scarcity
- Definition of Macroeconomics
- Microeconomics
- Economic Recession
- Economic Globalization
- People’s Economy
- Economic agents
- Economic Problems in Indonesia
- Economics
- Types of Economic Systems
- People’s Economy
Author : Restu Nasik Kamaluddin