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Unit Eight
Terms of payment
Learning Objectives
To identify different payment termsTo grasp the writing skill in urging an
establishment of Letter of creditTo know how to ask the buyer to amend a
L/C
General View Compared with payment arrangements for
domestic transactions, payments for international transactions are more complicated and difficult for a number of reasons.
First, the arrangements are international; as a result, longer distance and more procedures are involved.
Second, longer time is needed in setting an
international payment.
General View Third, different regulations and systems of law
that are applied further complicate the arrangements.
Fourth, the monetary and financial matters are different in different countries and different methods are used. Because of the above reasons, international payment arrangements involve more risks and must be handled with
special care.
General View1.Payment Instrument of International Trade
1) Draft or Bill of Exchange
2) Promissory Note
3) Check
2. Modes of payment in international trade
1 ） Remittance
2 ） Collection
3 ） Documentary credit
General View1 、 Payment Instrument of International Trade 1) Draft or Bill of Exchange
A draft of bill of exchange is an unconditional order in writing signed by one party (drawer) requesting a second party (drawee/payer) to make payment in lawful money immediately or at a determined future time to a third pay (payee). In the context of international trade, the drawer and payee is usually the seller and the drawee and payer is usually the buyer.
General View 2) Promissory Note
A promissory note is an unconditional promise in writing made by one person( the maker) to another (the payee/ the holder) signed by the maker engaging to pay on demand or at a fixed or determinable future time a sum of money to or to the order of a specified person or to bearer. A promissory note can be issued by a person, a firm, or a bank. But promissory notes issued by individuals and firms are not widely used in trade today.
General View 3) Check
A check is an unconditional order in writing addressed by the customer (drawee) to a bank(draw) signed by the customer authorizing the bank to pay on demanding a specified sum of money to or to the order of a named person or to bearer (payee). A check is a special kind of draft in that the drawee is always a bank with which the drawer has an account. Besides, a check is always paid upon presentation. If the drawer wants to write a check
now but does not want the payee to collect
the money immediately, the drawer can
postdate the check.
General View2 、 Modes of payment in international trade
1 ） Remittance
Remittance means that the importer remits the amount of money to the exporter through banks according to the terms and time stipulated in the contract.
There are kinds of remittance:
Mail Transfer (M/T)
Telegraphic Transfer (T/T)
Demand Draft (D/D)
General View 2 ） Collection It is a kind of commercial credit, means the
presentation for payment of an obligation and the payment thereof. By collection, it is the exporter who draws a bill of exchange on the importer for the sum due, with or without relevant shipping documents attached, and asks his bank to arrange for the acceptance or payment of the bill overseas.
The bank will carry out his instructions through it branch or a correspondent bank in the importer’s place. To be specific, in collection, payment is made through banks under the terms of Documents against Payment (D/P) or Documents against Acceptance (D/A).
General View D/P (D/P at sight and D/P after sight)
D/A D/P means documents can only be released to the importer when
he has paid the amount on the draft. D/P at sight means that payment should be made as soon as the
importer is presented the draft. D/P after sight requires the collecting bank to release the
documents upon payment. D/A is different from D/P in that the documents will be released to the importer once the importer has accepted the draft.
General View 3) Documentary credit
a documentary credit is a written undertaking by a bank given to the exporter at the request of the importer to effect payment up to a stated sum of money, within a prescribed time limit and against stipulated documents.
The most newly developed payment procedure for passing and recording international payment is called the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). This system is known for its uniform format, fast transfer and low cost.
