T7 technical elements III: PAYMENT

METHODS
Payment methods instruments by which the payment of an economic transaction materializes.

Classification

a) According to the documentary control on merchandise:

o Simple payment methods
o Documentary payment methods
b) According to trust (with client):
o Maximum
o Minimum
o Total distrust
c) According to the degree of safety for parts

Main payment methods

1. BILLS
Banknotes from foreign banks: foreign currency encrypted paper issued (ex. Euros (European Central Bank).

o Simultaneous process: not widely used

o Issues to consider:
- Country regulation and acceptance in commercial transactions
- Legality verification
- Exchange rate
 - Bank fees

 Documents
1) Invoice (% of the value) issued by payee in the name of the payer
- Credit currency
- Description of goods
2) Transport document issued by carrier(s)
- Receipt and shipment of merchandise is recorded
3) Insurance document issued by insurance company
- Date not later than shipment
4) Certificate of origin:
- country of origin of the goods
- seal (sello), signature
5) Packing list:
- List of the goods shipped
- Data not inconsistent with other docs
6) Other certificates:
- ISPM 15 certificate
- CITES export permit, etc.

2. CHECK (risky of the seller) doc by which a person orders a bank to pay a certain sum to another person/co
 Person involved:
- Drawer
- Rid
- Holder, policy holder or beneficiary
- Payer (bank cheques)

Classification

Forms of issuance Types

Bearer personal
Nominee Banking
Endorsed Travel
A. Personal check payment doc issued by buyer (M) against his own account in a bank and in favor of the
seller (X)
 Collection: laws country of importer
 Very little used: loss, insolvency, fraud

Advantages Disadvantages
costs Insecurity
Risk of loss
Importer: no advance of current account funds Insolvency
Fraud (authentic signature of the issuer)

B. Bank check doc issued by a bank in one country at the request of a customer (M) and in favor of a third
part (X)
 This payment offers more guarantees (by a bank)
 Payment
 Anticipated: M assumes risk
 Deferred: exporter assumes risk

Advantages (exporter) Security once it is in your possesion

 Disadvantages
IMPORTER EXPORTER
Freezing of funds Risks of loss
Higher costs than personal check Risk in deferred payment

3. Payment order
A. SIMPLE payment order (open account) mandate that importer gives to his bank to pay a 3 rd party
beneficiary (exporter)
 Payment order vs transfer
 Payment
 Anticipated (cash in advance): import risk
 Postponed (open account): export risks
 Most used international trade simplicity, speed, security, and price
 Request payment order to issuing bank:
 Office
 Telematics: electronic banking, SWIFT (Society for Worldwide Interbank Financial
Telecommunication), Editran, etc.
 Expense clauses:
- OUR (expenses for issuer)
- SHA (shared expenses)
- BEN (expenses for recipient)

Advantages (exporter – importer) Disadvantages

Costs Exporter: deferred payment
Widespread use
Simple processing Importer: advance payment
Agility
B. DOCUMENTARY payment order mandate given by the importer to his bank to transfer through a banking
institution, a certain amount of money in favor of a beneficiary, conditional on the disposition of funds by the
latter and the presentation of certain documents to the paying bank.

 Difference with the simple: beneficiary collection upon presentation of commercial documents

4. Remittance
A. Simple remittance collection instrument through which the exporter instructs his bank to send and effect
(letter, promissory note) to the importer’s bank.
 Uniform Collection Rules and Customs (RUC number 522)
 Advantages Disadvantages
M: control over time of payment Higher costs than other methods
X: X:
- collection initiative - no control over time of collection
*In case of NON-PAYMENT there is an executive - deliver docs before collection
doc

B. Documentary remittance payment method consisting of shipping by the seller to buyer of docs (commercial
financial) that allow the goods to be removed from customs.

 Exporter doc control of goods until collection

 Possibilities:
 Against acceptance
 Cash against payment

Advantages Disadvantages
M: control over time of payment Higher costs than other methods
X: X:
- Strat collection - Delicery of documents BEFORE
management collection
*In case of NON-PAYMENT: - Has NO CONTROL no over time
executive doc of collection