| Speaking on this topic first of all I would like to tell | | | | conditions on which the bills of exchange can be |
| about risks in international trade concerning exporters | | | | drawn up: |
| & importers – both sides face risks in an | | | | - on demand: a bill of exchange must be |
| export transaction, because there is always the | | | | paid immediately as it is presented for payment; |
| possibility that the other side may not fulfill the | | | | - at sight: an inscription made by a |
| contract. | | | | drawer on a bill of exchange to show that it must be |
| So risks for the exporters: | | | | paid as soon as it is presented for payment; |
| 1. the risk of buyer default | | | | - after sight: an inscription made by a |
| 2. the customers might not pay in full for the goods: | | | | drawer on a bill of exchange to show that the bill |
| - the importers might go | | | | would be paid within a specified time after the payer |
| bankrupt | | | | (the drawee) is presented with it; |
| - a war might start | | | | - after date: an inscription made by a |
| - importers’ government | | | | drawer on a bill of exchange to show that payment |
| might decide to ban trade with the exporting country | | | | will be made at a specified time after the date given |
| - importers’ government | | | | on the bill; such bills are called after-date bills. |
| might decide to ban imports of certain commodities | | | | In the process of creating bill of exchange there are |
| 1. the importers might run into difficulties getting the | | | | 2 parts. The drawer is a person who writes a cheque |
| foreign exchange to pay for the goods | | | | a bank order/ a bill of exchange, etc. and therefore |
| 2. the importers are not reliable & simply refuse | | | | instructs a drawee to make a payment within a |
| to pay the agreed amount of money | | | | stipulated period of time. |
| Risks for the importers: | | | | The drawee is a person on whom a cheque/ a bank |
| 1. the goods will be delayed & they will only | | | | order/ a bill of exchange have been drawn up, the |
| receive them a long time after paying for them, | | | | payer. The drawee must accept the cheque/ bill/ |
| because of: | | | | bank order and pay it within the stipulated period of |
| - port congestion | | | | time. |
| - port strikes | | | | Special attention needs to be drawn to the |
| 1. delays in fulfillment of orders by exporters & | | | | endorsement of bills of exchange. Endorsement is a |
| difficult Customs clearance in the importing country | | | | signature on the back of a bill of exchange or cheque |
| can cause loss of business | | | | by the payee (beneficiary), making it payable to |
| 2. the wrong goods might be send | | | | another person. There are various types of |
| As we see there are a lot of different risks. & | | | | endorsements used in business transactions: |
| many of that risk are reduced by the work of the | | | | - Accommodation endorsement: the |
| banks. They provide several services which give | | | | name and signature written on the back of an |
| security to exporters & importers: | | | | accepted bill of exchange as a guarantee that |
| 1. the risk of buyer default or non-delivery by | | | | payment will be made on the date given; |
| exporters is removed by the method of payment | | | | - Blank endorsement: a signature on a bill |
| against shipping documents. | | | | of exchange or cheque, by the payee, making it |
| 2. exporters’ banks provide information about | | | | payable to any other person, i.e. to a bearer; |
| the financial reliability of their customers | | | | - Restrictive endorsement: a signature |
| 3. banks help arrange buyer credit or finance for the | | | | on a bill of exchange or cheque, by the payee, |
| sellers (without this a lot of trade would not take | | | | making it payable only to a named person or |
| place at all) | | | | account; it is no longer a negotiable instrument; |
| 4. the risks of financial lost because of a change in | | | | - Special endorsement: a signature on a |
| exchange rate can be avoided with the help of a | | | | bill of exchange or cheque, by the payee, making it |
| bank, by buying the foreign exchange on the | | | | payable to another person, i.e. to order. |
| forward exchange market | | | | 2. Another method of payment on credit is in |
| & now I would like to move to the main part of | | | | advance (the Importer credits the Exporter, for |
| our topic – terms of payment. We must admit | | | | example, the contract may stipulate a 10 or 15% |
| that the terms of payment are an integral part of | | | | advance payment, which is advantageous to the |
| contract in international trade. There are different | | | | Sellers). This method is used when the Buyers are |
| methods of payment in foreign trade: | | | | unknown to the Sellers or in the case of a single |
| 1. in cash | | | | isolated transaction or as part of combination of |