Specimen Letter of Credit THE CHARTERED BANK
SingaporeIrrevocable L/C No.94625
Date: May15, 2012To: China National Import & Export Corp.,Shanghai BranchDear Sirs ，You are hereby authorized to draw on Hua Feng Trading Co., Singapore for a sum not exceeding USD 7,850.00 CIF (Say US Dollars Seven Thousand Eight Hundred and Fifty only) available by your draft, drawn in duplicate, on them at sight, accompany by the following documents:1 ） 3 Non negotiable copies of clean shipped on board bill of lading, marked “Freight prepaid”;2 ） Signed Invoice in triplicate;
3 ） Certificate of Origin in duplicate;4 ） Insurance Policy induplicate covering WPA & War for full invoice value plus 10%.Evidencing shipment from Shanghai to Singapore of the following merchandise:500 dozen T-shirts as per S/C.1023 dated June 15, 2012. Condition of shipment:1) Transhipment is prohibited;2) Partial shipments are permitted.This credit expires on August 18, 2012 and is subject to the Uniform Customs & Practice for Documentary Credits International Chamber of Commerce No.600. Yours sincerely, THE CHARTERED BANK Singapore Chief Accountant
Guidelines for Writing1. Letter of payment Steps in writing a payment letter are:
1) Mention the contract, goods, etc;2) Suggesting the term of payment and the reason;3) Wishing the reader accept. Steps in replying to such request are:
1) Stating that you have received their letters;2) Giving your reply of agreeing or refusing with reasons; 3) Stating your good will and your wish to do business with the reader.
• Specimen Letter-1 (Request for Payment by D/A) Al-Rayes Group Companies
P. O. Box 26460 Safat, Kuwait E-mail: [email protected]
Your ref: PD/0001 Our ref: AMD/IP
November 1 ， 2012F & M Co., Ltd.14 rue Legrand 8000 AmiensFranceDear Sirs,We are the largest supermarket in Kuwait and have recently received a number of enquires for your perfumes. We think there are good prospects for the sale of this product, but at the present it is little known here for your brand. As we cannot count on regular sales, we do not feel able to make purchases at our own expenses.
We are therefore writing to suggest that you send us a trial delivery for sale on D/A terms. We make the proposal hoping to place firm orders when the market is established.We believe our proposal offers good business opportunities and hope you will be willing to accept.
Yours sincerely, Black Smith
• Specimen Letter-2 ( Proposal payment by D/P instead of D/A)F & M Co., Ltd.
14 rue Legrand 8000 Amiens, FranceTel: 33-1-50458976 E-mail: [email protected]
November 12, 2012Al-Rayes Group CompaniesP. O. Box 26460Safat, KuwaitDear Mr. Smith,
Thank you for letter of November 1, proposing payment by D/A for a trial order of perfumes, we have carefully studied your proposal and regret that we cannot accept it.
As our usual practice goes, we require payment byconfirmed and irrevocable documentary letter of credit. However, in consideration of our friendly relations, we are, as an exceptional case, prepared to accept D/P at sight terms.We sincerely hope you will agree with us on this matter so that we can get the first transaction concluded.
Yours faithfully, Ding Ping
Specimen Letter-3
（ Request the seller to accept payment by D/P）November 8, 2012
Dear Sirs, Re: Order for Soy Bean
We would like to place a trial order of 50 metric tons of Soy Bean (2011 Crop), at the price quoted in your offer which reached us on July 8, 2006. As for the terms of payment, would you please give us some special treatment to pay by D/P instead of Confirmed Irrevocable L/C as required in your offer. Because issuing
an L/C will tie-up our capital and increase the cost,
leaving us a much narrower profit margin.We would be most grateful if you could extend this favor to us. You can be rest assured that once we receive the shipping document for the captioned gods we will pay immediately the full amount of the purchase. This is just an initial order. If the transaction goes on well, large orders will follow. We are looking forward to your favorable reply.
Yours faithfully, Benz
Specimen Letter-4
(Refusing buyer’s request of payment by D/P, but easing the term of payment)
November12, 2012
Dear Sirs,
We have received with thanks your order of November 8 for 50 metric tons of Soy Bean (2011 Crop) . Because we have kept it as a rule that payment exceeding USD1500 must be made by L/C, we cannot accept your proposal by D/P.
However, we shall give you a more favorable term— L/C at 60 day sight instead of L/C at sight, which is the best term we’ve ever offered. Our products are very popular in many countries for the advantage of its high efficiency and reasonable price. Please confirm your order soon so that you and your customer will enjoy the fine quality and reliable after-sale service of our products at an early date.
Yours sincerely, Curry David
Guidelines for Writing 2. Urging Establishment of Letter of Credit In writing a letter urging the establishment of L/C, the
following steps should be considered: (1). Mention the contract number or order number and the
time of shipment as well in the first letter, write a gentle reminder that the importer may be too busy to remember the time, or the L/C may be on the way to the exporter.
