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Payment Terms
Payment Terms
Payment Terms
INTRODUCTION
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 is left to the exporter to indicate the way in which he wants the importer to pay him. The exporter may ask for prompt payment or he may allow credit.
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 following conditions:
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
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 THE BUYER. THE EXPORTER IS FUNANCIALLY SOUND TO FINANCE THE OPERATION. THERE SHOULD NOT BE ANY EXCHANGE RESTRICTIONS IN THE IMPORTERS COUNTRY
OPEN ACCOUNT
DOCUMENTARY BILLS
When 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 THE BANK.
THE IMPORTER CANNOT COLLECT DOCUMENTS UNLESS HE GIVES IN WRITING HIS ACCEPTANCE TO MAKE PAYMENT AS PER THE TERMS OF EXPORT CONTRACT.
LETTER OF CREDIT
A LETTER OF CREDIT IS AN AUTHORISATION ISSUED BY THE OPENING BANK THAT IF THE EXPORTER PRESENTS THE RELEVANT SET OF DOCUMENTS, MAKE THE PAYMENT.
CONTRACT OF SALE.
SUBMISSION OF DOCUMENTS
SCRUTINY OF DOCUMENTS
REALISATIO N OF PAYMENTS.
REVOCABLE L/C CONFIRMED L/C WITH RECOURSE L/C TRANSFERABLE L/C RESTRICTED L/C RED CLAUSE L/C REVOLVING L/C
IRREVOCABLE L/C UNCONFIRMED L/C WITHOUT RECOURSE L/C NON-TRANSFERABLE L/C UNRESTRICTED L/C GREEN CLAUSE 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 timely manner. 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.
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