Collection (Drafts) involve the use of a draft, drawn by the seller on the buyer, requiring the buyer to pay the face amount either on sight (sight draft) or on a specified date in the future (time draft). The draft is an unconditional order to make such payment in accordance with its terms, which specify the documents needed before title to the goods will be passed. Because title to the goods does not pass until the draft is paid or accepted, both the buyer and seller are protected. However, if the buyer defaults on payment of the draft, the seller may have to pursue collection through the courts (or possibly, by arbitration, if such had been agreed upon between the parties). The use of drafts involves a certain level of risk; but they are less expensive for the purchaser than letters of credit.
When goods are sold subject to consignment, no money is received by the exporter until after the goods have been sold by the purchaser. Title to the goods remains with the exporter until such time as all the purchase conditions are satisfied. As a practical matter, consignment is very risky. There is generally no way to predict how long it might take to sell the goods; moreover, if they are never sold, the exporter would have to pay the costs of recovering them from the foreign consignee.
An open account transaction means that the goods are manufactured and delivered before payment is required (for example, payment could be due 14, 30, or 60 days following shipment or delivery). In the