Chapter 8 Payment of Goods Aims and RequirementsAims and Requirements 8.1 Credit Instruments Used in Settlement of Trade8.1 Credit Instruments Used

Chapter 8Payment of Goods

Aims and Requirements 8.1 Credit Instruments Used in Settlement of Trade 8.2 Methods of Settlement for International Trade 8.3 Payment Clause in Sales Contract Case Study

Aims and Requirements

Teaching Methods: English Teaching, Discussion, Case Study,

Project Learning Method, Team Study

Aims: To grasp credit instruments in settlement; To grasp methods of settlement in trade; To learn how to write payment clause.

Key Points: Bill of Exchange, L/C, Collection, Payment Clause

8.1 Credit Instruments Used in Settlement of Trade

8.1.1 Bill of Exchange, Draft 8.1.2 Promissory Note 8.1.3 Cheque, Check 8.1.4 Comparison of Three Instruments

A B

Media

Nature of a Negotiable Instrument

流通性、无因性、要式性、提示性、返还性 An unconditional order or promise in writing to pay a sum certain in money;Addressed by one person to another;Payable to bearer or to order;Payable on demand or at a definite future time.

Functions of a Negotiable Instrument

A means of paymentA credit instrumentA transferable instrument

8.1.1 Bill of Exchange, Draft

A bill of exchange is defined as an unconditional order in writing. Addressed by one person (drawer) to another (drawee), signed by the person giving it, requiring the person to whom it is addressed (the drawee, who when he signs becomes the accepter) to pay on demand, or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer (payee).

Essentials of a Bill of Exchange

① The word “Exchange”② An unconditional order in writing③ Name and address of the drawee④ Drawer’s signature(s)⑤ Date and place of issue⑥ Name and business entity of the payee⑦ Tenor⑧ Place of payment⑨ Amount of money.

Types of Bill of Exchange:① Banker’s draft/ Commercial draft② Sight draft, demand draft/ time draft, usanc

e drafte.g. At sight at 30 days after sight; at 60 days after date; at 60 days after date of B/L; Fixed date.

③ Commercial acceptance draft/ banker’s acceptance draft

④ Clean draft/ documentary draft

Acts of a Bill of Exchange:

① To draw Payee ( 收款人、抬头 ) “Pay to XX only/ not negotiable” “Pay to the order of XX” “Pay bearer”

To draw and sign a draft

To deliver it to the payee

② Presentation （ sight ）：Presented for acceptance: A time bill first presented to the payer for acceptance.Presented for payment: A sight bill payable at sight; A time bill payable at maturity.

③ Acceptance:• The word ”accepted” must be written on the bill

to be followed by the signature of the acceptor and the date of acceptance.

• The acceptor return the accepted draft back to the bearer （ holder ） .

*There will be 3 days for the payer to consider if he accepts the draft or not.

④ Payment ：For sight bill: Payable at sightFor time bill: Payable at maturity after acceptance.

⑤ Endorsement:Blank endorsementSpecial endorsementRestrictive endorsementConditional endorsement

前手后手背书

⑥ Dishonor and Recourse: Notice of Dishonor and Protest

⑦ Discounting: Sell a time bill already accepted by the dra

wee but not yet fallen due to a financial institution at a price less than its face value.

Drawer1.Draw

BearerPayee/Bearer

2. Endorse

1 i n

Drawee/Payer

3. Present

4.

①. Sight payment

②. Accept – Present 2’-- Time/ Usance payment

Or Discount

③. Dishonor

5. Recourse

前手后手

5. Recourse

Flow Chart of Draft

8.1.2 Promissory Note

A promissory note is an unconditional promise in writing made by one person (the maker) to another (the payee or the holder) , signed by the maker engaging to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or bearer.

Essentials to a Promissory Note

1) The words “promissory note” clearly indicated

2) An unconditional promise to pay3) Name of the payee or his order4) Maker’s signature5) Date and place of issue6) Period of payment7) Place of payment8) A certain amount of money.

1. 中央银行本票 Central Banker’s Notes

中央银行本票 Central Bank Notes ，即纸币，俗称钞票，会计称现金。它原来是中央银行可兑换成金银铸币的不记名定额本票，后来转变成为由国家立法强制无限期流通的不兑换金银铸币（即现金）的纸币，人们逐步称纸币为“现金”。

2 、普通商业本票示例

PROMISSORY NOTE

￡ 60,000.00 London, 15th May, 2002Three months after date we promise to pay Joh

n Tracy or order the sum of SIXTY THOUSAND POUNDS for value received.

