unit 8 other methods of payment

nullUnit 8 Other Methods of PaymentUnit 8 Other Methods of PaymentLearning ObjectivesLearning ObjectivesStudents will be able to: 1. Understand the main idea of the payment terms ; 2. Master some basic methods of payment ; 3. Analyze letter samples related to the payment terms; 4. complete all the relative exercises.Terms for payment:Terms for payment:Amount of Payment: Generally speaking, the actual amount of payment is what is given in the written contract. The actual payment of the goods may be adjusted in accordance with the special clauses. Also, some contracts may stipulate that additional charges or expenses. nullPayment Currency: The exporter need consider the exchange risks while determining what currency is to be used for the payment of the consignment, because the payment currency may depreciate or appreciate in the international financial market. Instrument: A monetary value document or the evidence of a financial transaction. The most often used is draft (bill of exchange).nullContents of This Unit：Ⅰ. Payment Instruments Ⅱ. Payment Methods Ⅲ. Settlement of Foreign Trade Ⅳ. Letter SamplesⅠ. Payment InstrumentsⅠ. Payment Instruments Bill of Exchange/Draft 汇票  Promissory Note 本票  Check 支票 Bill of Exchange/DraftBill of Exchange/DraftMeaning:A written order, which may be negotiable or nonnegotiable, directing one party to pay a certain sum of money to the drawer or to a third person.汇票是出票人（Drawer）签发的，委托付款人（Payer，或称受票人Drawee）在见票时或者在指定日期内无条件支付确定金额给收款人（ Payee ，通常即出票人）或持票人的票据。The person on whom a bill of exchange or a draft is drawn.The person who draws a bill or draft.Types of DraftTypes of DraftBank’s Draft & Commercial Draft 银行汇票与商业汇票 Clean Bill & Documentary Bill 光票与跟单汇票 Sight Draft & Time Bill / Usance Bill 即期汇票与远期汇票nullDrawn under SAKURA BANK, LTD., TOKYO Irrevocable L/C No. 645-3000598 Dated Jan.10.2008 Payable with interest 5.2% per annum No.20042 EXCHANGE for US$236,000.00 Shanghai China Feb.20.2008 At **** days sight of this first of Exchange (Second of Exchange being unpaid) pay to the order of Bank of China the sum of US dollars TWO HUNDRED AND THIRTY-SIX THOUSAND ONLY To: SAKURA BANK, LTD., TOKYO China Machinery & Equipment Import &Export Corp.  Promissory Note and Check Promissory Note and CheckPromissory Note 本票 Promissory Note: is any written promise to pay. Check 支票 Check: is an unconditional order in writing drawn on a bank signed by the drawer, requiring the bank to pay on demand a certain sum of money to the order of a specified person or to bearer.本票是出票人签发的，承诺自己在见票时无条件支付确定金额给收款人或持票人的票据。支票是出票人签发的，委托办理支票存款业务的银行或者其他金融机构在见票时无条件支付确定金额给收款人或持票人的票据。Ⅱ. Payment MethodsⅡ. Payment Methods Remittance 汇付  Collection 托收  Letter of Credit 信用证The modes of payment in international trade can be divided into three categories, as follows:nullA. Commercial credit — remittance and collection ，the buyer is responsible to make payment, the seller to surrender documents. The banks involved do not bear any risk if the payment of the goods is not made by the buyer. B. bank’s credit — L/C， the bank is responsible to pay money and tender documents on behalf of both parties.Remittance and collection belong to commercial credit. L/C belongs to bank’s credit :Remittance Remittance nullWhen remittance is adopted in international trade, the buyer on his own initiative remits money to the seller through a bank according to the terms and time stipulated in the contract.Mail Transfer (M/T信汇) Telegraphic Transfer (T/T电汇) Demand Draft (D/D票汇)3 different ways of remittanceDefinition Definition Remittance is to deliver the payment of the goods to the seller by bank transfer. In remittance, there are four parties involved: Remitter 汇款人 Payee or Beneficiary 收款人 Remitting Bank 汇出行 Paying Bank 汇入行nullRemittance is mainly used for payment in advance (预付货款) open account (赊销) for small quantity of goods commission sundry charges, etc. (a) If it is used for payment in advance or cash with order, it will place the seller in an advantageous position. (b) If for delivery first and payment afterwards, it will place the buyer in a favorable position. Note: In adopting this method, the parties involved need have trust in each other.The Proceeding of RemittanceThe Proceeding of RemittanceTypes of RemittanceTypes of Remittance(a) Mail Transfer (M/T信汇) the buyer hands over the payment to the remitting bank, which will authorize its branch bank or correspondent bank in the country of the beneficiary by mail to make payment to him.