Advance payment is the most secure payment form available to exporters, to the extent the importer transfers the respective amounts in advance through wire transactions.
However, the modality poses a significant financial risk for Brazilian importers in the event of the non-delivery of purchased goods.
Collection documents should only be used when there is significant trust between the parties, as the modality poses a major risk for exporters by virtue of the fact that banks only process the documents submitted by exporters after loading of the respective merchandise and serve as mere collection agents, offering no guarantees as to receipt of the corresponding amounts from the importer.
Exporters must fully comply with the requirements of collection documents. Indeed, in addition to prompting suspension of payment, any discrepancies identified in the documentation could have logistical and customs ramifications for the importer and result, moreover, in application of the fines and penalties provided for under Brazilian customs regulations.
Letter of Credit
Brazilian banks can offer firm payment guarantees to foreign exporters, provided the documentation submitted by the exporter is in strict compliance with the related credit requirements.
In this case, the currency exchange contract represents However, importers may not prefer this option in relation to a collection document, as they are required to bear the costs of opening a letter of credit with a financial institution.
IMPORTANT: Letters of Credit offer an advantage in the case of South American exporters: specifically, there is no need to request confirmation of the credit by virtue of the Reciprocal Credit Agreement – RCA currently in effect in Latin America, an instrument to which the region’s central banks have broadly adhered