Documente Academic
Documente Profesional
Documente Cultură
Speed of Remittance
Country Stability
Bargaining Strength
Cost of remittance
Exporter
Importer
International Carrier
BORDER
Import Clearance
Exporter
SALES CONTRACT
Importer
International Carrier
BORDER
Import Clearance
How to secure the delivery after payment
Methods of Payment
Advance payment
Pay first before delivery
Exporters Risk
Consignment
Demand for payment is usually made by means of a clean draft( no documents attached). Payment typically occurs after the products have been resold by the buyer.
Application/Use
The consignee is reliable The consignee has a good credit history The consignees country has economic and political stability The consignee is the branch office of the main company
Open Account
A term of payment in which no banks are involved, only an agreement between seller and buyer that payment will be made within an agreed period of time. The buyer opens an account in the name of the seller in the buyers book and show values of the goods as an amount owing to the seller Banks become involved through wire transfers, but no negotiations. Normally one should use this method only when he/ she has confidence in the creditworthiness of the buyer. The seller sends the goods to the buyer BEFORE the payment
Contractual Relationship
8. Payment
Bank or FI
Exporter
Importer
2. Contract of carriage
Transportation
4. Shipment
Application/Use
There is long-term relationship and confidence between the buyer and the seller The seller is under pressure to sell his goods The buyer has a very good reputation and is wellknown in the market The buyer is solvent
Buyer pays BEFORE shipment Used in new relationship Transactions are small and buyer has no choice Maximum security to sellers No guarantee that goods are shipped
Contractual Relationship
4. Advance payment
Bank or FI
Exporter
Importer
2. Contract of carriage
Transportation
5. Shipment
Application/Use
The buyer lacks creditworthiness The buyer is not able to offer sufficient security for payment The buyer is located in a region of politic and/or economic instability The product is so specialized that it is specifically made for the customer and cannot be easily sold to another customer
Documentary Collections
A collection, which is accompanied by commercial documents. Means that the bank handles documents according to the instructions received. This payment method is most often used in international trade in the exchange of merchandise for money. With this method, the goods are shipped to the foreign country, but the documents are sent to the buyers bank. Bank has the only duty to collect the payment from the buyer in exchange for delivery of the shipping & financial documents Bank assumes no risk & responsibility associated with default payment AS LONG AS it follows the sellers instruction
Drafts
An unconditional order in writing prepared by one (drawer) and addressed to another (drawee) The draft is drawn by the beneficiary under the term of authorization in the letter of credit and in straight conformance with the conditions stated. The draft has to include the name of the issuing bank. Draft (in some countries) is said to be drawn to the account of the bank or buyer.
Types of Draft
Clean or Documentary
Accompanied by the relevant document needed to complete the export transaction. Clean draft is one no document attached and is usually handed to a bank for collection in a foreign country. Open account, the sale of stoke and bonds payment for services.
Sight or Usance
Drawn to be payable either at sight or at some specified future time. Name implies, sight draft supposed to paid first seen by the drawee. Some countries is customary drawee to delay payment of sight draft until the merchandise.
With recourse means purchase by a banker or other financial institution of draft. Without recourse means exact opposite. Consignee fails for any original drawer of the draft.
7. Shipping Documents Exporter 1. Sale Contract 5. Bill of Lading 2. Contract of carriage Transportation 4. Shipment Importer
9. Payment (simultaneously)
Bank or FI 8 . Financial & Shipping Documents
Exporter
1. Sale Contract 5. Bill of Lading 2. Contract of carriage
Importer
Transportation
4. Shipment
Insurance
Importer
4. Shipment
Clean collection
D/P D/A
The seller remains at risk since the goods are dispatched to the buyer BUT still have room to retrieve the goods back
The risk to the seller is total. The buyer can make a default payment after taking the delivery
Summary of a contract between seller and buyer with the bank(s) as referee
DOCUMENTS
SWIFT : Society for Worldwide Interbank Financial Telecommunication
1. Sale Contract
Advising Bank
3. Documentary Credit
Case
Mang Juan shows his beautiful candle holder at the Manila International Gift Show. Mr. Smith from the UK falls in love with the product Mang Juan is selling it at the price of $1.00 Mr. Smith wants to buy 100,000 pieces! Mang Juan is thrilled to death, but $100,000 is a very big order! Almost 5 million pesos! How will he be sure Mr. Smith will be able to pay him? What if Mr. Smith changes his mind and cancels the order?
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2. 3.
4.
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How do we solve this problem of trust? Through A bank instrument called the Letter of Credit
1. 2. It is a bank, and not Mr. Smith, who guarantees Mang Juan that he will be paid Mr. Smith, the importer-buyer, applies to his bank for a letter of credit which if he is a good client of the bank, will be approved with a marginal deposit from Mr. Smith. With the Letter of Credit, it is the Issuing Bank and not Mr. Smith, who assures the exporter-seller, Mang Juan, that he will be paid, provided he complies with the terms of the Letter of Credit. Mr. Smith can stipulate in the Letter of Credit however the latest shipping date of the order, if partial shipments will be allowed, and that an inspection certificate approving the goods for shipment by a trusted firm specified by the buyer is required.
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3.
4.
