Import Export Through Commercial Banks

8/6/2019 Import Export Through Commercial Banks

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Foreign trade is exchange of capital, goods,and services across international borders orterritories.

Foreign trade is further bifurcated as

1.Imports

Products of foreign origin brought into acountry. It·s simply a product shipped into acountry or region

2.Exports

Products of local origin sold to othercountries. It is sending goods or servicesacross national frontiers for the purpose of selling and realizing foreign exchange.Governments normally encourage exportsand discourage imports.



The buyer

The seller

The manufacturer

The shipping company or airlinecompany,

The insurance company

Governments and embassies

various professional bodies,lawyers, agents, shipping registries,chamber of commerce, and banks.





ADVANCE PAYMENT

Cash in Advance is a pre-paymentmethod in which, an importer is responsible of the payment for the items to be imported inadvance before the shipment of goods.

Cash-in-Advance method of payment

creates a lot of risk factors for the importers.However, this method of payment isinexpensive as it involves direct importer-exporter contact without commercial bankinvolvement.

This method is use only when theimporter must be confident of:

� The reliability of the exporter

� The stability of the exporter·s country



CONTRACT / OPEN ACCOUNT

In case of an open account, animporter takes the delivery of goods andensures the supplier to make the payment atsome specific date in the future. This type of

payment methods are mostly seen wherewhen the buyer has a strong credit historyand is well-known to the seller. Open Account method of payment offers noprotection in case of non-payment to theseller. In this case, the risk is of exporter.

Contract and cash in advancemethods will be use only when there aremutually understanding between theimporter and exporter.



B ANK GUARANTEE

A bank guarantee is anundertaking of a bank on behalf of its

customer and it comes to play only when

the principal party (the buyer) has failed

to pay its supplier.



METHODS OF COLLECTION OF BILLS

There are two methods of collection of bills:

� Documents Against Payment D/P:

In this case documents are

released to the importer only when thepayment has been done.

� Documents Against Acceptance D/A:

In this case documents are

released to the importer only against

acceptance of a draft.



LETTER OF CREDIT

A Letter of Credit is a

payment term generally used for

international sales transactions. It is

basically a mechanism, which allowsbuyers to offer secure terms of payment

to sellers in which a bank) gets

involved. The technical term for Letter

of credit is 'Documentary Credit'. LC and Bank Guarantee

will be use only when there are lack of

understanding between the importer

and exporter.



IMPORTER IMPORTER

First of all importer get form I from

his bank to import goods.

Request For Quotation:

It is the request made by importer regardinghis wish to import certain goods/items.

The Request for Quotation includes:

The description of Goods Required

Payment terms

Delivery schedule

Minimum order Quantity

Price



Request is accepted by exporterexpressing his intention to export specificgoods with specific terms and conditions.Exporter sends the invoice according to

importer requirements.



� When both the parties agree upon

terms and conditions , the exporter

start manufacturing the required goods.

� If the relation between both the partiesis trustworthy they do not involve

banks as a guaranteer.

� If there is not so much understanding

between importer and exporter,exporter wants importer to open an LC

in his bank.



DOCUMENTS REQUIRED FOR LCDOCUMENTS REQUIRED FOR LC

To open an LC importer submits the

following documents in his bank

� Form-I� Proforma invoice

� LC request form



FORM I

� Form "I" is a form required by an

importer for the imports of goods

� All imports to Pakistan which aresubject to Foreign Exchange Regulations

are required to be declared on form 'I¶.

� The importer should submit the Form

'I' to the bank after it has beencompleted and signed by the importer

himself or his authorized agent.



It contains following information·s� Place of issue

� Date of issue

� Name & address of authorized dealer

� importer name & address� Description of goods

� Quantity

� Port of shipment

� Date of shipment� Invoice value in foreign currency



PROFORMA INVOICE

When the exporter and importer havemet before and have already discussedand thrashed out an agreement , only

one final proforma invoice isnecessary to confirm that the two partiesare indeed in agreement.

Every proforma invoice should be asprecise as possible to ensure that bothparties understand each other.



PROFORMA INVOICE

If the importer is satisfied with this finalproforma invoice, he/she will requesttheir bank to issue an L/C on the

strength of information in the proformainvoice.



