IV.
LECTURE
Payment Methods
Advance payment
Cash aginst goods
Collections
- Cash against documents
- Againsts acceptance
Letter of Credits
- Sight without confirm
- Sight with confirm
- Deferred payment without confirm
- Deferred payment with confirm
Advance Payment
In this payment method, importer
effects the payment to exporter in
advance.
This can be considered as pre-
financing of the exporter.
In the point of exporter this payment
method is advantageous but for the
importer it is risky.
Despite collecting the fund in
advance, exporter can refuse to ship
the goods according to contract
terms.
Conditions
Importer should fully rely on
exporter.
The exchange regime and economic
and political developments of the
exporting country must be known
Regulations in importer country must
allow advance payment.
Thebuyer's financial situation should
be able to pay in advance and wait.
Workflow
Import:
Importer applies to bank with advance
payment instruction.
The bank makes the payment directly
to the exporter's account through the
bank of the exporter (MT103).
The importer receives the customs
letter from the bank.
The bank close the file.
The importer clears the goods
through the customs by submitting
the customs letter.
letter
Export:
Fund comes to the bank on behalf of
the exporter
According to exporter’s instruction
DAB (Foreign exchange purchase
certificate) is issued or foreign
exchange deposit account is
credited.
Exporter ships the goods.
Cash Against Goods
The payment is foreseen to be made
in a future date
It is an attractive type of payment for
the buyer.
The exporter's risk is very high.
Conditions
Exporter should fully rely on
importer.
It is more applicable in products
where the supply of goods is high.
The exporter must also trust the
political and economic stability of
importer's country. Because, in the
case of unstable governments, the
possibility to delay or stop transfer in
foreign exchange regimes is always a
great risk.
Theseller may accept such an
agreement only when it is financially
strong.
Workflow
Import:
The goods come to the customs and
the importer clears the goods
through the customs by submitting
the declaration showing that the
KKDF is paid at 6%.
Theimporter pays through the bank
within the period determined.
Export:
Exporter ships the goods.
According to exporter’s instruction
DAB (Foreign exchange purchase
certificate) is issued or foreign
exchange deposit account is
credited.
Documentary Collection
Itcan be defined as to deliver
document against payment or
against acceptance of draft or
against avalization of draft by a
bank.
The Bank acts as an intermediary
between the exporter and the
importer.
The responsibility of the banks in this
method is limited to the delivery of
the document against payment or
acceptance.
Regarding collections, ICC issued
URC 522- Uniform Rules for
Collection
Advantages
It's
a simple and inexpensive way,
Often, payment is quicker and safer
than open account,
Goods must be delivered after
payment or acceptance.
Disadvantages
The buyer is unwilling or unable to
pay the cost of goods,
Buyer's rejection of goods,
Waiting of goods at customs due to
buyer's negligence or other legal
reasons
Parties
The principal, drawer: The party who present the documents as
atteched to a collection instruction.
Remitting bank: The bank who send the document to the bank
in importer country.
Presenting or collecting bank: The bank who collect payment
or take acceptance against documents.
Drawee: The party who pay the fund or accept a draft against
documents.
Workflow
Export:
Exporter present documents with an
instruction.
Bank sends document in accordance
with the collection instructions given
by the exporter
The collection bank collects the
specified amount from the buyer. (or
acceptance of the draft)
The collecting bank effects payment
through MT202.
Documents are delivered to importer
after payment. (or acceptance)
İmport:
Documents are received by
importers bank.
The bank inform the importer.
Importer has the right to reject the
document.
Importer effectrs the payment and
receives the documents. (or accept a
draft)
Collection bank makes the payment
through MT202.
Types of Documentary
Collection
1-
Sight, Against Payment:
Documents are delivered against
payment.
2- Against Acceptance or Against
Avalization:
Documents are delivered against
acceptance of draft by the drawee,
or avalization of bank.
3-
Against Promissory Note or
Written Undertaking:
Documents are delivered against
presentation of Promissory Note or
Written Undertaking .
4-Against Payment Guarantee:
Documents are delivered against
issuance of payment guarantee.
URC 522- Uniform Rules for
Collection