William Taylor

ASIAN INTERNATIONAL BANK, LTD18 Queen’s Road, Hong Kong

CASHIER’S ORDERHong Kong, 8th August 2002

Pay to the order of Dockfield & Co. the sum of Hong Kong Dollars Eighty Thousand and Eight Hundred only.

For Asia International Bank, Ltd.

HK $80,800.00Manager

3 、普通银行本票示例

Characteristics

1) It is an unconditional promise in writing;2) Only two basic parties: the maker (the

drawer) and the payee;3) There is no need to accept the instrument if it

is a time bill. 4) Only one original note, whereas a bill of

exchange maybe either a sole bill or a bill in a set.

5) In all cases the maker is the primarily liable party.

8.1.3 Check (cheque)

A check is an unconditional order in writing. Addressed by the customer (the drawer) to a bank (the drawee), signed by the customer authorizing the bank to pay on demand a sum certain in money to or to the order of a specified person, or to bearer (the payee).

Essentials to a Check

1) The words “check” clearly indicated

2) An unconditional order in writing3) Name of the paying bank4) Drawer’s signature5) Date and place of issue6) Address of the paying bank7) Name of the payee8) A certain amount of money.

Classifications of Checks1) Crossed check ( 划线支票 ): Pay the fund in

to a bank account of the payee only.• General crossing• Special crossing: Only two parallel transve

rse lines in special crossing check.1) Open check （非划线支票，敞口支票） :It c

an be paid cash to the payee or holder.

# 我国票据法规定有现金支票和转账支票，但没有划线和非划线支票的提法。

Characteristics

1) A check is actually a sight bill be drawn on a bank;2) A sum certain in money must be written on a check and

not exceed drawer’s deposit in the paying bank;3) A check need not be accepted for it is payable only on d

emand and the drawer is the party primarily liable. 4) A check is drawn only in form of a sole instrument, but n

ot in a full set.5) Once the paying bank stamps on the check with the wor

d “guarantee for the payment” ( 保付 ), then the check becomes a certified check of high credit and easily negotiable.

6) 可以“止付”，付款行在支票上注明“奉命止付”字样并退票给提示人。

7) 可以“拒付”，付款行由于签名不符、存款不足等原因拒付。

8.1.4 Comparison of Three Instruments

Characteristics Basic Parties

Tenor Acceptance

Bill of

Exchange

Unconditional

Order

Drawer

Drawee

Payee

Sight

Time

Accepted in Time bill

Promissory Note

Unconditional

Promise

Maker

Payee

Sight

Time

No acceptance

Check Unconditional

Order

Drawer

Bank

Payee

Sight No acceptance

8.2 Methods of Settlement for International Trade

8.2.1 Remittance 8.2.2 Collection 8.2.3 Letter of Credit, L/C

8.2.1 Remittance

Remittance means the cross-border direct transfer of funds by banks. The remitting bank pays a predetermined amount on the request of remitter (obligor/ importer) through the foreign correspondent bank or agent bank (paying bank) to payee/ beneficiary (obligee/ exporter). Basic four parties: the remitter, the beneficiary, the remitting bank and the paying bank.

Three basic ways:

1. Remittance by Cable/ Telex/ SWIFT – Telegraphic Transfer (T/T)

--- more prompt, more expensive. It is often used when the remittance amount is large and the transfer of funds is subject to a time limit.

Question: What is SWIFT?

2. Remittance by Airmail – Mail Transfer (M/ T)

--- The cheapest method among all settlement styles. --- time consuming, possibly be delayed or lost in the post,

thus causing difficulty for its payment.

Flow Chart of T/T, M/T

(8) Debit memo

(4) Advice by Telecommunication(T/T) or by Mail Order (M/T)

Payee/ exporter Remitter/Importer

Paying bank Remitting bank

(1) By remittance

(2)

Ap

pli

cati

on

and

fu

nd

(3)

Tu

rnin

g b

ack

th

e st

ub(5

) A

dvi

sin

g

(6)

Sig

nin

g a

rece

ipt

(7)

Pay

ing

3. Remittance by Banker’s Demand Draft (D/ D)

1) The settlement instrument is a bank draft;2) The instrument is dispatched by the remitter instead of

bank, that is, the enterprise mails or travels and hands the draft over to the payee;

3) This demand draft is negotiable so as to be easily endorsed to other parties but it is also possibly to be lost, stolen or destroyed.