The following details are required to thesetting up of the proforma invoice andneed careful attention:

A complete and clear description of thegoods in question

The quantity of goods in questionincluding the number and kinds of

packaging involvedThe total price of the goods (and unit

price where applicable)

The currency in which the goods will be

sold



The likely delivery schedule and deliveryterms

The physical addresses of both the exporter(referred to as the shipper) and importer

(sometimes referred to as the consignee)The payment methods, for example cash in

advance or L/C

The payment terms and conditions

Who is responsible for the banking fees andother related costs (insurance and freight costs)





LC REQUEST FORM

After receiving Performa invoice from

exporter, importer writes an application

to his bank that includes:

� Branch name� Client name

� Type of industry

� Sector of import

� Client Legal status

� Client credit limit

� And some conditions



This document include inter bank

memo in which the bank of the

importer sends all the information

regarding client to its Main branch. It

include:

Applicant name/current A/c No.

LC limit

Credit approval reference



LETTER OF CREDIT

� A Letter of Credit is a payment term

generally used for international sales

transactions.

� It is basically a mechanism, whichallows importers/buyers to offer secure

terms of payment to exporters/sellers in

which a bank (or more than one bank)

gets involved.� The technical term for Letter of credit is

'Documentary Credit'.



Letter of credit Almost all letters of credit are irrevocable.The idea in an international tradetransaction is to shift the risk from theactual buyer to the banks. Thus a LC (as it

is commonly referred to) is a paymentundertaking given by a bank to the sellerand is issued on behalf of the applicant i.e.the buyer.

LC Amendment: Any change made to a letter of credit afterit has been issued is called an

Amendment.



There are four parties to a letter of credit:

1. Importer/Applicant

It is on his account and his request and

according to his instructions that the L/C is

opened. He is an importer of goods from a foreigncountry. Normally, this party is named either as

the consignee in the shipping documents and/or as

the buyer in the exporter`s invoice.

2. Issuing Bank

Buyer`s or importer`s bank whichestablishes (Opens) a Letter of credit in favour of a

beneficiary (seller or exporter), forwards it to an

advising bank for delivery to the beneficiary, and

commits itself to honour demand draft drawn by

the beneficiary against the amount specified in the

L/C. Also called opening bank.



3. Exporter/ BeneficiaryThe person in whose favour the L/C is

opened and he is an exporter in a foreigncountry. He is also known as beneficiary as itis he who derives the benefit of the L/C.

4. Advising BankCorrespondent bank in the Exporter`s bank

of an Issuing bank that receives a letter of credit(L/C) from the issuing bank for authenticating itand informing ('advising') the exporter (the L/C'sbeneficiary) that a L/C has been opened by theimporter in the exporter's favour. The advisingbank usually also takes on other roles in thetransaction, such as confirming the letter of credit(playing the role of the confirming bank



TYPES OF LCTYPES OF LC

� Irrevocable LC

� Revocable LC� Sight LC

� D/A LC



� Irrevocable LC:

It cannot be changed unless both thebuyer and seller agree.

� Revocable LC:

In this, changes to the LC can be made

without the consent of the beneficiary.



� Sight LC:

It means that payment is made

immediately to the beneficiary/exporter

upon presentation of the correctdocuments in the required time frame.

� D/A LC:

It will specify when payment will be

made at a future date and uponpresentation of the required documents.





� W hen the LC is received by the

exporter·s bank, it informs its client

that LC on your behalf has been

received.

� Then the exporter comes to his

bank, the bank advises him that

which documents required in the LC

and how many copies of all thedocuments are required.



After getting covering letter from bank, theexporter collects all the forms required.

The requirements mostly include the followingdocuments(with multiple copies):

Packing List

Form-E

Commercial Invoice

Bill Of Lading/Airway Bill

Insurance Certificate

Goods Declaration Certificate Certificate Of Origin

Bill Of Exchange



DOCUMENTS REQUIRED FOR EXPORTDOCUMENTS REQUIRED FOR EXPORT

� E-Form (Through authorized

Commercial Bank).

� Commercial Invoice

� Packing List� Certificate of origin

� bill of exchange

� Insurance certificate

� Goods declaration

� B /L or A WB (Through Clearing agents)





COMMERCIAL INVOICECOMMERCIAL INVOICE

� An invoice is very important as it

contain the name of importer, exporter

and consignee, and description of goods.

it has to be signed by exporter. other

documents are prepared by deriving

information from invoice. it is required

to be presented before different

authorities for different purposes.



