PS09 Vendor Payment forms

Vendor Payment PS9 Process Series 0 1. Understand the different Trade Terms with Clients & Vendors 2. Understand LF Vendor Payment Workflow and Payment Process Objectives: 1 Terms of Trade (INCOTERMS 2000) 2 Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller. The first version was introduced in 1936 and the latest version was updated in 2000. INCOTERMS 2000 Terms of Trade 3 Incoterms are payment terms using on worldwide business 4 Terms of Trade • EXW - EX WORKS (named place) • FCA - FREE CARRIER (named place) • FAS - FREE ALONGSIDE SHIP (named port of shipment) • FOB - FREE ON BOARD (named port of shipment) • CFR - COST AND FREIGHT (named port of destination) • CIF - COST, INSURANCE AND FREIGHT (named port of destination) • CPT - CARRIAGE PAID TO (named place of destination) • CIP - CARRIAGE AND INSURANCE PAID TO (named place of destination) • DAF - DELIVERED AT FRONTIER (named place) • DES - DELIVERED EX SHIP (named port of destination) • DEQ - DELIVERED EX QUAY (named port of destination) • DDU - DELIVERED DUTY UNPAID (named place of destination) • DDP - DELIVERED DUTY PAID (named place of destination) INCOTERMS 2000 (13 TERMS) 5 Terms of Trade Most popular terms 6 Terms of Trade EXW – EX WORKS (named place) SERVICES EXW Warehouse Storage Seller Warehouse Labor Seller Export Packing Seller Loading Charges Buyer Terminal Charges Buyer Forwarder's Fees Buyer Loading On Vessel Buyer Ocean/Air Freight Buyer Charges On Arrival At Destination Buyer Duty, Taxes & Customs Clearance Buyer Delivery To Destination Buyer Inland Freight Buyer 7 Terms of Trade FCA – Free Carrier (named place) SERVICES FCA Warehouse Storage Seller Warehouse Labor Seller Export Packing Seller Loading Charges Seller Buyer/ Seller* Terminal Charges Buyer Forwarder's Fees Buyer Loading On Vessel Buyer Ocean/Air Freight Buyer Charges On Arrival At Destination Buyer Duty, Taxes & Customs Clearance Buyer Delivery To Destination Buyer Inland Freight 8 Terms of Trade SERVICES FOB Warehouse Storage Seller Warehouse Labor Seller Export Packing Seller Loading Charges Seller Terminal Charges Seller Forwarder's Fees Buyer Loading On Vessel Seller Ocean/Air Freight Buyer Charges On Arrival At Destination Buyer Duty, Taxes & Customs Clearance Buyer Delivery To Destination Buyer Inland Freight Seller FOB – Free On Board (named loading port) 9 Terms of Trade CFR or C&F - Cost & Freight (named destination port) SERVICES CFR Warehouse Storage Seller Warehouse Labor Seller Export Packing Seller Loading Charges Seller Terminal Charges Seller Forwarder's Fees Seller Loading On Vessel Seller Ocean/Air Freight Seller Charges On Arrival At Destination Buyer Duty, Taxes & Customs Clearance Buyer Delivery To Destination Buyer Inland Freight Seller 10 Terms of Trade CIF – Cost, Insurance & Freight (named destination port) SERVICES CIF Warehouse Storage Seller Warehouse Labor Seller Export Packing Seller Loading Charges Seller Terminal Charges Seller Forwarder's Fees Seller Loading On Vessel Seller Ocean/Air Freight Seller Charges On Arrival At Destination Buyer Duty, Taxes & Customs Clearance Buyer Delivery To Destination Buyer Inland Freight Seller 11 Terms of Trade DDP – Delivered Duty Paid (named destination place) SERVICES DDP Warehouse Storage Seller Warehouse Labor Seller Export Packing Seller Loading Charges Seller Terminal Charges Seller Forwarder's Fees Seller Loading On Vessel Seller Ocean/Air Freight Seller Charges On Arrival At Destination Seller Duty, Taxes & Customs Clearance Seller Delivery To Destination Seller Inland Freight Seller 12 Terms of Trade Terms of Trade (Others) 13 LDP – Landed Duty Paid (named destination place) 14 Terms of Trade CM & CMT are industry terms instead of INCOTERMS CM – Cut , Made - The buyer supplies the main materials to the manufacturer but not including trims. CMT – Cut, Made, Trim – The buyer supplies all materials to the manufacturer including trims. CM & CMT 15 Terms of Trade Terms of Payment 16 Terms of Payment Documents Against Acceptance (D/A) Arrangement under documentary collection in which an exporter instructs the presenting bank to hand over shipping and title documents to the importer only if the importer accepts the accompanying bill of exchange or draft by signing it. 17 Documents Against Payment (D/P) Arrangement under documentary collection in which an exporter instructs the presenting bank to hand over shipping and title documents to the importer only if the importer fully pays the accompanying bill of exchange or draft. Also called cash against documents. 