Guidelines for Writing (2). Show regret of receiving no reply and remind the
importer of opening the covering L/C on time in the second letter. Stress the goods are ready for shipment.
(3). Write a strong request to the importer to open the L/C without any delay when the L/C is still not available after repeated reminders. Set the deadline and inform the importer of any serious consequence.
Specimen Letter-5 （ Asking for timely establishment of L/C）
August 16, 2012
Dear Mr. Brown,
Our Sales Confirmation No. W15With reference to the 5,000 dozen Shirts under our Sales Confirmation No.W15, we wish to draw your attention to the fact that the date of delivery is approaching, while the covering L/C has not come to us. Please do your utmost to expedite same, so that your order can be executed smoothly.
In order to avoid subsequently amendments, please see to it that the L/C stipulations are in exact accordance with the terms of the Sales Confirmation.You may rest assured that our shipment will meet your requirements in every respect.
Yours faithfully, Albert Zhou
• Specimen E-mail-1 (Urging establishment of L/C after time limit)
Sender: [email protected]: [email protected] Attention: Mr. Peter BrownCC: Marie StevensonSubject : Our Sales Confirmation No. W15Date: Wednesday 22 August, 2012 15: 01: 16-0400
Much to our regret, we have not yet received your confirmed and irrevocable letter of credit against our SalesConfirmation No.W15, though it should have reached us by the end of August 2012, as stipulated.
While requesting you to expedite the establishment of your L/C, we have to ask for a corresponding extension of the time of shipment, which is necessary due to your delay in opening the credit.
Yours truly,
Nancy Yuan
• Specimen E-mail-2 (A strong request for the importer to open an L/C)
Sender: [email protected]: [email protected] CC: Marie StevensonSubject : Our Sales Confirmation No. W15Date: 27August, 2012 12: 45: 16-04002Dear Mr. Brown,
Referring to the captioned order and our E-mail on August 22, requesting you to establish the relevant L/C, we have not received you L/C nor your explanation for the delay up to now.
Would you please give your attention to item 5 in the above Sales Confirmation which reads “The Buyer shall establish the covering Letter of Credit before 30th August, 2012, failing which the seller reserves the right to rescind the contract without further notice.”It is understood that both of us must observe and execute the contract once we have signed it. We have already prepared for shipment according to the Sales Confirmation. The goods you ordered have been ready for some time, and demand has been great recently. It is hard to keep the
goods for you any longer. However, in viewing of the friendly business relations between us, we shall wait for your L/C, which must reach us no later than September 10, 2012. If, by then, we fail to receive your L/C, we shall cancel our Sales Confirmation and ask you to refund to us the storage charges we have paid on your behalf.Please attend to this matter with all speed.
Yours Sincerely, Albert Zhou
Guidelines for Writing3. Amendment to Letter of CreditLetters of credit are varied in form, language and stipulations.
Generally speaking, they include the following contents：1)The number of the credit and the place and time of is
establishment.2)The type of the credit.3)The contract on which it is based.4)The major parties relevant to the credit, such as the applicant, opening bank, beneficiary, advising bank, etc.
5)The amount or value of the credit. 6)The place and date on which the credit expires. 7) The description of the goods including name of commodity,
Guidelines for Writing quantity, specifications, packing, unit price, price terms, etc.8) Transportation clause including the port of shipment, the port of
destination, the time of shipment, whether allowing partial shipment or transshipment.
9) Stipulations relating to the draft.10)Stipulations concerning the shipping documents required.11)Certain special clauses if any, e.g. restrictions on the carrying
vessel and the route. 12)Instructions to the negotiating bank. 13)The seal or signature of the opening bank. 14) Whether the credit follows “the uniform customs and practice for documentary credits”
Guidelines for WritingPay Attention: Every L/C, as well as the date of shipment, has its expiry date. The
date of shipment and the expiry date of the L/C should be made at least two weeks apart. If something unexpected occurs, the seller will have to ask for extension of the validity of the L/C and the date of shipment.
