Documentos de Académico
Documentos de Profesional
Documentos de Cultura
More complicated
Arrangements are international---long
distance and more procedures involved
Longer time
Different regulations and systems of law
Different monetary and financial matters and
methods in different countries
Payment instruments
Drafts (the most common one)
Promissory notes
Checks
Money orders
Credit cards
Cash (rarely used)
Draft/bill of exchange---definition
and contents
A draft is an unconditional order in writing signed by one
party(drawer) requesting a second party (drawee/payer) t
o make payment in lawful money immediately or at a det
erminable future time to a third party(payee)
Basic contents
The word “exchange”
An unconditional order in writing
Date and place of issue
Time of payment
Name of payee
Currency and amount
Name of drawee/payer
Drawer’s name and signature
Draft/bill of exchange---types
Commercial draft---by a firm
Banker’s draft---between banks
Sight draft---payable on presentation
Time/usance draft---payable in a specified number
of days after its date of issue/acceptance/B/L/at a f
ixed future date
Clean draft---no other documents attached
Documentary draft---certain documents attached
Use of drafts
Issuance---to order/ to bearer
Presentation
Acceptance
Payment
Endorsement
Dishonour and recourse
Dishonored bills and protests
Dishonored bill—draft that the drawee refuses or
is unable to pay or accept
Exercise the right of recourse
1. Obtain a certificate of protest
2. Present the second time
3. Publish the certificate----give the drawee pressur
e—damage his commercial creditability
4. Legal action
Promissory note and check
Promissory note—an unconditional promise in w
riting made by one person(the maker) to another
(the payee/the holder) signed by the maker enga
ging to pay on demand or at fixed or determinabl
e future time a sum of money to or to the order o
f a specified person or to bearer
Check—an unconditional order in writing addres
sed by the customer(drawer) to a bank (drawee)
signed by the customer authorizing the bank to p
ay on demanding a specified sum of money to or
to the order of a named person or to bearer(pay
ee)
Method of payment
The importer---get the goods as ordered
The exporter---the security of payment
Terms of payment reflect the extent to which
the seller requires a guarantee of payment
before he loses control of the goods.
Main methods of payment used in China
include remittance, collection and letter of
credit.
Methods of payment---remittance
Remittance---transfer of money from one
party to another party through banks.
Parties involved in remittance are:
Remitter
Payee/beneficiary
Remitting bank
Paying bank
Methods of payment---remittance
Types of remittance
Mail transfer, M/T—transfer of money from the remitting bank
to the paying bank by mail (relatively low cost and speed).
Telegraphic transfer, T/T—transfer of funds by
telecommunication system such as telex or cable (fast speed
and high cost).
Remittance by banker’s demand draft, D/D– cheaper but
slower
Difference between D/D and T/T or M/T
By D/D, the remitting bank needn’t inform the payee to come
to the bank and get paid.
D/D can be transferred through endorsement and is negotiable
provided that there is opposite stipulations of restrictions.
Methods of payment---remittance
Use of remittance in international trade
Payment after arrival of the goods—open account
transaction; highly risky for exporters; based on
business credit.
Payment in advance--highly risky for importers
Cash with order
Cash payment before shipment
The buyer shall pay the total value( partial value)
to the seller in advance by T/T( M/T or D/D) not
later than
Methods of payment---remittance
Cash with order---pay when placing the order
Attract sales
High risk of loss to the importer as the exporter may not ship
the goods
Cash payment before shipment ---pay when the goods
ready for shipment
The exporter faces little risk
Ascertain the payment has been actually received
Methods of payment—collection
Collection is the process wherein a bank, in
accordance with the seller’s instruction,
handles documents( B/L, invoice, insurance
policy, etc.) in order to deliver them to the
buyer against payment, acceptance, or on
other terms and conditions.
Methods of payment—collection
Parties involved in a collection
Principal---drawer, usually the seller
Remitting bank---in the seller’s country working as
the agent of the seller
Collecting bank---in buyer’s country presenting the
documents to the buyer, usually the remitting bank’
s overseas branch or correspondent bank
Presenting bank—the bank presenting the draft an
d other documents to the payer; usually a bank wh
ich has current account with the payer or the colle
cting bank itself
Payer---drawee, usually the buyer
Methods of payment—collection
Types of collection
Clean collection—the exporter gets paid with the draft only, ie. Without
presentation of any other business documents.
Documentary collection—a means that ensuring that goods( title docu
ments) are only handed over to the buyer( by a bank) when the amoun
t shown on a bill of exchange is paid or when the customer accepts the
bill as a contract to pay by a specified date.