(b) Telegraphic Transfer (T/T电汇)null(c) Demand Draft (D/D票汇) the buyer buys a bank’s bill and deliver it to the seller by mail or hand it over in person. Then the seller comes to the bank designated by the bank’s bill for cash.Mail transfer is cheap but time-consuming, while telegraphic transfer is more expensive but much faster.CollectionCollection Definition Definition托收：是指由接到托收指示的银行根据所收到的指示处理金融单据或商业单据以便取得付款/承兑，或凭付款/承兑交出商业单据，或凭其他条款或条件交出单据。 ——国际商会《托收统一规则》（简称《URC522》）Under collection, the exporter takes the initiative to collect the payment from the buyer. The exporter draws a bill of exchange, and authorizes his bank to effect the collection of the payment through its branch bank or correspondent bank in the country of importer.Parties InvolvedParties Involved1. The Principal (exporter or seller)2. The remitting bankThe person who draws the bill of exchange and authorizes his bank to effect the collectionThe bank authorized by the drawer of the draft to effect collection from the buyer. 3. The collecting bankThis is the bank authorized by the remitting bank to collect the payment from the buyer of the goods. 4. Drawee (buyer or importer)The Proceeding of CollectionThe Proceeding of CollectionTypes of CollectionTypes of Collection（1）Clean Collection 光票托收 Documentary Collection 跟单托收Documentary collection has the relevant shipping documents attached to the draft, while in clean collection only draft is used. （2）Documents against Payment 付款交单 Documents against Acceptance 承兑交单Documents Against Payment (D/P)Documents Against Payment (D/P)Under D/P, the buyer can receive the shipping documents only after he has duly made the payment of the goods. 2 types: ◆D/P at sight ◆D/P after sightnull Note: Under D/P, the buyer can not obtain the shipping documents if he does not make the payment, should this happen, the seller need first negotiate with the buyer, and at the same time, he may consider if he can sell the goods to others or to ship the goods back, usually at his own cost. Documents Against Acceptance (D/A)Documents Against Acceptance (D/A)Under the D/A, the buyer can get the shipping documents from the collecting bank after he has duly accepted the draft. D/A means more risks for the seller, for the buyer might refuse to pay after he has accepted the draft and taken the delivery of the goods. nullthe buyer’s capital will be tied up from the time of remitting it until the goods arrive and are sold, especially in cases where the goods ordered can only be shipped by the seller months or years after placing the order. The seller may be unknown to the buyer, and his commercial integrity may be questionable. Why cannot the buyer directly send cash or bank’s draft with his order to the seller?Workflow of CollectionWorkflow of Collection即期付款交单托收条款 即期付款交单托收条款Upon first presentation the Buyers shall pay against documentary draft drawn by the Sellers at sight . The shipping documents are to be delivered against payment only.远期付款交单托收条款远期付款交单托收条款The Buyers shall duly accept the documentary draft drawn by the Sellers at ...days sight upon first presentation and make payment on its maturity. The shipping documents are to be delivered against payment only. The buyer shall pay against documentary draft drawn by Sellers at ...days after date of B/L. The shipping documents are to be delivered against payment only.承兑交单托收条款承兑交单托收条款The Buyers shall duly accept the documentary draft drawn by the Sellers at ... days sight upon first presentation and make payment on its maturity. The shipping documents are to be delivered against acceptance. Review QuestionsReview QuestionsWhat is payment instrument? As to the payment method, may the risks effect the benefits of the involved parties? What are the types of the collection?Answer the following questions by using the information you have received from the above lecture:Ⅲ. Settlement of Foreign TradeⅢ. Settlement of Foreign TradeTraditionally, commonly used terms of payment in international business transactions are: ①Cash-in-Advance ②Open Account ③Consignment ④Counter-trade ⑤Documentary Collection ⑥Documentary Credit Each of the 6 methods of payment has certain advantages and disadvantages to the exporter and the importer.Cash-in-AdvanceCash-in-AdvanceWith Cash-in-Advance, the importer pays for the goods at the time when he places the order with the exporter. Applying this methods means that the importer assumes all risks of non-performance by the exporter under the contract, the volume of transaction handled on this basis is usually not large. 