Exim Notes-3

• Payment terms can be of four types: advance cash payment, documentary collection, Open account, or sale on consignment.


• Advance cash payment involve payment in advance through checks, Bank A/c transfer, bank draft, banker's cheques, VPP or credit cards. This mode of payment is fraught with obvious risks.


• The most used method is through documentary collection in which a bank delivers shipping documents to importer and collects payment from him.


• Documentary collection can be documents against payment and document against acceptance. How it happens. For example if I am an exporter I send the goods to the importer and in the process shipping documents and Bill of Exchange is generated. I submit the SD and BE to my bank. My bank will present the document to importer. He can either a. Makes the Payment (Documents against the payment) b. promises to pay (document against acceptance- credit is extended). The improter bank then hands over the SD to importer and collects payment. the payment then comes back from the exporter bank to the exporter. Now what happens if buyer does'nt honor. Importer bank will appoint an attorney. He gives a report called PROTESTING. Or the exporter can go for litigation or arbitration.
• Documentary collection can also be through an L/C, which is the most frequently used method. In this the importer makes an application to his bank to open an L/C for a certain amount in favour of exporter. Importer is called applicant and exporter is called beneficiary. The bank which agrees to do so is called an opening bank. The L/C then goes to exporter's bank. it checks the genuineness of L/C and gives to exporter. This bank is called Advising Bank. Sometimes the bank also ensure the process of securing payment from bank. It is called Negotiating Bank. Now beneficiary sends goods to applicant. In the process shipping documents are generated. This SD and L/C is then presented to the negotiating bank. The negotiating bank then presents them to opening bank. The bank examines it for discrepencies called confirmation.If no discrepency is found, it makes payment to the negotiating bank and keeps SD and L/C. the opening bank debits the importer's account and gives the document to the importer. On the basis of documents , the importer gets the goods.
• This payment can be with recourse called unconfirmed , which says that as an importer, if there is any dicrepency found later, I get my money back, whereas without recourse is called confirmed L/C in which no recourse is available.
• The l/c can be revocable, which is always uncofirmed which means it can be amended or withdrawn by the issuing bank at any time before submission of the documents, or it can be irrovocable which can neither be withdrawn or amended withoout concurrence of all the parties involved. Only irrovacable l/c is confirmed or unconfirmed
• l/c can be transferable .Where credit amount can be transferred from 1st beneficiary to the other beneficiary. It is used when l/c is opened in favour of an agent, buying house, merchant exporter or manufacturer exporter, when you want raw material and use l/c as a collateral. It can be Back to Back L/c which means you can open an L/c on back of previous one. It can be RED CLAUSE L/C i.e. an l/c where a certain proportion of the credit advance is given to the beneficary, which is adjusted later to the total amount. It can be Revolving L/C , Where a credit amount revolves a number of times over a specified time period. This is done for large orders. It (revolving L/C) can be cumulative L/C where a credit amount not used in one shipment get added to the next or it can be Non Cumulative L/C where credit amount lapses and does'nt get added.