Week modes of settlement

7/27/2019 Week modes of settlement

1/27

MODES OF TRADE SETTLEMENT-II


2/27

DOCUMENTS AGINST PAYMENT (D/P)Exporter sells the Goods

Bank in importers country

collect the payment

Documents Released

Exporter gives its bank:

Clear instruction

Bill of Exchange & Relative Documents

Documents to be delivered against Payment (D/P)

Buyer often delays Payment until goods arrive


3/27

DOCUMENTS AGINST PAYMENT (D/P)Sellers Perspective Buyers Perspective

More secure form of trading Less secure form of trading

Payment is secure(payment before receipt of goods)

Has to make payment before receiptof goods

Buyer may refuse to pay after the

goods have reached the destination.

Can not check goods

Better Cash flows Cash flows is drained


4/27

DOCUMENTS AGINST PAYMENT (D/P)

1. Negotiation

2. Order placement

3. Goods dispatch

4. Preparation of shipping documents

5. Remitting Bank send documents to its agent

6. Collecting bank ask importer for payment


5/27

DOCUMENTS AGINST PAYMENT (D/P)

7. Payment

8. Documents delivery

9. Presentment of documents to transporter

10. Collection of Goods

11. Collecting Bank remit the funds

12. Remitting bank credit sellers account


6/27

DOCUMENTS AGINST ACCEPTANCE (D/A)

Importers banks permitted to release documents against

acceptance

Draft is presented for the payment for maturity

It requires element of trust

Exporter grants the importer a period of credit

Exporter may requires a guarantee


7/27


Sellers Perspective Buyers Perspective

Less secure form of trading More secure form of trading

Payment is secure(buyer accepts BE)

Can check goods

Buyers default Risk Legal Proceeding

Cash flow is drained Credit Period advantageBuyer may refuses for payment


8/27


1. Negotiation

2. Order placement

3. Goods dispatch

4. Preparation of shipping documents

5. Remitting Bank send documents to its agent

6. Collecting bank advice the importer give his acceptance & delivery

of documents


9/27


7. Collecting advices the Remitting bank

8. Presentment of documents & Collection of Goods

9. Maturity date

10. Payment

11. Collecting Bank remit the funds

12. Remitting bank credit sellers account


10/27

DISHONOR OF DRAFT

Definition:

A bill of exchange is said to be dishonored when the importer refuses

to accept or make payment on the bill.

Dishonor by non-acceptance

Dishonor by non-payment


11/27

PROTEST

Definition:

Official certificate given by a notary public recording the dishonor of a

bill of exchange.


12/27

LETTER OF CREDIT

The name Letter of Credit derives from the French word

accrditation, a power to do something, which derives from the

Latin accreditivus, meaning trust.

Issued by bank to another bank

Standard

Banks written commitment


13/27

LETTER OF CREDIT

LCs are governed by rules promulgated by the International

Chamber of Commerce known as Uniform Customs & Practices for

Documentary Credits

Sight

Usance


14/27

LETTER OF CREDIT

Sellers Perspective Buyers Perspective

Secure, LC ensures the payment Secure, Shipment evidence

Intermediation May administratively cumbersome

Cost Effective High Cost

Political Risk Time consuming, delay in goodspossession


15/27

ADVANTAGES OF LC-BENEFICIARY

Assurance of Payment

Ready Negotiability

Compliance with Regulation

Pre shipment facility


16/27

DISADVANTAGES OF LC-BENEFICIARY

Discrepancies in Documents

Difficult terms & conditions of LC

Different Language

Competitive terms

Delay in Documents

Delay in Goods


17/27

ADVANTAGES OF LC-IMPORTER

Credit facility from LC issuing bank

Assured delivery of goods

Assured quality of goods


18/27

DISADVANTAGES OF LC-IMPORTER

Fraudulent Documentation

Expensive

Credit Line Issues

Cash flows

Delay in documents

Delay in goods


19/27

TYPES OF LCs

Sight

Usance

Confirmed

Transferable

Deferred Payment

Red Clause

Green Clause


20/27

TYPES OF LCs

Revolving

Back to back

Standby


21/27

PARTIES INVOLVES IN LCs

1. Applicant/ Importer

2. Beneficiary/ Exporter

3. Issuing/ Opening bank

4. Advising bank

5. Confirming bank

6. Nominated bank

7. Reimbursing bank

8. Carrier & Insurer


22/27

DOCUMENTS REQUIRED FOR LCs

Applicants name & physical address

Beneficiary name and complete physical address

Advising banks name

Amount and currency

By payment/ acceptance etc

Presentation period

Date and place of expiry


23/27

DOCUMENTS REQUIRED FOR LCs

Description of merchandise

Mode of shipment

Partial/ transshipment

Documents required

Other conditions

Confirmation instructions

Charges instructions etc


24/27

LC NEGOTIATION

The act of buying an export bill is called Negotiation.

This is a post shipment facility, to finance export receivables.

Bank pays exporter the Rupee value of export bill.

Bank is exposed to following Risks:

Non -realization of export proceeds

Exchange rate risk.


25/27

LC DISCOUNTING

This is also a post-shipment facility to finance export receivables.

It is always extended for the purchase of Usance bills.

export bill being purchased must be duly accepted


26/27

SCRUTING OF DOCUMENTS

General

Draft

Commercial Invoice

Insurance Documents

Bill of Lading/ Air Transport or other Transport Documents

Certificate of Origin

Packing List


27/27

SCRUTING OF DOCUMENTS

Weight List

Inspection Certificate

Other Documents