Payment Terms(2)

8/6/2019 Payment Terms(2)

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PAYMENT TERMS



I NTRODUCT ION

In export trade,business dealings are carried on between parties who may be separated by

thousands of miles. There must exist clear understanding of how and when they will pay the exporter for the goods ordered. It isleft to the exporter to indicate the way inwhich he wants the importer to pay him.The exporter may ask for prompt payment or he may allow credit.



F ACTORS DETERMI NIG PAYMENT TERMS

F INANCIAL POSITION OF THE EXPORTER CREDIT STANDING OF THE BUYER AMOUNT OF THE CONTRACT

NATURE OF PRODUCT ECONOMIC SITUATION IN IMPORTERSCOUNTRY

IMPORT AND EXCHANGE CONTROLS SIZE OF ORDER CREDIT TERMS OF COMPETITORS

PAST BUSINESS LINKS



METHODS OF PAYMENT F OR EXPORTERS

ADVANCE

PAYMENTS

OPEN

ACCOUNT

PAYMENT ON

SHIPMENT

AGAINST

CONSIGNMENT

DOCUMENTARY

BILLS



ADVANCE PAYMENT The buyer is supposed to make the payment in

advance which assures the safety of getting payment.

This method of payment is used under followingconditions:

POLITICAL INSTABILITY IN BUYERS COUNTRY

BUYERS COUNTRY FACES ECONOMIC CRISIS

BUYER HAS POOR CREDIT WORTHINESS

EXPORTER IS NOT PREPARED TO BEAR

CREDIT RISK

GOODS ARE MANUFACTURED AS PER THE

SPECIFICATION OF FOREIGN BUYERS



OPEN ACCOUNT The exporter forwards all the shipping documents to the buyer and frees himself of the contract and payment. There is proper understanding between the exporter and the buyer on terms of credit & rate of interest in the outstanding amount.

This method of payment is favorable under following condition:

THE EXPORTER IS CONFIDENT THAT THE

BUYER WILL HONOUR HIS OBLIGATION.

THERE IS A LONG & ESTABLISHED

RELATIONSHIP BETWEEN THE EXPORTER

& BUYER.

THE EXPORTER IS ABSOLUTELY SURE

ABOUT THE FINANCIAL POSITION OF THEBUYER.

THE EXPORTER IS FUNANCIALLY SOUND

TO FINANCE THE OPERATION.

THERE SHOULD NOT BE ANY EXCHANGE

RESTRICTIONS IN THE IMPORTERSCOUNTRY



PAYMENT AGAI NST SHIPMENT ON CONSIG NMENT

Consignment sale is possible only when the exporter makes hisown establishment abroad or appoints an agent abroad to sellgoods on his behalf.

The shipment on consignment basis should be madetrustworthy agent only because:

CONSEIGNMENT

EXPORTS IS FULL OF

RISKS.

DUE DATE FOR THE

PAYMENT CANNOT BE

FORESEEN.

THE EXPORTER MAYFACE CASH FLOW

PROBLEM.

PRICE TO BE

REALISED DEPENDS

ON MARKET

CONDITIONS.



DOCUMENTARY BILL SWhen relevant documents of the title of the goods are also sent

along with foreign bill of exchange it is called documentary bill.Documentary bills are of two types:

� THE EXPORTER SENDS THE

NEGOTIABLE DOCUMENTS TO

THE BUYER THROUGH THEBANK.

DOCUMENTS

AGAINST

PAYMENT

� THE IMPORTER CANNOT

COLLECT DOCUMENTS UNLESS

HE GIVES IN WRITING HIS

ACCEPTANCE TO MAKE

PAYMENT AS PER THE TERMS

OF EXPORT CONTRACT.

DOCUMENTS

AGAINST

ACCEPTANCE



LETTER OF CREDIT

A LETTER OF CREDIT IS AN AUTHORISATION ISSUED BY THE OPENING BANKTHAT IF THE EXPORTER PRESENTS THE RELEVANT SET OF DOCUMENTS, MAKE

THE PAYMENT.



PROCEDURE OF LETTER OF CREDIT

CONTRACTOF SALE.

REQUESTFROM THE

IMPORTER

ISSUE OFLETTER

OF

CREDIT

POSSESSION OF

LETTER OF

CREDIT

SUBMISSIONOF

DOCUMENTSSCRUTINY

OF

DOCUMENTS REALISATION OF

PAYMENTS.

DOCUMENT

S TO

IMP

ORT

ER



TYPES OF LETTER OF CREDIT

REVOCABLE L/C IRREVOCABLE L/C

CONFIRMED L/C UNCONFIRMED L/C

WITH RECOURSE L/C WITHOUT RECOURSE L/C

TRANSFERABLE L/C NON-TRANSFERABLE L/C

RESTRICTED L/C UNRESTRICTED L/C

RED CLAUSE L/C GREEN CLAUSE L/C

REVOLVING L/C BACK TO BACK L/C



MODES OF PAYMENT IN EXPORTERS

1) T.T. : Telegraphic Transfer or cash Advance.

It is the safest mode of payment as we receive the payment in advance from our

consignee.

2) L/C at Sight:

L/C means letter of credit. It is a guarantee, given by the buyer's bank, that they

will pay for the goods exported, provided that the exporter can provide a given

set of documents in accordance with clauses specified in the L/C and in a timelymanner.

3) CAD : Cash Against Documents/Bill of Exchange/DP,:

You have to send the documents to the buyer through your bank and they will

forward those documents to a bank in the buyer's country, along with

instructions on how to collect the money from the buyer.



OTHER MODES OF PAYMENTS

Importer's own cheque

The importer (the payer or debtor) may choose to pay the exporter, using acheque issued by them.

Banker's demand draf t (D/D)

This is a better form of cash payment than an importer's cheque andinvolves the importer's bank arranging a demand draft which is issued to theimporter for him/her to send by post or courier or to deliver personally to

the exporter.

Mail transf er (M/T)

In the case of a mail transfer payment, the importer will request his/herbank to instruct their correspondent bank to pay a given amount.

Telgraphic transf er (T/T)This remittance method works the same way as with a mail transfer, exceptthat the message is transmitted by cable or telex instead of airmail.



OTHER MODES OF PAYMENT

SWIFT transf ers

SWIFT, which stands for Society for Worldwide Interbank FinancialTelecommunication, is a computerized system which replaces both thetelex and mail for bank to bank transfer.

Credit cardCredit cards are often used to make payments for smaller amounts.

International Money Orders

These are similar to postal orders and are pre-printed. For eg: westernunion



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