Course Administrator


KAZI SAIFUR RAHMAN
Lecturer
Department of Finance & Banking
Faculty of Business Administration
Jatiya Kabi Kazi Nazrul Islam University
Email: kazisaifur786@gmail.com
 FOREIGN SALE TERMS

A sale contract incorporates a number of terms &
conditions relating to the various aspects of the
deal like the terms related to the:
 Place & mode of delivery
 Payment of freight & insurance charges
 Mode of payment for the goods
 Prices, quality, quantity & the period of supply
 INTERNATIONAL TERMS

International Chamber of Commerce (ICC)
published a set of international rules for the
interpretation of chief terms used in the foreign
trade contracts like:
 FOB (Free on Board)
 FAS (Free alongside Ship)
 EXW (Ex Works)
 CFR (Cost & Freight)
 CIF (Cost, Insurance & Freight)
 PAYMENT TERMS

 Terms involving payment within a period of 6
months from shipment: Short-term payment
terms
 Terms involving payment beyond 6 months but
within 5 years from shipment: Medium-term
payment terms
 Terms involving payment beyond 5 years from
shipment: Long-term payment terms
 SHORT-TERM PAYMENT
TERMS

 Cash with Order
 Documentary Letter of Credit
 Documents against Payment (D/P) or Cash
against Documents (CAD)
 Documents on Acceptance (D/A)
 Consignment Sale
 Value Payable (VP) & Cash on delivery (COD)
 CASH WITH ORDER

 Cash with order is used to define the
transactions where the cash is paid to the
supplier as soon as the order is placed.
 Since transaction is happening in cash in
advance, it becomes binding for both the
parties to honor the agreement.
 DOCUMENTARY LETTER OF
CREDIT

 A documentary letter of credit is an
undertaking of the bank, which has opened a
letter of credit on request of a buyer (applicant)
to pay an amount to the seller (beneficiary) as
specified in the letter of credit upon the
provision of documents by the seller
(beneficiary) that meet the conditions of the
letter of credit and confirm the shipment of
commodities (the provision of services) within
the prescribed time frame.
 WHEN TO L/C

 If you are not certain about the solvency of your
counterparty;
 If the counterparty is not certain about the proper
performance of obligations by you (in terms of the
quantity and quality of commodities or services);
 If you need a payment respite or trade credit;
 If you need a down payment (advance payment)
for the valuables to be supplied;
 If the counterparty insists on a settlement through
letters of credit.
ADVANTAGES OF USING L/C

For the seller:
 Elimination of the credit risk, the receipt of an
undertaking from a bank (banks) to pay for
commodities supplied or services provided , if
the seller lacks adequate information about the
financial standing of the buyer or the credit
relationship;
 Elimination of the risk of receipt of a counterfeit
undertaking or an undertaking issued by a non-
existing bank;
ADVANTAGES OF USING L/C

For the buyer:
 A letter of credit can be opened at the buyer’s own
expense or using a bank loan by pledging other
collateral to secure performance of its obligations (a
lien on assets or a deposit, etc.).
 The buyer may withhold payment pending
documentary confirmation that the goods meet the
quality requirements and have been delivered in full
to their specified destination (the payment is made
after the goods are have been delivered and
documents provided).
 DIFFERENCE BETWEEN DOCUMENTARY
CREDIT & DOCUMENTARY L/C

 The difference between the two lies in the strict
documentation and presentation requirements at
delivery.
 Documentary L/C requires strict compliance and
correct documentation that needs to be presented at
the time the goods are delivered; failing which can
result in the rejection of the goods.
 When using a documentary credit a request for
payment will be sufficient, and such a request can be
made with or without the presentation of
documentation.
 DOCUMENTS AGAINST PAYMENT (D/P)
OR CASH AGAINST DOCUMENTS (CAD)

 An arrangement under which an exporter
instructs the presenting bank to hand over
shipping and title documents to
the importer only if the importer fully pays
the accompanying bill of exchange or draft.
Also called cash against documents.
 DOCUMENTS ON ACCEPTANCE (D/A)


 An arrangement in which
an exporter instructs a bank to hand over
shipping and title documents to
an importer only if the importer accepts the
accompanying bill of exchange or draft by
signing it.
 CONSIGNMENT SALE

 Trading arrangement in which
a seller sends goods to a buyer or reseller who
pays the seller only as and when the goods are
sold.
 The seller remains the owner (title holder) of the
goods until they are paid for in full and, after a
certain period, takes back the unsold goods. Also
called sale or return, or goods on consignment.
 VALUE PAYABLE (VP) & CASH
ON DELIVERY (COD)

 The value payable system is designed to meet
the requirements of persons who wish to pay for
goods sent to them at the time of receipt of the
articles or of the bills or railway receipts relating
to them, and also to meet the requirements of
traders and others who wish to recover,
through the agency of the Post Office the value
of article supplied by them.
 MEDIUM & LONG TERM
CREDIT TERMS


 Supplier’s/Seller’s Credit
 Buyer’s Credit
 Difference between seller’s credit & buyer’s
credit
 SUPPLIER’S/SELLER’S CREDIT

 Where a seller grants a buyer the right to defer
payment of part of the purchase price, the seller
is in effect giving the buyer a credit for the part
of the purchase price which is deferred.
 Seller's credit is commonly used in the sale of
goods in shipping and offshore construction
contracts
 BUYER’S CREDIT

 Buyer's credit is a short-term loan facility
extended to an importer by an overseas lender
such as a bank or financial institution to finance
the purchase of capital goods, services, and other
big-ticket items.
 The importer, to whom the loan is issued, is the
buyer of goods, while the exporter is the seller.
 CRITERIA BUYERS CREDIT SUPPLIERS CREDIT
Mode of Can be used for different Can be used only in case of LC
Payment payment mode transactions
LC Clauses No additional clauses or At the time of opening LC or

LC 
Amendment is required in amending LC clauses given by
Suppliers Credit bank needs to be
changed.
Arrangement Can be arranged after Has to be arranged at the time of
documents have reached the opening LC or before shipment of
bank or documents are goods
received by importer
directly

Cost Involved Interest Cost LC Advising Cost, LC

Amendment Charges, Document
Processing Charges, and Interest
Cost.
Feasibility Feasible for both small and Not very feasible for small
large importers importers
