Traditionally, payment is made in U.S. dollars and the letter of credit (LC) is the most common form of payment. Under a Letter of Credit, the buyer's bank first establishes a letter of credit in favor of the seller. When the grain is shipped and documentation is presented, the seller's bank makes payment to the seller, then the buyer's bank makes payment to the seller's bank. A letter of credit greatly reduces commercial risk for the seller, but involves higher bank service charges.
Variations on the letter of credit include specifying a time for payment or deferred payment. Buyers and sellers with a long-standing relationship can save transaction costs by trading on an open account where the buyer pays the seller directly upon delivery of the grain.
In addition to price risk, a buyer that is purchasing on commercial extended credit may wish to consider covering the foreign exchange risk that can occur with an international transaction.
If buyers are unable to obtain commercial credit for their importing needs, they may be able to obtain financing assistance from various U.S. government programs. In many countries, U.S. Department of Agriculture export credit guarantee programs can help make commercial financing available for imports of U.S. food and agricultural products on deferred payment terms. The GSM-102 and GSM-103 programs guarantee payment from approved foreign banks, normally to financial institutions in the United States that extend credit to them to finance imports of U.S. agricultural commodities.
USDA provides answers to commonly asked questions about how to participate in the GSM-102 and GSM-103 export credit guarantee programs.