In its simplest form payment is the monetary compensation for goods traded and associated transactions. Payment is the Pay phase of the international supply chain known as the Buy-Ship-Pay model.

Relevance to trade facilitation

Payment is critical to international trade transactions. Prompt and full payment affects a company's ability to compete and survive in the marketplace. Payment time can be prompt or slow depending upon the number of elements of the financial procedures required to complete the trade transaction: execution of payment and issuance of statements, provision of credit rating, provision of credit insurance and provision of credit.

Implementation guidance

Trade is facilitated once the payments processes are streamlined and efficient. Manual and unstructured exchanges of orders, invoices, and money must be replaced with disciplined, automated and efficient means to pay for goods and services. In order to improve payments, companies must revise their "order-to-deliver-to-pay" activity sequence. Payment execution improves strongly once the actions that precede the payment are revised and made more efficient. An order for payment must follow the delivery of goods once the delivery has been agreed, and an order issued that describes the goods to be traded, the roles between commercial partners, the role of banks during the payment process, and the responsibilities of all parties involved in case of discrepancies.

It is thus vital to the success of a revised payments strategy to focus not only on the means of payments (i.e., what later will be called "instruments") but also how those payments are made (i.e., see below the definition of payment "channels") and, more importantly, the sequence of actions, the parties involved, the decision processes, the trigger events and the instructions given at any time to execute a payment (i.e., what is called "payment flows").

The subject of payment is vast and it can be better understood by first becoming familiar with the terminology used throughout the preparation and the execution of payments:

  • Payment instruments: The monetary compensation for goods traded can be performed using one of the many payment "instruments" (i.e. types of payments) available: cash, cheque (US check), credit or debit cards, paperless (i.e., electronic payments).
  • Payment channels: The instruments used to execute payments can be exchanged through multiple "channels": face-to-face, semi-automatic (e.g., cash machines, point of sales devices in supermarkets), the internet (e.g., purchasing goods on the internet).
  • Payment flows: The instrument selected and the channel adopted determine the way information and money move between trading parties (i.e., buyer, seller, financial institutions). The instructions used to initiate the payment process and the information and documents exchanged between parties constitute the so-called payment process flow. Payment flows also establish roles, responsibilities, and accountability.

Payments are a key aspect of trade in which goods are exchanged and must be paid for. In addition to the operations necessary to run a payment, the risk associated with the counterparty not paying for the purchased goods is an important aspect, especially for international trade. This requires the presence of intermediaries who facilitate the exchange and ensure the payment obligation will be fulfilled. This activity is ensured by the presence of the operators and the instruments of trade finance.
In the current economic climate, tight credit lending by financial institutions forces both large and small companies to find alternative sources of funds. The possibility of extracting liquidity from supply chain operations is a major trend currently experienced in the trade ecosystem, known as supply chain finance.

Participants in the process

Primary stakeholders who implement or support facilitation of the payment component of the international supply chain are the buyer, the seller and their supporting financial institutions. Secondary stakeholders include insurance companies and other private financial institutions. Financial regulatory agencies, such as central banks, also play an important role.


UNECE Recommendation 18 gives a comprehensive set of recommendations regarding international best practices and standards for the facilitation and harmonization of trade transactions, including financial measures. UNECE Recommendation 17 provides abbreviations for terms of payment. The EFTA Trader's ABC - Vol.3: Payment, Brussels and Geneva, 1999, contains a description of payment procedures in international supply chains.