Since the buyer will spend time and bear the cost to apply to the issuing bank for any amendments in the L/C, the seller should write with courtesy and in a positive tone when asking for the amendments.
Guidelines for WritingThe following points should be considered in letters concerning
the L/C amendments:
1. L/C number or Contract Number or Order number should always be labeled as subject. 2. An expression of thanks for the establishment of the covering letter of credit. 3. Reason for inability to accept the clause or clauses in the letter of credit. 4. Explanation for how the amendment is to be made. 5. An expression of the goods will be delivered promptly on receipt of the L/C amendment.
Specimen E-mail-3 (Discrepancies between credit and contract)
Sender: [email protected]: [email protected] Subject : Your L/C No. 35730-11 Date: September 10, 2012 16: 45: 16-04051Dear Mr. Peter Brown,
Thank you for your L/C No. 35730-11, but we regret to say that we have found there are certain points which do not agree with the terms of our Sales Confirmation No. W15. Please amend the L/C as
follows:1) The amount both in figures and in words should respectively be USD30,000 and Say US Dollars Thirty Thousand Only.2) Draft to be at sight instead of at 45 days after sight.3) “FOB Shanghai” should read “CIF New York”.
4) The port of shipment should be Shanghai instead of Lianyungang.
5) The date and place of expiry should read: May 15, 2013 in Shanghai, China.
Please make amendments as soon as possible so that we can deliver the goods in good time.
Yours sincerely, Li Wei
Specimen E-mail-4 （ Shortage in credit amount）Sender: [email protected]
Receiver: [email protected]
Subject : Your L/C No. 098967
Date: May 8, 2012 11: 45: 16-04051
Dear Sirs,
We have received with thanks the captioned L/C for the amount of $2,500
covering your Order No. 121 for 8 metric ton walnut-meat.
It appears that the amount in your L/C is insufficient, as the correct total
CIF value of your order comes to $2,960 instead of $2,500, the difference
being $460.
In view of the above, please increase the amount of your L/C by $460. On
receipt of your amendment we shall arrange shipment without fail.
Yours sincerely,Henry
Specimen E-mail-5 （ Insisting on Transshipment and partial shipment）
Sender: [email protected]: [email protected] : Your L/C No. BW4786 Date: May 17, 2012 10: 25: 18-04451
Dear Sirs,
Letter of Credit No BW4786 issued by National City Bank of New York has duly arrived. On perusal, we find that transshipment and partial shipment are not allowed.Since direct sailings for your port are few and far between, we have to ship via Hong Kong more often than not. As to
partial shipment, we also stressed its benefit to both parties because we could ship immediately what we had on hand instead of waiting for the whole lot to be completed. We, therefore, are asking you to amend your L/C to read “Partial shipment and transshipment allowed”.Please make amendments immediately so that we can effect shipment in time.
Yours faithfully, Jane
Specimen E-mail-6 （ Ask to amend the Quantity and Packing Term
s）Sender: [email protected] Receiver: [email protected] : Your L/C No. BW4786 Date: May 17, 2012 10: 25: 18-04451Dear Sirs,Thank you for your letter of credit No. BV4786 for the amount of USD410,958 covering your Order No. 335 for 500 Metric tons of Peanut.When we check with the L/C with the relevant contract, we found that the amendment is to be made in the following points:
1 、 The packing clause in your Credit should read “corrugated paper cartons with 50 kilos to one carton” instead of “corrugated paper cartons with 30 kilos to one carton”.
2 、 In the quantity of the commodity, please insert the words “5% more or less” after “500 metric tons”, because it is impossible for us to ship the goods in the exact amount.
As the goods are ready for shipment, please amend the credit as soon as possible.
Yours faithfully, Deng Xing
Specimen E-mail-7 (Ask for Extension of the Letter of Credit)Sender: [email protected] Receiver: [email protected] : Your L/C No. BB4786 Date: July 19, 2012 14: 25: 18-04451Dear Sirs,
We have received with thanks that your L/C No. BB4786 against our S/C No.ZA-0803 has arrived though the time limit for it arrival has been long over.The captioned credit calls for shipment on or before July30. However, the L/C arrived too late for us to make shipment within the date specified. As the only one steamer this month sailing for your port is S.S “ TYELONG” which is
due to sail from Dalian on or about July 20.You are, therefore, requested to make the following amendments to the L/C:(1) Extend the time of shipment till August 22, 2012;(2) Extend the validity of credit till September7, 2012.We look forward to the early arrival of your amendment advice.
