International Payment Mechanism

How to procure your dues and ensure safe trade

With a view to provide an overview on international payments, letters of credit and the implications of UCP 600, FIEO organized a workshop on May 13, 2013 at New Delhi. Mr Ashish Jain, Joint Director, FIEO (Northern Region) while initiating the programme mentioned that the letter of credit (LC) is one of the important payment modes in international trade transactions and its understanding is very vital for exporters. It is considered one of the safest modes for receiving payments and therefore it is pertinent that the nitty gritty of this instrument be known. Prof Harkirat Singh from IIFT gave a detailed presentation on various modes of payments and comparative benefits under different situations. Commencing his presentation he explained about various risks which surround the timely and assured receipts of international payments like currency fluctuations, changes in commodity prices, political risks, non acceptance of goods by the buyers etc. He also spoke on the benefits of ECGC in minimizing payment risks and advised the exporters to take advantage of the various policies safeguarding the interest of exporters. Prof Singh informed about the different payment modes that an exporter can make use of, giving special emphasis on advance payments and LC. He advised the exporters to negotiate with the buyer for advance payments i.e. payments before the shipment is made as it is the most efficient method of procuring payment and conducting safe trade. He also apprised the exporters about some of the guidelines involving advance payments. For instance, if it is required to be returned it should be made to the buyer within one year from the date of receipt of advance and also the fact that documents are to be submitted to the same bank from where the advance payment was received. He also suggested exporters follow the principle of New Buyer-New Market-Advance Payment and advised they ask for 100% advance payment with a minimum threshold limit of 50%. Thereafter he explained in detail about the LC with practical examples. He informed that if the issuing bank is weak and the country risk is high, a confirmed LC is the only document any exporter must negotiate with the buyer. One of the important aspects an exporter must keep in mind on receiving the LC is to read it thoroughly and ensure that all is as per the sales contract. He advised that in case of any additional clause not suiting the sale contract he must bring it to the notice of the buyer and ask for amendment. He advised that any amendment if required shall be made before the shipment of goods and well before the expiry of the LC so as to avoid any future discounting and rebate in pricing by the buyer. This was followed by an interactive session the participant raised several queries. Prof Singh also referred to various articles of UCP 600 rules governing LC. More than 40 leading exporters attended the programme. Mr T.S. Ahluwalia, Managing Committee Member, FIEO, was also present during the workshop.

BOX ITEM HEADLINE = MAKING IT CLEAR

The International Chamber of Commerce Paris, France, has issued Uniform Customs for Documentary Credit ICC No. 600 to define and explain terms and conditions to make interpretation uniform, for the parties concerned. The definition of letter of credit as per Article 2 of UCP 600 is an arrangement however named or described that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. Under credit, payment is settled by sight, acceptance, deferred payment and negotiation. Credit converts goods sales into document based sale transaction.