| 2. on credit. | | | | methods in a large-scale (transaction) contract. |
| I’d like to speak about methods of payment on | | | | 3. The third method of payment on credit is on an |
| credit. There four different methods: | | | | open account. Open account terms are usually |
| 1. By drafts (by Bills of Exchange – B/E), which is | | | | granted by the Sellers to the regular Buyers or |
| the most popular terms of payment on credit. A Bill | | | | customers in whom the Sellers have complete |
| of Exchange is a signed documents, such as a | | | | confidence, but sometimes they are granted when |
| cheque, that orders a person or an organization, such | | | | the Sellers want to attract new Buyers then they |
| as a bank, to pay a fixed sum of money on demand | | | | risk their money for that end. Actual payment is |
| or on certain date to the person specified. It is a | | | | made monthly, quarterly or annually as agreed upon. |
| document that can be exchanged for goods, money, | | | | This method is disadvantageous to the Exporter, but |
| i.e. it is a negotiable instrument like cheques or | | | | may be good to gain new markets. |
| banknotes and can be a subject of the deal. | | | | 4. And the last method of payment on credit is a |
| There are various types of bills of exchange: | | | | Promissory Note, which is a document in which a |
| - accommodation B/E: a bill that is signed | | | | person or an organization, such as a bank, promises |
| by someone who promises to pay it to help another | | | | (on behalf of the Buyers) to pay a fixed sum of |
| person to raise money. A person signing the | | | | money on demand or by a certain date, to the |
| accommodation bill is called the accommodation party, | | | | person specified (the Sellers). |
| i.e. a person with a good financial reputation who | | | | Shipping documents: |
| signs a bill to make it easier to exchange; sometimes | | | | 1. Invoice – is a document contains complete |
| accommodation bills are called ‘kites’, | | | | details of the order, the terms of shipment and |
| ‘windbills’ or ‘windmills’. | | | | payment, the value of the order & details of |
| - discounted B/E: bill bought at a reduced | | | | insurance. |
| price before it is due for payment; | | | | 2. Origin Bill of Lading – is a document of title |
| - documentary B/E: a bill attached to | | | | goods which have been loaded on the ship. |
| shipping documents such as bills of lading, invoices, | | | | 3. Shipping specification – is the form which gives |
| etc.; | | | | details of goods which being shipped |
| - documents-against-acceptance B/E [D | | | | 4. Packing List – shows that the goods have |
| A, D/A bill]: a bill sent by an exporter with other | | | | been tested. |
| shipping documents to an agent who will not release | | | | 5. Certificate of Quality – shows that |
| the documents until the bill of exchange has been | | | | commodities have passed the task of grading. |
| signed (accepted) by the person receiving the goods; | | | | 6. Certificate of Origin – shows where the goods |
| this is used when the bill of exchange is a period bill | | | | come from. |
| and must be paid by a specified date; | | | | 7. Airway Bill – is receipts & evidence of |
| - document-against-payments B/E | | | | contracts of carriage. |
| [cash-against-documents]: a bill sent by an exporter | | | | 8. Insurance Policy Certificate. |
| with other shipping documents to an agent who will | | | | There are three basic methods of payment in foreign |
| not release the documents until the bill has been | | | | trade but traders usually use the one which is |
| signed (accepted) by the person receiving the goods; | | | | customary in their business. |
| this is used when the bill of exchange is a sight bill | | | | 1. Payment against documents. The shipping |
| and must be paid immediately; | | | | documents are exchanged with the bank |
| - endorsed B/E: a bill signed on the back, | | | | representing the importers. There are two |
| that makes it payable to someone else. | | | | procedures: Documentary Bills and Documentary |
| - foreign B/E | | | | Letters of Credit. The latter is the commonest |
| - inland B/E | | | | method of payment. |
| - period/ term B/E: must be paid on a | | | | 2. Payment into an open account. This is used where |
| specific date | | | | there is complete trust between seller and buyer. |
| - short B/E: must be paid within 10 days | | | | Also there must be no political or currency problems. |
| - sight B/E: immediate payment | | | | The exporters simply airmail the shipping documents |
| - time B/E: must be paid within several | | | | to the importers who settle their account monthly or |
| days after being signed | | | | quarterly. |
| - trade B/E: a bill that is used to pay for | | | | 3. Cash in advance. This is used only for small orders |
| goods. | | | | sent by parcel post. |
| In terms of time of payment there are different | | | | |