Yours sincerely, Chen Ming
• Called the “Seven Cs” , the principles for business communication put forward by professor Emeritus Herta A. Murphy, University of Washington, and her two colleagues in University of Michigan are completeness, correctness, clarity, conciseness, concreteness, courtesy, consideration. “Seven Cs” refer to the evaluation of foreign letters in the word choice, sentence structure, content, tone, attitudes and other aspects of business letter writing. Effective application of the “Seven Cs” principles can create a miracle in business communication.
Further Refinement
• Clarity is one of the main language features of business writing. The so-called “clarity” is to make sure that what has been written is so clear that it can’t be misunderstood, so it is advisable to write on — not above or below — the level of the reader’s understanding and to make the reader understand the main points without thinking deeply. Guided by this writing principle, the following refinement can be made.
Further Refinement
• The original mail• Dear Sir:• We just found an invoice error with your order. There was
only one shipment of 1,500 pcs and it was invoiced two times of 1,500 pcs.
• Please pay only invoice number 4563 and trash invoice number 4564. The new item is now on the backlog until your next order. Sorry for all the confusion.
• Sincerely, • …
Comments
• As can be seen, the mail above is quite misleading, which suggests the receiver made the error. Actually, the fact is the reverse. Besides, the word “trash” means “throw away”. It is better to clarify the meaning by using “cancel” or “void” the file.
The refined mail• Dear Sir:• We made an invoice error on your order P. O. No. FD-0058. You
ordered only one shipment of 1,500 pcs, but we prepared two shipments and invoiced you twice.
• Please pay only invoice No. 4563 and cancel/void invoice No. 4564. We will hold the second shipment on backlog until / pending your next order.
• We are sorry for the confusion.• Sincerely,• …
KEY TO UNIT EIGHT
Ⅰ.Translate the following sentences into English.• 1. We may accept your request for D/P 30 day after sight to help facilitate your
financing.• 2. In reply, we regret our being able to grant your request, as it our usual practice to ask
for sight L/C.• 3. Please see to it that the L/C stipulations are in exact accordance with the terms of the
contract to avoid unnecessary amendments, which will probably result in delayed shipment.
• 4. Pleas note that the goods under Contract No.567 have been ready for some time. Please have the Letter of Credit opened immediately and let us know the number of the L/C, otherwise we are sorry for being unable to catch s.s. “Blue Bird” due to sail to your end at the end of July.
• 5. As the relative import license will soon expire, we cannot consider extension of the L/C. Please do your utmost to effect shipment before the end of this month.
KEY TO UNIT EIGHT
II. Identify one mistake in each of the following sentences and make the necessary correction.
1. made2. enclosed3. received4. instructed5. shipment (delivery)
III. Refine the following business mail to achieve better effect. • Dear Mr. Wang ：• Enclosed is our revised invoice, No. 33721 to replace the above
invoice. As agreed, we have deleted the charges that appear on the original lease renewal mentioned in Mr. Neilson’s message of August 24.
• If you can be of further help, please let us know.• Sincerely,• Daniel Richardson
• Ⅳ. Check the following letter of credit with the given contract terms and write a letter in English asking for amendments:
• Dear Sirs,• We are pleased to inform you that we have received your L/C No. 08988678 issued
by National city Bank of New York. However, on examination, we regretfully find that some of the terms and conditions do not conform to that of Contract No. 08/ 983. Please make the following amendments so that we can effect shipment without delay.
• “At 60 days after sight” should read “at 45 days after sight”.• The terms of price is FOB Shanghai instead of CIF New York. Please replace “CIF
New York” with “FOB Shanghai”.• Contract number should be “08/ 983” rather than “08/982”.• Delete insurance clause and arrange coverage at your end.• “Freight Prepaid” should be “Freight to collect”.• Looking forward to your amendments to the covering L/C.• Yours sincerely,• Zhu Jun
