What is the method of payment that involves a contract between the banks of the buyer and the seller?

The method of payment that involves a contract between the banks of the buyer and the seller is the letter of credit. This financial instrument provides a guarantee from the buyer's bank to the seller, ensuring that the seller will receive payment as long as they meet the terms and conditions outlined in the letter. This arrangement mitigates the risk for both parties in international transactions.

The buyer's bank confirms to the seller's bank that it will honor the payment, which offers assurance that the seller will get paid even if the buyer defaults. This makes letters of credit particularly valuable in international trade, where the parties may not know each other well and want to minimize trust-related risks.

In contrast, cash in advance requires payment before goods are shipped, which may not provide the same level of security for the buyer. An open account allows the buyer to pay for the goods after delivery, posing a risk to the seller. Accounts receivable represents amounts owed to a company for goods or services provided on credit, but it does not involve a direct contract between banks as the letter of credit does.