预付货款NoteNoteIt is typically used when the importer’s credit is doubtful, or foreign exchange restrictions within the importer’s country will unreasonably affect the return of funds or the importer cannot obtain a letter of credit in a documentary credit transaction. But one point shall be noted is that if exporters insist on this method of payment as their sole method of doing business, they may find themselves losing out to competitors who offer more flexible payment terms.Open AccountOpen AccountUnder Open Account, the exporter bills the importer after the goods have been shipped and the importer is liable for paying the exporter at an agreed-upon date in the future. As the exporter bears greatest risks, international transactions on this basis are seldom made, but if the buyer is well established, has a long and favorable payment record, or has been thoroughly checked for credit worthiness or the transaction is with a subsidiary or branch of the exporter, open account is a good way to expand exporting.赊销 NoteNoteTo decrease risks to open account sales, exporters should thoroughly examine, in advance, the political, economic, and commercial risks. In addition, they should consult with their banks if financing will be needed for the transaction.ConsignmentConsignmentConsignment means that the exporter ships the merchandise for his own account to a foreign distributor but retains title to the merchandise until the merchandise has been sold by the foreign distributor on behalf of the exporter. After the merchandise is sold, the foreign distributor, after deducting of agreed commission, reimburse the exporter.寄售 NoteNoteUnder this method, the exporter has the greatest risk and least control over the goods; therefore, risk insurance with such sales shall be cautiously considered. The contract should clarify who is responsible for property risk insurance that will cover the merchandise until it is sold and payment is received. In addition, the exporter shall have detailed status enquiry of and credit check on the distributor. Of course, it may be necessary for the exporter to conduct an inquiry of the foreign market prior to arranging consignment. Counter-tradeCounter-tradeCounter-trade is an internationally common trade practice under which one party accepts goods, services, or other instruments of trade as the payment for its products. Counter-trade includes compensation trade, counter-purchase and barter. Presently, compensation trade is the most popular counter-trade practice in the world. 对销贸易/抵偿贸易 nullIn counter-purchase, one party agrees to purchase a quantity of certain goods from the other party in exchange for the other party’s purchase of the party’s own products. Typically, these goods are unrelated but equivalent in value. nullBarter, under which merchandise of one party is traded directly for other merchandise or service of the other party without money exchanging hands. As the parties’ needs for the goods of the other seldom coincide and the evaluation of the goods may be difficult, barter trade is not as common as other forms of counter-trade. Ⅳ. Letter SamplesⅣ. Letter SamplesSample1: Asking for D/PSample1: Asking for D/PDear Sirs, We thank you for your order No. 1368 and are pleased to inform you that the goods required have been dispatched by S.S. “Garden”, due at Singapore on the 19th, August. We are sure that you can understand our position that on this occasion it is necessary to make this a “Document against Payment” transaction, since we have not had time to secure credit reference on your firm. nullWe have drawn a sight draft on you for the approach you in a few days for the payment of the draft. They will then hand to you the full documents to enable you to take delivery. We hope that in due course we will be able to establish regular trading with you. In such circumstances we would be prepared to give you a three-month credit once your references are secured. We hope that this will be only the first of many orders you will place with us. Faithfully yours,Answer the Following Questions Answer the Following Questions 1. What does the writer express in the opening? 2. What are the seller’s payment terms? The reason to use this method.Sample 2: Asking for easier payment termsSample 2: Asking for easier payment termsDear sirs, In the past, our purchases of steel pipes from you have normally been paid by confirmed, irrevocable letter of credit. This arrangement has cost us a great deal of money. From the moment we open the credit until our buyers pay us normally, funds have been tied up for about four months. This is currently a particularly serious problem for us in view of the difficult economic climate and the prevailing high interest rates.nullIf you could offer us easier payment terms, it would probably lead to an increase in business between our companies. We propose either cash against documents on arrival of goods, or drawing on us at three months’ sight. We hope our request will meet your agreement and look forward to your early reply. Yours faithfully,Answer the Following Questions Answer the Following Questions 1. What is the reason for the buyer asking for the change of payment method? 