Payment terms define the timing and method by which a buyer settles an invoice, such as advance payment, payment against documents, letter of credit or deferred open-account terms, and directly affect the risk and working-capital position of both parties in food trade.
In trade practice
New trading relationships in frozen fruit, honey or grain typically start with full or partial advance payment, or a letter of credit, to protect the supplier. As trust develops, buyers may negotiate open-account terms with payment due a set number of days after the invoice date. Suppliers should align payment terms with their own financing costs and the time needed to produce and ship the goods. Disputes often arise when deferred terms are agreed verbally but not written into the contract.
In a specification
Payment terms should be stated explicitly in the sales contract and on the commercial invoice, including the payment method, the trigger event for the payment clock and any conditions such as receipt of complying documents.