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Foreign Commercial Payment

Reported by:Airra Joy Dalundon

Jerome MendozaCarl June Pagkalinawan

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Characteristics o !nternational Payment

Lack of personal contact " Due to the di#erent physical lo

communication is typically not done ace%to%ace&

No easy legal recourse " Due to the nature o internationatransactions$ there is no single court that has direct 'urisprud

o(er an international trade&

Higher litigation costs " ! legal proceedings are re)uired$are much more e*pensi(e and complicated than or a domes

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Risks in !nternational +rade

Risk

% +he risk o non%payment is the probability o not getting paid paid late&

Country Risk- Di#erent issues " primarily political and economic " a#ect thecountry represents& !t includes the possibility o not being paid customer,s country does not ha(e the oreign currency to pay tthe customer is not allowed to pay&

Commercial Risk-An indi(idual -rm may not be able .or willing/ to pay or a numreasons&

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+he si* basic payment arrangements or e*ported goods include

+he si* basic payment arrangements or e*ported goods include:

0& 1etter o Credit

2& 3ills o 1ading

4& Cash !n Ad(anc

5& 6pen Accounts

7& Foraiting

8& Factoring

9etting Paid: Foreign Commercial Payme

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1etter o Credit

A letter o credit is a document in which the importer,s banessentially promises to pay the e*porter i the importer doepay& +he credit worthiness o the bank is substituted or thaimporter$ and the e*porter is protected&

1etters o Credit are re)uently used in international transaespecially in those cases in which the e*porter has no pre%ebusiness relationship with the importer$ or when the importlocated in a country that is considered to be risky&

+hey are also used when the importer is risk a(erse&

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+hree dimension o 1C

!rre(ocable ;s& Re(ocable& An irre(ocable letter o credneither be canceled nor modi-ed without the consent o

bene-ciary .e*porter/$ thus guaranteeing payment

Con-rmed ;s&

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Exporters Bank Imp

Exporter

3

1

4

1etter o Credit .!ssuance/

0&+he e*porter and the importeragree to conduct business on aletter o credit basis&

2&+he importer asks his bank$called the issuing bank&

4&+he importer,s bank sends theletter o credit to the e*porter,sbank&

5&+he e*porter,s bank re(iews.?ad(ises@/ the letter o credit$

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Exporters Bank

Exporter

6

5

Documents

Goods

1etter o Credit .=hipment/

7&+he e*porter ships the goods to theimporter& 3y doing so$ it collects

some documents rom the carrier.which documents depend on the!ncoterm chosen/$ and sends all thesedocuments .including in(oice and soon/ to the ad(ising bank&

8&+he ad(ising bank checks thedocuments against the letter ocredit$ and then noti-es theimporter,s bank that all documentsare in order& +he e*porter,s bank thensends the documents to the issuingbank&

&+he issuing bank sends thedocuments to the importer&

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Exporters Bank I

Exporter

9

10

1etter o Credit .Payment/

B&Ater recei(ing the documents$ theimporter pays the importer,s bank&

&+he importer,s bank transers the

unds to the e*porter,s bank&

0&+he e*porter,s bank pays thee*porter&

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A process by which an e*porter asks a bank located in the importing countrits interests by not releasing the documents until the importer satis-es cert

+he e*porter gi(es the oreign bank (ery speci-c directions on the way it wtransaction handled$ by supplying the oreign bank with a ?letter o instruct

DocumentaryCollection

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Each e*port shipment re)uires many documents to satisy go(ernment regcontrolling e*porting as well as to meet re)uirements or international comm

E*port Documents

+he most re)uently re)uired documents are:+he most re)uently re)uired documents are:

0& E*port Declarations2& Consular !n(oices or Certi-cate

6rigin4& 3ill o 1ading5& Commercial !n(oice7& !nsurance Policy or Certi-cate$ a8& 1icenses

0& E*port Declarations

2& Consular !n(oices or Certi-cates6rigin

4& 3ill o 1ading5& Commercial !n(oice7& !nsurance Policy or Certi-cate$ a8& 1icenses

E t D t P t d t th t it i l d th d

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Export Documents Presented at the port o e*it$ includes the names andprincipals in(ol(ed&