2. Which method does the buyer prefer?Sample 3: Refusing payment by D/ASample 3: Refusing payment by D/ADear Sirs, Thank you for your order of August 15 and we are pleased to learn that you intend to give our Canned Luncheon Meat a trial sale in your market. While we appreciate your good intention, we regret being unable to accept your request for payment by D/A 60 days’ sight. As we generally require payment by irrevocable letter of credit available by draft at sight, we cannot make any arrangement nullcontrary to our usual practice, especially for a new customer. May we suggest that we do business on the basis of payment by L/C first and leave the matter to be discussed at a later date? We hope the above payment terms are acceptable to you and look forward to your confirmation. Yours faithfully,Answer the Following Questions Answer the Following Questions 1. What is the seller’s usual practice for payment terms? 2. What does the buyer request?Sample 4: Asking to change the method of paymentSample 4: Asking to change the method of paymentDear Sirs, Thank you for being so prompt in sending the sales confirmation against our last order No. KK78901. We have established the covering L/C, and the bank should be sending you an advice in no time. We have been dealing with you on the L/C basis for over a year and would like to change to payment by 30-day bill of exchange, documents against payment. When we first contacted you in March last year, you told us that you would be prepared to reconsidernullterms of payment once we had established a trading association. We think that sufficient time has elapsed for us to be allowed the terms we have asked for. If you need references, we will be glad to supply them. As we will be sending another order within the month, could you please confirm that you agree to these terms of payment? Attached is the Sales Confirmation No.980654 we have countersigned and returned for your file. Yours faithfully, Answer the Following Questions Answer the Following Questions 1. What is payment method the two parties used? 2. What does the buyer request? And the excuse for that?ExercisesExercises Translate the following sentences into English：1. 我们不知你方可否考虑接受我们提出的货到后凭单付款的支付方式。We wonder if you can accept ( or: consider accepting ) our proposal in regard to payment by D/P on arrival of goods.2.我们所要求的支付方式是十分正常的，我们抱歉对此不能通融。 The mode of payment we require is normal. We regret we cannot accommodate you in this respect.null3. 如果上述办法不能接受，请提建议。If you can accept the above, please make your own proposal.4. 关于你方要求以付款交单方式支付一事，我们正在考虑，不日即可告知我们的决定。 Regarding your request for D/P payment, we are taking it into consideration and will let you know our decision soon.5. 如果你方能惠予较宽容的条件，我们将非常感激。We shall be very grateful if you can give us ( or: favor us with ) easier payment terms.null6. 按照目前的情况，如交易不超过$ⅩⅩⅩ，我们可以接受付款交单方式。Under the present circumstances, we can accept D/P payment terms if the transaction does not exceed $×××.7. 我方抱歉不能接受货到目的港后凭单付款的支付方式。We regret we cannot accept CAD on arrival of goods at destination.8.考虑到我们之间长达十五年令人愉快的业务关系，我们同意做出让步，相信这将满足你方的要求。 In consideration of the pleasant business relations we have had with you for 15 years, we agree to make the concession and trust it will suit your requirements.AssignmentAssignment请注意，付款是以保兑的、不可撤销的、允许分装和转船、见票即付的信用证支付。 你方以付款交单方式付款的要求，我方已予考虑，鉴于这笔交易金额甚微，我们准备以此方式办理装运。 按照你方的要求，我们将对我们的惯例破一次例，接受以三十天期信用证办理交货，但不能作为先例。 你方最好尽早开出信用证以便我方能及时安排装运。 按照我方第222号销售确认书的规定，你方应于装运日期前一个月寄来信用证。 Translate the following sentences into English：AnswersAnswersPlease note that payment is to be made by confirmed, irrevocable L/C allowing partial shipment(s) and transshipment, available by draft at sight. Your request for payment by D/P has been taken into consideration. In view of the small amount of this transaction, we are prepared to effect shipment on this (D/P) basis. As requested, we well make an exception to our rules and accept delivery against 30 days L/C, but this should not be regarded as a precedent. It would be advisable for you to establish the covering L/C as early as possible so as to enable us to arrange shipment in due time. According to the stipulations in our S/C No. 222, you should send us your L/C one month preceding the date of shipment