7/27/2019 5 Steps in Negotiating Payment

1/20

Five Steps inNegotiating Payment

7/27/2019 5 Steps in Negotiating Payment

2/20

OPEN ACCOUNT

DOCUMENTARYCOLLECTION

DOCUMENTARYCREDIT

ADVANCEPAYMENT

1

3

2

4STEP 1

MODE OFPAYMENT

7/27/2019 5 Steps in Negotiating Payment

3/20

Open Accountpay at specific date in the futuretake place when importer has strong credit history orwell-known to seller

without any negotiating instruments

only evidence his commitment to pay at thecommitted time

no security (no protection for seller)

security (bank guarantees, credit exportersinsurance)

7/27/2019 5 Steps in Negotiating Payment

4/20

Documentary Collections

Sales transaction is settled bybanks through an exchange of document

Process is governed by set of rules(Uniforms Rules for Collection byInternational Chamber of commerce)

7/27/2019 5 Steps in Negotiating Payment

5/20

7/27/2019 5 Steps in Negotiating Payment

6/20

Documentary Credit

Bank to bank commitment of payment in favorof an exporter (Beneficiary) guaranteeing thatpayment will be made against certain documentwhich is found with terms set by buyer(Applicant)Set of rules from ICC (Uniform Custom andPractice (UCP600) - 90% bank use this)

7/27/2019 5 Steps in Negotiating Payment

7/20

ADVANCE PAYMENT

pay before delivery

most secure for exporter butnot attractive for importer

7/27/2019 5 Steps in Negotiating Payment

8/20

STEP 2

TIMING

OFPAYMENT

7/27/2019 5 Steps in Negotiating Payment

9/20

Non-paymentState clear date of payment response to thekind of the method used in the payment ter

of the Contract :E.g : Letter of creditPayment shall be made by means of an irrevocableconfirmed letter of the credit. The buyer shall openthe letter of credit on or before < DATE OF OPENINOF LETTER OF CREDIT > on the term agreed by parti and annexed to this contract as

Appendix

How to solve problemsin payment by timing

7/27/2019 5 Steps in Negotiating Payment

10/20

DelayOffer discounts to encourage

customers who have the cash to payearly and save money

E.g: Cash against invoice

a 1% discount if payment is made within 30 daysof the date of invoice.

How to solve problemsin payment by timing (cont)

7/27/2019 5 Steps in Negotiating Payment

11/20

Calendar date (Fixed date)The Buyer will pay not later than on 15th of next month after receiving payment request of the Seller on the end of month.

Interval times Payment shall be effected by the Buyer, by M/T( Mail Transfer), within 7 days after receipt from the Seller of theshipping documents.

Ways to state time inpayment term

7/27/2019 5 Steps in Negotiating Payment

12/20

PLACEOF

PAYMENT

Easilyto be

mistaken

Causingdisputes if not

be made clearly

Delayed paymentoften costs a lot of

money for compensationSTEP 3STEP 3STEP 3STEP 3

7/27/2019 5 Steps in Negotiating Payment

13/20

The banks are able to makeforeign transfers

Differences in trade Law andcustoms between 2countries

Conflicts of interest

DIFFICULTIES IN NEGOTIATING

7/27/2019 5 Steps in Negotiating Payment

14/20

POINT OF PAYMENT

When the

buyer instructs thebank to pay

When the

buyer paysthe money

into his bank

When the

buyers bank transfers

funds

When funds

reach thesellers bank

account

Buyer prefers Seller prefers

7/27/2019 5 Steps in Negotiating Payment

15/20

Example

Payment shall be deemed to have beenreceived only when the full amount of thevalue of the goods and services as invoicedhas been credited to the Companys bankaccount without recourse or the Company hasreceived the full amount in cash.

7/27/2019 5 Steps in Negotiating Payment

16/20

Vic thanh ton s c coi l hon tt chkhi ton b s tin ng vi gi tr ca hngha v dch v nh trong ha n cchuyn vo ti khon ngn hng ca cng tym khng b truy i hoc khi cng ty nhn c ton b bng tin mt.

7/27/2019 5 Steps in Negotiating Payment

17/20

any payment made after theagreed date of payment1

Force Majeure2

Might be excused during a graceperiod3

STEP 4

7/27/2019 5 Steps in Negotiating Payment

18/20

In most legal systems: the exporter has a right to becompensated for losses due to late payment

In fact: depends on the paymentagreement negotiated

Results of Payment

Step 5

7/27/2019 5 Steps in Negotiating Payment

19/20

the confirmed, irrevocable, at-sight letter of credit

obliges a bank to pay

The exporter tries to exert pressure on thebuyer

open account, nosecurities and no

agreement on latepayment

The exporter has right to receive intereston the amount unpaid during the period of delay

Contract regulates latepayment

Agreement tostrengthen the payment

provisions with a paymentguarantee

Create a paymentregulation which makeslate payment impossible

7/27/2019 5 Steps in Negotiating Payment

20/20

Confirmed, irrevocable, at-sight LC

Irrevocable : It can be neither amended nor cancelled without the agreement of allthe parties to the creditThe Issuing bank gives a binding undertaking to the Beneficiaryprovided all the credit terms and conditions are fulfilled

Under UCP 600 all letters of credit are irrevocable Confirm:

Where a bank usually in the Beneficiary's country, adds its ownundertaking confirming that payment will be made as long ascompliant documents are presented

Confirmation gives the exporter added security, particularly if thestanding of the Issuing bank is unknown or the current political andeconomic state of the importer's country is uncertain

At-sight:The terms of the letter of credit require immediate payment