Consular Inoice or Certi!cate of "rigin " =ome countries re)uire consobtained rom the country,s consulate and returned with two to eight copieso the country$ along with the copies o other re)uired documents&

#ill of La$ing the most important document re)uired or establishing legacilitating -nancial transactions&

Commercial Inoice E(ery international re)uires a commercial in(oice$ tstatement or the goods sold& +his document oten ser(es se(eral purposes

Insurance %olicy or Certi!cate is considered a key document in e*port

Licenses E*port or import licenses are additional documents re)uently rtrade& !n those cases where import licenses are re)uired by the country o ethe license or license number is usually re)uired to obtain a consular in(oic

"ther Documents =anitary and health inspection certi-cates attesting to

disease and pests may be re)uired or certain agricultural products beore agoods to enter its borders&

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Cash in Ad(ance

+he e*porter re)uests that the customer pro(ide payment in ad(ance$ beogoods can take place& +his method is totally ?risk ree@ to the e*porter " no

worries$ no oreign e*change uctuations e*posure$ no cash%ow problem$ aees to pay to banks&

+he e*porter conducts international business in a manner similar to the waybusiness domestically&

+he e*porter sends an in(oice to the customer and e*pects the customer to.or within a certain pre%arranged period/&

+his method presents many risks or the e*porter&

6pen Account

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Acceptance

+he e*porter can speciy in the letter o instruction whether it wants traacceptance or banker,s acceptance:

0&!n re)uesting a tra$e acceptance.or trader,s acceptance/$ the e*pe*pects the importer to accept .sign/ the drat in a reasonable amouater being noti-ed that the presenting bank has the documents in it

possession&

2&!n a banker&s acceptance$ the e*porter asks the presenting bank tthe drat ?on behal@ o the importer&

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ForaitingFactoring

An e*porter can sell the drat it collected rom the importer to a oraiting -them$ without recourse&

An e*porter can also sell international recei(ables to a actoring house .also

who can buy them with or without recourse&

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Procurement Card

Procurement cards present se(eral ad(antages or international purchases:

+he e*porter is essentially paid ?in ad(ance$@ because it is paid almost the goods ha(e shipped&

+he importer does not ha(e to pay until the monthly procurement card about 4 days ater the purchase is made&

+he non%payment issue is transerred to the bank that issued the card acredit to the importer& +he e*porter bears no risk o non%payment&

+he currency e*change rate on the transaction is the best one can getG e*change rate or (ery large transactions&

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+rade Card

+rade Card is a proprietary electronic system that combines payment and dhandling:

+rade Card makes no payment to the e*porter until +rade Card has recedocuments$ and they are in order&

+he importer does not ha(e to pay +rade Card or about 4 days&

+he system is eHcient: documents are transmitted electronically$ and pmade at the inter%bank e*change rates&

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3ank 9uarantee

A bank guaranteeis another instrument used in international trade$ but issituations: A bank guarantee is usually re)uested to secure the perormanc.e*porter/$ rather than to ensure that payment will be made by the buyer .i

A bank guarantee in which the bene-ciary does not ha(e to pro(ide any eterms o the underlying contract between the contractor and the bene-cia

been metG the issuing bank has to pay at the -rst re)uest o the bene-cia

A bank guarantee made conditional upon presentation o certain docume?on -rst demand&@ +he bene-ciary must present documents that demonst

contractor is not meeting its obligations&

9uarantees based upon documents .cautions/

9uarantee payable on -rst demand

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An e*porter has se(eral alternati(es rom which to choose in negotiating tewith the importer&

Although the choice o the term o sale is dependent on the le(el o e*periee*porter and the importer and on the le(el o con-dence that the e*porter o the importer to make the payment$ there are some alternati(es that are dpreerable and will increase an e*porterIs probability to clinch the sale&

+erms o Payment as a Marketing +ool

'etho$ of %ayment

%robability of Losing th

#ecause of the Choice ofof %ayment

Cash in ad(ance igh

6pen account >il

1etter o credit Fairly high

Procurement card 1ow

+rade Card 1ow