Documents against payment, D/P-- documents can only be released to
the buyer when he has paid the amount on the draft
D/P Sight—documents against payment at sight---documents can only
be released to the buyer when he has paid the amount on the draft as
soon as the buyer is presented the draft
D/P After Sight—the buyer will pay the draft amount a specified numbe
r of days after the draft is presented and accepted.
Documents against acceptance, D/A---the documents representing the
title to the goods will be released to the buyer once the buyer has acce
pted the draft.
Risks of documentary collection
Buyer cannot pay
When price decreases, buyer might refuse
to pay or a lower price
Buyer might take advantage of seller’s
ignorance of the local commercial custom,
regulation or law and cheat at transactions
The authorities of some importing country
might not be trustworthy
Disposal of goods in case of
payment default
Dump the goods in the sea if the value is
lost
Warehouse the goods while negotiating with
the buyer for payment, if the storage cost is
very high
Sell the goods to any taker at a lower price if
shipping the goods can be costly and the
value of the goods is not very high
Return the goods
Risks of collection for buyers
Rely on seller’s reputation and ability to
deliver high-quality goods
The seller might have sold the documents to
another buyer at a higher price
Measures to avoid risks
Pay or accept after arrival of goods and a
preliminary examination
Accept the draft with conditions authorized
by the drawer
Characteristics of collection
Importer is the payer. The bank is not responsible
for the payment. Collection is a kind of commercial
credit.
In D/P, before the importer actually pays the price,
title to the goods still belongs to the exporter who
has a right to resale the goods.
In D/A, the exporter bears high risk of losses of both
the goods and the money.
Collection benefits the importer very much and
therefore can be used to attract sales of stockpiling
commodities as well as to increase the exporter’s
ability of competition in the world market.
Methods of payment---Letter of Credit
Functions of L/C
For the exporter’s part, he can get paid relatively
safely as long as he provides relevant documents
in conformity with stipulations in the L/C.
For the exporter’s part, he’s guaranteed to get the
title documents and receive qualified goods in
time. If a time L/C is used, the exporter can be to
some extent financed.
For the bank’s part, it can charge fees for issuing
and negotiating an L/C. it can also use the deposit
of the applicant to quicken its capital turnover.
Methods of payment---
Documentary Credit
Parties to a credit
Applicant—at whose request a bank is to issue a credit(usually im
porter)
Beneficiary—whose favor the credit is to be issued(exporter)
Issuing bank—opens the credit
Advertising bank—in the exporter’s location
Confirming bank—adds its own undertaking to that of the issuing b
ank
Paying bank
Accepting bank—accepts a usance bill of exchange
Negotiating bank—negotiates or discounts the bill of exchange
Remitting bank—sends the documents to the issuing bank
•Credits are separate
transactions from the Issuing Bank
sales or other contracts
•Banks are in no way The terms of L/C
concerned with or
bound by such contracts
•In credits operations all Beneficiary Applicant
parties concerned deal
with documents not
goods or services
Basic items of L/C
Issuing bank and branch
Place and date of issue
Applicant’s name and address
Beneficiary’s name and address
Type of L/C
Advertising bank
Negotiating bank
Date and place of expiry
Currency and sum
Terms( as same as contract terms)
Engagement clause
Conditions and instructions to advertising/negotiating bank
Authorizing signatures
Examination request
General procedures of using L/C
1. The buyer and the seller conclude a sales contract
2. The buyer instructs his bank to issue a credit
3. The issuing bank asks another bank to advise or confirm the credit
4. The advising bank informs the seller
5. The seller receives the credit and load the goods and dispatch
6. The seller sends the documents to the bank
7. The bank checks the documents against the credit and decide
whether to pay
8. The bank, if other than the issuing bank, sends the documents to
the issuing bank
9. The issuing bank checks the documents and effects payment
10. The issuing bank releases the documents to the buyer upon
payment of the amount due
11. The buyer sends the transport document to the carrier and gets the
goods
Types of L/C
Clean credit vs. documentary credit
Revocable L/C and Irrevocable L/C
Revocable L/C—one that may be amended or
cancelled by the issuing bank at any moment and
without prior notice to the beneficiary before the
documents have been paid, accepted or
negotiated
Irrevocable L/C—one that cannot be amended or
cancelled without express permission of all parties
UCP 400----UCP 500
Types of L/C---Sight and Time L/C
Confirmed L/C vs. unconfirmed L/C
A confirmed L/C has the commitment of the confirming bank b
esides that of the issuing bank’s commitment.
An unconfirmed L/C contains the commitment of the issuing ba
nk only.
Sight L/C vs. time L/C
Sight L/C
Sight payment documentary credit
Sight negotiation documentary credit
Time L/C
Negotiation documentary credit with a usance draft
Acceptance documentary credits
Deferred payment credits
Types---Transferable L/C and Untransferable L/C