KEY ELEMENTS
AMOUNT EXPIRY LATEST SHIPMENT DATE DOCUMENTS REQUIRED
PAYMENT WILL BE MADE ONLY WHEN ALL TERMS AND CONDITIONS ARE MET
RESOLVE UNCLEAR ITEMS PRIOR TO SHIPMENT
Exporter
3. Bill of Lading
Importer
International Carrier
BORDER
2. Shipment
Letter of Credit
BORDER
- Guarantee for payment by bank under terms & conditions - Assure appropriate documents (B/L) are presented
(8) Documents & Claim for Payment (7) Documents Presented to issuing Bank
Correspondent Bank
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Expiration Date
A Letter of Credit should contain a stated expiry date. The Beneficiary is required to present the draft(s) and documents to the Issuing Bank or a Nominated Bank on or before that date. Under the Uniform Customs and Practice for Documentary Credits Act (UCP), published by the International Chamber of Commerce (and incorporated by reference in most commercial letters of credit), if the expiration date falls on a day when banks at the place of presentation are closed, the expiration date is extended to the next business day. Letters of Credit expire at the times and locations specified in the Letter of Credit.
Auton omy
Doctrines
Doctrine of Autonomy
Letters of credit deal in documents, not goods. L/Cs are purely documentary transactions, separate and independent from the underlying contract between the Buyer and the Seller. The bank honoring the L/C is concerned only to see that the documents conform with the requirements in the L/C. If the documents conform, the bank will pay, and obtain reimbursement from the Buyer/Applicant. The bank need not look past the documents to examine the underlying sale of merchandise or the product itself. The letter of credit is independent from the underlying transaction and, except in rare cases of fraud or forgery, the issuing bank must honor conforming documents. Thus, sellers are given protections that the issuing bank must honor its demand for payment regardless of whether the goods conform with the underlying sale contract.
1. Revocablechanged or cancelled at any time without notice to the beneficiary 2.Irrevocablecannot be unilaterally cancelled or amended by the importer
3.Transferrabl eTransfer of all or part of the letter credit. 4.Nontransfera ble- may not be transferred by the beneficiary.
5. Deferred Exporter will be paid at specified dates after shipment. Single shipment will be paid by number of payments. Pay at maturity and not before.
6. Revolving Are regular and continuous. Three types: Noncumulative revolving credit, cumulative, credit unused shipment.
7. Confirmed It is an L/C in which the advising bank is further protected of any kind of risk that may arise especially if it is doubtful about the credibility of the Issuing Bank
8. Red Clause Exporter requests the importer to pay an advance in order to finance the production or purchase of the goods to be delivered .this clause in the L/C is written in red
9. Green Clause- Almost similar to Red Clause L/C. The finance obtained in advance is also used for warehousing purposes.
10. Back to Back- it consists of two separate and different types of LC. One for the exporter and based on this L/C one for the supplier to the exporter. It is used in intermediary trade.
11. Stand By It is an obligation of the issuing bank to: (i)Repay money borrowed by or advanced to the account party (ii) Make payment on the account of any evidence of indebtedness undertaken by the account party. (iii) Make payment on account of any default by the account party in the performance of a contractual obligation.
Confirmed L/C
Buyer (Importer) (1) Contract of Sale (5) Delivery of Goods Seller (Exporter)
(8) Documents & Claim for Payment (7) Documents Presented to issuing Bank
Confirming Bank
3a. L/C 55
FINANCIAL DOCUMENTS: Bill of Exchange Promissory Note Trust Receipt Delivery Order
TRANSPORT DOCUMENTS:
Bill of Lading Airway Bill
COMMERCIAL DOCUMENTS
Commercial Invoice Packing List Insurance Certificate Certificate Of Origin Inspection Certificate Weight Note Certificate Of Analysis Black List Certificate etc.
DOCUMENTARY REQUIREMENTS
Drafts should
Be drawn by the Beneficiary on behalf of the parties specificied in the Letter of Credit Not exceed the Letter of Credit amount or its remaining balance Not be payable or endorsed to parties other than the Beneficiary or the issuing or the nominated bank Be in negotiable form, endorsed by the Beneficiary as necessary Refer to the Letter of Credit
Invoices should
Be issued by the Beneficiary named in the letter of credit Be issued to the Applicant Describe the goods and show the prices and terms as detailed in the Letter of Credit Not exceed the Letter of Credit amount or its remaining balance, except in UCP 600
If the credit is confirmed by a bank in the exporters country, the exporter is neither subject to commercial not to country risk
If the credit is irrevocable, it cant be cancelled without the exporters consent and notice of revocation can be rejected by the exporter if received after shipment The documents and therefore the goods will not be released until payment or commitment to payment is made (In terms of L/C) Where credit has been allowed the accepted bill of exchange can be used to obtain the finances
Guarantees
A Guarantee is issued by a bank on behalf of its customer, the Exporter, as financial assurance to the Importer to be collected in the event that the Exporter defaults on certain specified contractual obligations. The bank that issues a Guarantee will pay the named beneficiary the amount specified on presentation of a written demand as outlined in the Guarantee. While there are standard Guarantee formats, Guarantees can be tailored to meet your specific contractual needs.
Types of Guarantees
An Importer will often ask foreign contract bidders to post a Bid Guarantee as evidence of serious intent to supply the goods or services if selected. In the event that the selected supplier is unwilling or unable to carry out the contract, the Importer can collect the amount An Advance Payment Guarantee covers the amount of the downpayment the Exporter requests from the Importer and provides the Importer with some security if the Exporter does not deliver under the terms of the contract, the amount of the down-payment would be retrievable permits the Importer to draw on the Guarantee if the Exporter fails to perform according to the terms of the contract in the event that the Exporter is unable to complete the contract as agreed halfway through a project, the Importer is compensated with the amount
Advance Payment
Performance
Bid
Questions
What do you think about this kind of credit? What is wrong with the terms of payment in the credit? Do you think the beneficiary has made his objection on time?