Global Trade Finance Master Workbench
UCP 600, ISBP 821, URDG 758, URC 522 & Incoterms® 2020 — rule repository, calculators and case tools in one place.
Choosing how to get paid: the payment-risk ladder
Every export sale balances two risks: the exporter's risk of shipping and not being paid, and the importer's risk of paying and not receiving the goods. The usual payment methods sit on a ladder between the two:
| Method | Risk for the exporter | Risk for the importer | Typical use |
|---|---|---|---|
| Cash in advance | None | Highest — pays before shipment | New or small buyers, custom goods, high-risk markets |
| Confirmed letter of credit | Very low — a bank in the exporter's country also promises to pay | Low — pays only against the agreed documents | Large orders to markets with bank or country risk |
| Letter of credit (unconfirmed) | Low, if documents comply — depends on the issuing bank | Low | Established trade where the issuing bank is sound |
| Documentary collection, D/P | Medium — the buyer may refuse the documents, leaving goods unpaid at destination | Low to medium | Regular buyers, markets with good banking |
| Documentary collection, D/A | Higher — the buyer gets the goods against a promise to pay later | Low | Trusted buyers who need credit |
| Open account | Highest — relies on the buyer paying after delivery | None | Long-standing buyers; often backed by credit insurance or factoring |
Letters of credit follow the ICC rules UCP 600; documentary collections follow URC 522. Credit insurance, factoring and forfaiting can reduce the exporter's risk on the lower rungs.
What each part of this workbench does
- UCP 600 — plain-English summaries of the key letter-of-credit articles, with the matching ISBP references.
- LC compliance analyzer — compare the credit's terms with the documents you plan to present and spot likely discrepancies.
- Documentary collections — build a collection instruction under URC 522, choosing D/P or D/A, protest and charges.
- Demand guarantees — draft a guarantee outline under URDG 758 and see the main rules on demands and expiry.
- Supply chain finance and forfaiting — calculate the discount and net proceeds when selling a receivable.
- Incoterms® 2020 and SWIFT — check who bears risk and cost, and look up the fields of MT700 and MT760 messages.
- Practice quiz — test yourself on common trade finance scenarios.
Deeper guides: the UCP 600 workbench, the ISBP 821 document examination guide and the Incoterms® 2020 navigator.
How a forfaiting or discount calculation works
When a financier buys a receivable that falls due later, it pays less than the face value. The difference is the discount, set by the interest rate, the number of days to maturity and the day-count basis (usually 360 days for US dollars and euros, 365 for sterling).
- Straight discount: discount = face value × rate × days ÷ basis.
- Discount to yield: proceeds = face value ÷ (1 + rate × days ÷ basis); this gives the financier exactly the stated rate as a yield and results in a slightly smaller discount.
- Grace days are often added to the tenor to allow for payment delays, and a commitment fee may be charged from the date the deal is agreed.
Example: a USD 100,000 bill due in 180 days, discounted at 6% on a 360-day basis, costs USD 3,000 as a straight discount (proceeds USD 97,000), or about USD 2,913 on a discount-to-yield basis (proceeds about USD 97,087).
Common types of demand guarantee
| Guarantee | What it secures | Typical amount |
|---|---|---|
| Bid (tender) bond | That a bidder who wins a tender will sign the contract | Often 1–5% of the bid value |
| Performance guarantee | That the contractor or supplier performs the contract | Often 5–10% of the contract value |
| Advance payment guarantee | Repayment of an advance if the work is not done | Usually the amount of the advance, reducing as work progresses |
| Retention money guarantee | Replaces cash retained by the buyer until completion | The amount that would otherwise be retained |
| Warranty guarantee | Defects found during the warranty period | Often 5–10% of the contract value |
Amounts are negotiated in each contract; the ranges above are common practice, not rules.
Find banks and export credit agencies that issue and confirm these instruments in the trade finance institutions directory and the largest banks directory.
Frequently asked questions
What is the safest payment method for an exporter?
Cash in advance carries no payment risk for the exporter. Among methods buyers usually accept, a letter of credit confirmed by a bank in the exporter's country is the safest, provided the documents comply with the credit.
What is the difference between D/P and D/A?
Under documents against payment (D/P), the buyer receives the shipping documents only after paying. Under documents against acceptance (D/A), the buyer receives them after accepting a bill of exchange to pay at a later date, so the exporter extends credit.
What is the difference between a demand guarantee and a standby letter of credit?
Both are independent bank undertakings to pay on demand. Demand guarantees are usually issued under URDG 758 and are common in Europe, the Middle East and Asia; standby letters of credit are usually issued under ISP98 or UCP 600 and are common in the United States.
What is forfaiting?
The sale of medium-term receivables, such as avalised bills of exchange or promissory notes, to a financier without recourse, so the exporter is paid now and the financier takes the payment risk.
Do UCP 600 and URC 522 cover the same thing?
No. UCP 600 governs letters of credit, where a bank promises to pay. URC 522 governs documentary collections, where banks only handle documents and make no promise to pay.