(5) Mailing the stub

(8) Debit memo

(4) Mailing Bank Draft

(1) By D/DPayee/ exporter Remitter/Importer

Paying bank Remitting bank(2

) A

pp

lica

tion

an

d f

un

d

(3)

Issu

ing

ban

ker

’sd

eman

d d

raft

(6)

Han

din

g ov

er d

raft

(7)

Ver

ifyi

ng

and

pay

ing

Flow Chart of D/D

Practice of Remittance in Trade settlement

--- Remittance is the most favorable term to exporter, but the risk of non- delivery rests upon the importer.

1. Payment in advance 2. Open account (O/ A) – Payment after

arrival of goods

8.2.2 CollectionUpon the delivery of the goods, the exporter draws a bill of exchange on the importer for the sum due, with or without relevant shipping documents attached, and authorizes his bank to effect the collection of the payment through his branch bank or correspondent bank in the country of the importer. Collection is a settlement type of reverse remittance on commercial credit basis.

Main parties of collection:1) The principal (seller/ exporter/ drawe

r);2) The remitting bank (principal’s/ sell

er’s/ exporter’s bank);3) The collecting or presenting bank;4) The drawee (buyer/ importer).5) The agent of necessity ( 需要时代理 )

Types of Collection

Collection Draft

Clean Collection

Hand over documents

D/P

D/A

D/P at sight

D/P after sight

Documentary Collection

10. Delivering goods

D/P at sight Flow Chart

Exporter (Principal)

Importer (Drawee)

Remitting bank

Transport Co.

Collecting bank

1. Specifying collection type in sales contract

2.Loading goods on board

3.Obtaining B/L& other documents

4. C

olle

ctio

n in

stru

ctio

nat

tach

ed w

ith

full

set

of

docu

men

ts

5. Forwarding instructions and full set of documents

6. Present the

documents

7. Paym

ent

8. Releasing docum

ents

11. Credit memo

12.

Pay

men

t

9. Bill of Lading


D/P after sight Flow Chart


Importer (Drawee)

Remitting bank

Transport Co.

Collecting bank




4. C

olle

ctio

n in

stru

ctio

nat

tach

ed w

ith

full

set

of

docu

men

ts


6. Present the

documents

7. Acceptance

9. Releasing docum

ents

12. Credit memo

13.

Pay

men

t

10. Bill of Lading

8. Paym

ent at expiry date


9. Bill of Lading


D/A Flow Chart


Importer (Drawee)

Remitting bank

Transport Co.

Collecting bank



4. C

olle

ctio

n in

stru

ctio

nat

tach

ed w

ith

full

set

of

docu

men

ts


6. Present the

documents

7. Acceptance

8. Releasing docum

ents

12. Credit memo

13.

Pay

men

t11. P

ayment at expiry date

Question: If the date of payment is later than the actuall

y arrival date of the goods, what should the buyer do to take the goods in time?

a.) 提前付款赎单： at a price less than its face value, like discounting.

b.) D/P·T/R (Trust Receipt) : the buyer borrows the title documents to take the goods first.信托收据 , 是进口人借单时提供的一种书面信用担保文件 ,用来表示愿意以代收行的委托人身份代为提货、报关、存仓、保险或出售，并承认货物所有权仍属银行。

Attention:

A collection with commercial documents other than a title document (such as invoice and so on) is also a clean collection. D/P after sight is safer to exporter than D/A. D/P·T/R (Trust Receipt, 信托收据 ) D/A offers less security (even with risk) to the exporter.Uniform Rules for Collection, ICC Publication No.522 (URC522)

Advantages and Risks in Collection

1. Comparatively more risky to the exporter.

2. The settlement expense is relatively low (only a little more than remittance).

3. Non- acceptance of Draft.4. Nonpayment after D/A.

8.2.3 Letter of Credit

It is a written promise of a bank, undertaken on behalf of a buyer, to pay a seller the amount specified in the credit provided the seller complies with the terms and conditions set forth in the credit.L/C is a commitment of conditional payment of a bank to exporters.

Characteristics of a L/C

1) L/C is bank’s credit, the issuing bank takes primarily liabilities for payment;

2) L/C serves as self-sufficient instrument;

3) L/C follows pure documents principle.

The basic parties of L/C 1) Applicant or Opener2) Opening Bank or Issuing Bank3) Beneficiary4) Advising Bank or Notifying Bank5) Negotiating bank6) Paying bank7) Reimbursement Bank8) Confirming Bank9) Transferring Bank

The Chief Contents of L/C

The chief contents of the L/C can be seen as a combination of the chief contents of the sales contract, the required documents and the bank assurance.

