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Secrets of International Trading
"There is no point in a firm exporting |
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Get Paid for exporting Initially, the exporter and the importer are usually unwilling to trust each other very far. The foreign importer does not want to pay for the goods purchased until it is sure of receiving them and the exporter does not want to relinquish control over the goods until it is sure of receiving payment. To overcome this dilemma, the practice has developed of arranging payment for goods exported by means of documentary drafts (or bills), with the use of banks as intermediaries. Therefore, an exporter price quotation to a prospective foreign buyer should stipulate the method and terms of payment.
A draft is a written document prepared by the exporter and the foreign buyer agrees to pay a given sum of money, for value received at sight (i.e., immediately) or at a stipulated future date, known as a time draft. One important reason for using a draft is that, should the importer fail to pay for the goods purchased, the exporter, or more usually the foreign bank involved, can sue for the money on the basis of the documentary draft alone. It does not have to prove the terms of the export sales contract. The exporter knows that the branch of its bank in the foreign country, or its correspondent bank, will not hand over the shipping documents (including the bill of lading that transfers ownership of the goods to the foreign importer). Unless the importer has made payment or, in the case of credit sales, accepted a draft for future payment. |
Secrets of International Trading
How to manage Export Promotion? How to Draft and Agency Agreement? Export Trade Barriers & Trade Blocks How to Develop an Export Market? How to Conduct Export Research? How to calculate Costing for Export? Hazards of Export Packing & Shipping Export Shipment and Transportation 4 P's of Business Correspondence About Pallet a transportable platform
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Another reason for the use of a draft is that the exporter can fund sooner, even though it has granted credit terms to the foreign importer, by discounting the draft with its own bank. A third reason for use of a draft is, for the exporter to give direction in writing to the foreign importer to pay the money owed to the bank which is acting on the exporter's behalf. The collection procedure involving the use of a documentary draft is as follows: 1. The exporter delivers the draft to his bank, together with all the shipping documents, bill of lading, insurance certificate, consular invoice, etc.) 2. The bank sends the draft and documents, to its branch or correspondent bank in the city nearest to the foreign importer in the foreign country. 3. If the sales agreement between the exporter and the foreign importer has stipulated payment by sight draft (i.e., no credit), the bank in the foreign country will ask the importer to accept the draft and pay the amount indicated.
4. When payment has been made, the shipping documents, including the original bill of lading (which confers title or original bill of the goods to the importer), are handed over to the importer. |
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5. Very often, because of airmail, the draft may be ready for acceptance and payment before the goods arrive at the foreign port In some countries, it is customary to hold the draft and present it to the importer only when the goods have actually arrived.
6. If the export sales agreement has stipulated payment by time draft,
because of the provision of credit terms, e.g. payment for the goods in 60, 90, 120 or 180 days.
7. The documents that are handed over to the importer may vary according to the type of merchandise and the foreign country involved, usually consist of several copies of each of: a. The bill of lading - representing title to the goods. b. The commercial invoice - showing the types, quantities, prices, payment terms, other details of the export shipment. c. The consular invoice - as required by the foreign country. d. The insurance certificate - indicating that the shipment has been been insured against various perils. e. Other documents - e.g. packing lists, inspection certificates, health certificates and certificates of origin, as required. 8. The accepted time draft is sent back to the exporter's bank from the foreign country in which the branch or correspondent bank that presented it to the foreign importer for acceptance is located.
9. The exporter's bank, on behalf of the exporter, holds the accepted draft and arranges for collection when it matures.
* The exporter uses the time draft as security for a loan from the bank, repayable from the proceeds of the draft when it matures, Or, it can "discount" the draft with the bank - that is, sell it to the bank for its face value less a stated percentage called discount. 10. As the maturity date approaches, the exporter bank sends the time draft back to its branch or correspondent bank in the foreign country for collection. 11. The branch bank or correspondent bank then uses the time draft to collect the money owing from the importer. 12. The foreign currency that has been collected from the importer is converted into the currency of the exporting country. It is then remitted to the exporter's bank for payment to the exporter or reimburses itself for the money pain earlier to the exporter.
"The
only reason that the bank's collection
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