Question

Which of the following arranges export financing payment methods in descending order starting with the most secure/reliable and ending with the least secure/reliable?

A) sales on open account→cash in advance→documentary credit (L/C)→documentary collection (draft)
B) documentary credit (L/C)→sales on open account→documentary collection (draft)→cash in advance
C) documentary collection (draft)→documentary credit (L/C)→cash in advance→sales on open account
D) cash in advance→documentary credit (L/C)→documentary collection (draft)→sales on open account
E) none of the above

Answer 1

The correct descending order of export financing payment methods from most to least secure is cash in advance, documentary credit (L/C), documentary collection (draft), and sales on open account.

Step-by-step explanation:

The order of export financing payment methods from most secure/reliable to least secure/reliable is as follows: (D) cash in advance → documentary credit (L/C) → documentary collection (draft) → sales on open account.

Cash in advance is the most secure method for an exporter because the payment is received before the ownership of the goods is transferred. Documentary credit (Letter of Credit, L/C) also offers a high level of security as it involves a bank's promise to pay, provided that the exporter meets the terms and conditions of the L/C. Documentary collection (draft) provides moderate security where documents are exchanged for payment or a promise of payment. Sales on open account are the least secure, as the exporter ships the goods before payment is made, relying on the importer's promise to pay at a later date.