International Payment Methods and Export Performance in Nigeria (GPH-International Journal of Social Science and Humanities Research)

Summary

• The paper examines how cash in advance, open account, documentary collection and letters of credit affect export performance in Nigeria.p.1
• Under cash in advance the importer bears 100% of the risk, while the exporter bears the lowest risk.p.4
• Open account sales are usually paid within 30, 60 or 90 days of delivery, making the exporter an unsecured creditor.p.6
• Letters of credit reduce default risk through bank guarantees but raise transaction costs, whereas open account lowers costs but exposes exporters to payment risk.p.3
• Analysis of non-oil exports with monthly data from 2010 to 2023 suggests that trade credit availability and electronic payment adoption have a significant positive effect.p.8
• Emerging trends include blockchain trade finance platforms, central bank digital currencies and the regional payment system PAPSS.p.11

Key insights

1. Payment methods affect risk allocation, financing needs and the efficiency of cross-border transactions.p.1
2. Financial frictions in payment methods can be represented as iceberg trade costs that reduce the actual volume of trade.p.4
3. Small and medium-sized enterprises may be deterred from exporting by high-risk or costly payment methods.p.5
4. Mobile payments, point-of-sale payments and NIBSS Instant Payments show a positive and significant relationship with export performance in Nigeria.p.8
5. Smaller exporters often face cash-in-advance demands, costly informal finance or exclusion from some markets.p.9
6. Payment system interoperability, transaction costs and foreign exchange settlement are key constraints on trade integration under AfCFTA.p.9
7. Recommended policies include better contract enforcement, improved SME access to credit and wider use of digital payment technologies.p.11