PACKING LISTPACKING LIST

� This statement gives the packing

details of goods in prescribed format. It

is very useful document fort custom at

the time of examination and for

warehouse keeper of the buyer to

maintain a record of inventory and to

effect delivery.



CERTIFICATE OF ORIGINCERTIFICATE OF ORIGIN

� This certificate is issued by the local

chamber of commerce indicates that the

goods, which are being exported, are

actually manufactured in a specific

country mentioned therein. It is sent by

the exporter to the importer and is

useful for the clearance of the goods

from customs authority of the

importing country.



BILL OF EXCHANGE

� It is an instrument in writing,

containing an order, signed by the

maker, directing a certain person to

pay a certain sum of money only to the

order of a person to the bearer of the

instrument. It is commonly known as

draft.



INSURANCE CERTIFICATE

� This document obtained from freight

forwarder, is used to assure the

consignee that insurance will cover the

loss or damage to the cargo during

transit.



� The documents which are submitted to

custom clearance office are:

� E-Form

�

Commercial Invoice� Packing List

� Certificate of origin

� bill of exchange

� Insurance certificate



GOODS DECLERATION

� After getting these documents custom issuesa goods declaration form:

The GD-I document include:

(i) All the relevant information of importer andexporter.

(ii)The country of export and import(iii)The relevant information of the ports

(v)Form-E(NUMBER)

(vi)The freight

(vii)The value of goods and the value of goodsassessed

(ix)Custom duty value

Then the goods or consignment proceeds toshiping line or airlines.



BILL OF LADING

� This document is issued by the

shipping company acknowledging thereceipt of the good mentioned in the bill

for shipment on board of the vessel.



� The B/L is the legal document to bereferred in case of any dispute over the

shipment. It contains :� The shipping company·s name and

address.

� The consignee·s name and address.

� The port of loading and port of discharge.

� Number of packages and goods.

� Gross weight and net weight.

� Freight details and name of the vessel.

� Signature of the shipping company·sagent.





� When the exporter collects all the documentsrequired in LC, present to the bank, bank will givepayment to him and will send all the documentswith covering letter to the importer·s bank.

� Importer·s bank informs importer that thedocuments have been received. If the LC paymentmethod was sight LC then the importer will makethe whole payment on receiving the documents.But if the payment method mentioned in LC wasD/A , the importer will take the documents butwill not make payment. Instead, signs a letter of

under taken in which he makes a promissory notethat I will pay the whole amount according to theterms and conditions.



� Then bank will give documents to the

importer and will endorse on the back

of BILL OF LADING in the favor of

importer then importer will give these

documents to the shipping line«.

� Shipping line will keep these

documents and handover the goods to

the importer.

1

I · E ·



1

Initialagreement and

contractbetween

importer and

exporter

2

importer opens aletter of credit in

his bank (RBS)

3

Opening bank(RBS) advises

the sellerbank(HBL)that LC hasbeen opened

4

Sellerreviews &

fulfils terms

& conditionsof LC

5

Freightforwarderdispatchesthe goods

6

Advisingbank(HBL)forwards

documents tothe openingbank(RBS)

7

The buyer·sbank(RBS) gives

him/her thedocuments to claim

the goods

Import/Exportprocess

Importer·s

bank is

RBS

Exporter·

s bank is

HBL



Prohibited Imports

The GoP permits imports from all countries except Israel. Pakistan controls certain imports through the negative

list. Goods not on the negative list may be freelyimported. The negative list is made up of:

� Items banned for religious reasons.

�

Capital and consumer goods banned to protect domesticindustry.

� Intermediate goods used in producing protected goods

� Products and by-products of pigs/hogs/boars.

� Hazardous products: Weapons, instruments of war,explosives and radioactive products are banned.

Edible agricultural and food products shall haveremaining at least six months or 50% of the shelf life.They shall also be free of any "haram" (non-kosher)elements and ingredients to be imported.



E XPORT RESTRICTIONS

� Foreign exchange rules and procedures are

applied to exports as determined by the State

Bank of Pakistan

� Certain items are forbidden and controlled for

export from Pakistan by Customs. Export of

goods from Pakistan is allowed, except for somespecified items in short supply.



E XPORT RESTRICTIONS

Items That Are Forbidden For Export FromPakistan

� Dangerous goods.

� Live animals

� Timber

� Ferrous & Non-Ferrous Metals

� Human body parts

� Explosives

� Money� Passports

� Gold

� Used goods