(1) Forms of L/CStandard form set by ICC, SWIFT form,

usual letter form(2) Elements of L/C

6. Loading & Assembling documents

Typical L/C Flow Chart

Applicant (Importer)

Beneficiary (Exporter)

Issuing Bank/ Paying Bank

Transport Co.

Advising Bank/Negotiating Bank

1. Contract payment by L/C

13. B/L

2.

App

ly

to is

sue

L/C

3. Issue L/C (SWIFT or Letter form)

4. Transmit

L/C

7. Present docum

ents

8. Check docum

ents &

pay/negotiate

10. Check documents & pay

11.Payment advice

5.Check L/C& dispatch goods

9. Transmit documents and reimbursement

12. Redeem documents

14. Delivery

Types of terms in L/C

1. According to the documents attached Documents

Documentary credit 跟单信用证

Include shipping documents

Clean credit光票信用证

Not include shipping documents

2. According to the confirmation

Issuing Bank

Confirming Bank

Confirmed L/C保兑信用证

bears a primary obligation of payment

bears a primary obligation of payment too and without recourse

Unconfirmed L/C无保兑信用证

bears a primary obligation of payment independently

No obligation

3. Irrevocable L/C ( 不可撤销信用证 ) UCP600: “A credit is irrevocable even if

there is no indication to that effect.”

4. Sight L/C (Sight payment credit) It is not usually accompanied by a draft. At a full amount – It does not deduct inte

rest, only banking charges.

Draft Payable time

Acceptance L/C承兑信用证

With a time draft

Payable at maturity

Usance L/C payable at sight假远期信用证

With a time draft

Payable at sight

Deferred payment credit

延期付款信用证

Without a draft Payable at a predetermined

date

5. Usance L/C (Time L/C)

6. Transferable L/C （可转让信用证）

The first beneficiary may request the transferring bank to make the credit available partially (or wholly) to the second beneficiary (ies);

Unless the issuing bank expressly designates as “transferable”, a credit can’t be transferable;

Transferable credit can be transferred vertically only once, but many times horizontally.

Second Beneficiary (Supplier)

First beneficiary(Middle man/Exporter)


7. Loading & Assembling documents

1.Contract 1.Contract


Transferring Bank/Advising Bank/Negotiating Bank

2.Apply to issue L

/C

3.Issue L/C

4. Transm

it L/C

5. Apply to transfer L

/C

6. Transfer the L

/C

8.Present D

ocuments

9.Check docum

ents& pay/negotiate

10. Notice to change the docum

ents

11.Change the docum

ents

12. Pay the margin

13. Transmit documents and reimbursement

14. Check documents & pay

15.Present the documents

16.Payment and get

documents

7. Back to Back L/C （背对背信用证）

The back to back L/C is very much like transferable credit;

The intermediary company, being the beneficiary of the original L/C, may apply to another domestic bank to issue new credit for the second beneficiary (ies);

There will be two credits in back to back L/C.

Second Beneficiary (Supplier)

First beneficiary(Middle man/Exporter)


8. 发货

1. 合同 1. 合同


Issuing Bank (New L/C)/Advising Bank (original L/C)

2. 申请

开证

3. 开立原证

4. 通

知原

证5. 申

请开

立新

证

7.通

知新

证

9.交单

议付

10.垫付

货款

13.通知

换单

14.替换

单据

15.付

差额

16. 寄单索偿17. 偿付

18.提示

单据

19.付款

赎单

Advising Bank/Negotiating Bank( new L/C )

6. 开立新证11. 寄单索偿

12. 偿付

Other Special Types of L/C

8. Revolving L/C （循环信用证）9. Reciprocal L/C （对开信用证）10. Anticipatory L/C （预支信用证）11. Negotiation L/C （议付信用证）

International Convention of L/C

Uniform Customs and Practice for Documentary Credits, ICC Publication No.600 。《跟单信用证统一惯例》国际商会第 600 号出版物。

L/G: Banker’s Letter of Guarantee

(1) Tender guarantee ( 投标保函 ) (2) Performance guarantee ( 履约保函 ) (3) Repayment guarantee ( 还款保函 )

Standby L/C Factoring Export credit insurance

8.3 Payment Clause in Sales Contract

8.3.1 Payment Clause by Remittance 8.3.2 Payment Clause by Collection 8.3.3 Payment Clause by L/C

8.3.1 Payment Clause by Remittance

The buyers shall pay 100% of the sales proceeds in advance by Demand Draft to reach the sellers not later than June 25.

