Final answer:
Cash in advance provides the best assurance of payment for an exporter since it involves receiving payment before the goods are shipped. However, in practice, a letter of credit (L/C) is often used in international trade due to the security it offers to both parties. Other methods like documentary collection, documents against payment (D/P), and open account entail more risk for the seller.
Step-by-step explanation:
The method of payment that offers an exporter the best assurance of being paid is Cash in advance. When an exporter receives a payment before the goods are shipped, there is no risk of non-payment as the transaction has already been settled. However, this method is least attractive to the buyer due to the cash flow implications and the need to trust that the seller will deliver the goods as agreed.
In the context of international trade, a letter of credit (L/C) provides a significant level of security for both the exporter and importer. It is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the L/C are met. The certainty provided by a letter of credit makes it a very common choice in international trade.
Documentary collection, documents against payment (D/P), and open account terms offer varying degrees of risk. Documentary collection and D/P provide some security that the payment will be made once the documents are presented, but only after the shipment has occurred. Open account terms are the most advantageous to the buyer but expose the seller to the most significant risk of non-payment, as the goods are shipped and delivered before payment is required.