The billing basis is a payment arrangement used when shipping goods internationally.
The billing basis is a payment arrangement used when shipping goods internationally. Under a billing basis agreement, the buyer cannot take delivery of the goods until payment is cleared to the seller. This type of arrangement helps ensure that the seller does not lose a substantial amount of money, which can occur if the buyer withdraws the goods and fails to pay. A collection-based payment arrangement is typically used when the buyer cannot provide a standard letter of credit from a bank, but the seller is still relatively certain that the buyer has the means and intent to pay for the goods.
A letter of credit serves as the most common payment arrangement used in international trade. With a letter of credit, the buyer has his bank send a certified letter to the seller stating that he has the funds available to pay for the goods. The bank will hold these funds until the seller has shipped the goods and they are received by the buyer. At that point, the bank automatically releases the money to the seller. With a letter of credit agreement, both parties are protected from fraud or non-payment.
There are three basic types of collection basis agreements for buyers and sellers to choose from when trading across international borders. Under a cash collection system, the forwarder holds the goods until payment is sent to the seller. This can be done by the buyer simply bringing the payment when he collects the goods from the transport service or by sending the payment directly to the seller. The seller then alerts the shipping agent that it is acceptable to release the goods.
On an installment collection basis, the buyer is permitted to collect the goods simply by signing a contract payment withdrawal in his home country. He can then pay for them later, which serves as a way to extend credit. This type of arrangement helps protect the seller in countries with unique trade laws, where simple invoice or order information may not be enough to enforce payment from fraudulent buyers.
Finally, certain countries allow a clean draft collection basis. Under this agreement, the seller’s bank agent sends the invoice or draft directly to the buyer’s bank. Once the bank receives this withdrawal, the buyer is free to withdraw the merchandise, even if he has not yet paid for it.