The buyers shall pay 30% of the sales proceeds by T/T. The remaining part will be paid to the sellers within 5 days after receipt of the fax concerning original B/L by the buyers.

8.3.2 Payment Clause by Collection Upon first presentation the buyers shall pay against documentary draft drawn by the sellers at sight. The shipping documents are to be delivered against payment only.

The buyers shall duly accept the documentary draft drawn by the seller at 90 days’ sight upon first presentation and make payment on it’s maturity. The shipping documents are to be delivered against acceptance.

8.3.3 Payment Clause by L/C

By confirmed irrevocable L/C for 100% invoice value available by sight draft, the L/C is to reach sellers not later than May, 20.

Case Study 1

我某外贸公司向日本商人以 D /P 见票即付方式推销某商品，对方答复如我方接受 D /P 见票后 90 天付款条件，并通过他指定的 A 银行代收货款则可接受。请分析日方提出此项要求的出发点。

Case Study 2

天津 M 出口公司出售一批货物给香港 G 商，价格条件为 CIF 香港，付款条件为 D /P 见票 30 天付款，M 出口公司同意 G商指定香港汇丰银行为代收行。 M 出口公司在合同规定的装船期限内将货物装船，取得清洁提单，随即出具汇票，连同提单和商业发票等委托中行通过香港汇丰银行向 G 商收取货款。 5 天后所装货物安全运抵香港，因当时该商品的行市看好， G 商凭信托收据向汇丰银行借取提单，提取货物并将部分货物出售。不料因到货过于集中，货物价格迅速下跌， G 商以缺少保险单为由在汇票到期时拒绝付款。你认为 M 公司应如何处理此事？说明理由。

Case Study 3 我某公司与往来多年的非洲一客户签订某畅销商品合同一笔，交货条件为 12 月至次年 6 月，每月等量装运，凭不可撤销信用证自提单日后 60 天付款。该客户按时开出不可撤销信用证。信用证规定的总金额和总数量与合同相符，最迟装运期为 6月 30 日，并有 “分数批装运”条款（ to be shipped in several shipments ）。公司除在 12 月按照原定的数量装运外，因见来证未列明“每月等量装运”条款，为了 “早出口，早收汇”，便于 1月底将一季度应交数量一并装出，我中国银行凭单议付； 2 月底又将二季度应交数量一并装运，中国银行再凭单议付，并先后向开证行索汇，开证行审单后认为单、证无误。当客户接到装船通知后，发现第二批和第三批货物装出的时间和数量与合同规定条件不符，随即提出异议，开证行根据客户申请致电中国银行： “开证申请人要求缓付第二批和第三批货款待买卖双方达成协议后，再告受益人确认。”以致我方未能按时收到第二、三批货款。

Case Study 4

我一公司接到客户发来的订单上规定交货期为 2001 年 8月，不久收到客户开来的信用证，该信用证规定： “ Shipment must be effected on or before September ， 2001.”我方乃于 9月 10 日装船并顺利结汇。约过了一个月，客户却来函要求因迟装船的索赔，称索赔费应按国际惯例每逾期一天，罚款千分之一，因迟装船 10 天，所以应赔款百分之一。问：①我方为什么能顺利结汇？②客户的这种索赔有无道理？我公司是否应赔偿？

Case Study 5

某木制品贸易公司向国外客户出口一批精美木制工艺品，信用证中规定的装运期为 4 月份，交单期为 5 月 10 日前，信用证的有效期为 5 月 25 日。该木制品公司收到对方开来的信用证后，及时向工厂下订单，准备出口货物。但由于产品制作过程需要的时间较长，该公司的货物于 4月 27日才全部赶制出来，经与轮船公司联系装运后，该公司取得 4 月 29 日签发的提单。我方制作好单据于 5 月 9 日交单时，恰逢 5 月 9 日、 10 日为银行非营业日。问：该公司可否按《 UCP600》的规定，凭 4 月 29 日签发的提单连同其他单据从银行取回货款？为什么？

Case Study 6

我凭即期不可撤销信用证出口马达一批，合同规定的装运期为 2001 年 8月份。签约后，对方及时开来信用证，我方则根据信用证的要求及时将货物装运出口。但在制作单据时，制单员将商业发票上的商品名称依信用证的规定缮制为 “ MACHINERY AND MILL WORKS， MOTORS”，而海运提单上仅填该商品的统称 “ MOTORS”。问：付款行可否以此为由拒付货款？为什么？