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The buyer pays the value of the goods before the shipment. In this case, the importer is exposed to non-shipment risk.

Thus, the buyer should know the seller very well and there should be a 100% trust to the seller.
CASH AGAINST GOODS

The payment is effected after the goods are delivered to the address designated in the sales contract. the exporter is exposed to non-payment risk.

Thus, the seller should know the buyer very well and there should be a 100% trust to the buyer.
CASH AGAINST DOCUMENTS & CASH AGAINST DOCUMENTS WITH ACCEPTANCE LOAN.

The documents or customer clearing operations are delivered if only the value of the goods is paid to the Bank. After collection and upon exporter’s Bank instruction, the importer’s Bank transfers the amount to the exporter’s Bank. If the transaction is deferred and based on draft acceptance, then it is called Cash Against Documents with Acceptance Loan.

A letter of credit is a commitment by a bank on behalf of the buyer (importer) or upon his instruction that payment will be made at a precise date and amount to the beneficiary (exporter), provided the terms and conditions stated in the letter of credit have been met, as evidenced by the presentation, negotiation or acceptance of specified documents.