18 Terms of Payment Open Account Credit relationship in which the buyer pays upon the receipt of goods, or on deferred payment basis. Advance Payment The buyer pays before shipment. 19 Terms of Payment Also known as Documentary Credit or L/C, is a document issued by a bank on behalf of an applicant (the buyer) undertaking to make payment to a beneficiary (the seller) up to a stated amount of money, within a prescribed time limit and against stipulated documents. Letter of Credit (L/C) 20 Terms of Payment Terms of L/C And UCP 600 21 UCP600 Terms of L/C & UCP 600 22 23 Letters of Credit are governed by a set of rules from the International Chamber of Commerce. The document is called "Uniform Customs and Practice" and the latest version is document number 600. UCP600 23 Terms of L/C & UCP 600 24 The terms and conditions within a irrevocable L/C cannot be changed without the express agreement of the Beneficiary. Under UCP600, revocable L/Cs are no longer acceptable under any circumstances. Irrevocable L/C Terms of L/C & UCP 600 25 Confirmed L/C - Advising Bank may receive a request from the Issuing Bank or from the beneficiary to add confirmation to the LC. Confirmation of the LC constitutes a definite undertaking by the Bank (Advising Bank) to assume the obligations and liabilities similar to and in addition to those of the Issuing Bank thereby guaranteeing payment should the Issuing Bank default in payment. The Confirming Bank is usually the Advising Bank and will also assume the role of the Negotiating Bank. Unconfirmed L/C – no confirmation was added, payment provided by the L/C issuing bank. Confirmed / Unconfirmed Terms of L/C & UCP 600 26 Sight L/C (L/C at sight) - A letter of credit that is payable once it is presented along with the necessary documents. Deferred Payment L/C – also known as Usance L/C, that is paid a fixed number of days after shipment or presentation of prescribed documents. (L/C at ? Days sight) Sight L/C and Deferred Payment L/C 26 Terms of L/C & UCP 600 27 The standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiary. The parties involved with the transaction do not expect that the letter of credit will ever be drawn upon. The standby letter of credit assures the beneficiary of the performance of the customer's obligation. The beneficiary is able to draw under the credit by presenting a draft, copies of invoices, with evidence that the customer has not performed its obligation. The bank is obligated to make payment if the documents presented comply with the terms of the letter of credit. Standby L/C 27 Terms of L/C & UCP 600 28 A transferreble L/C can be transferred by the first beneficiary to one or more second beneficiary(ies). Fractions of a transferable L/C can be transferred separately, provided that the sum of the fractions does not exceed the amount of the credit and the partial shipment is permitted. The letter of credit (L/C) can be transferred only on the terms and conditions stipulated in the original L/C, except with the following which may be changed: * the L/C amount * the unit price of goods (if stated in the original L/C) * the time of shipment * the last date for presentation of negotiation documents * the expiry date of L/C Transferrable L/C 28 Terms of L/C & UCP 600 29 Arrangement in which one irrevocable L/C serves as the collateral for another; the advising bank of the first L/C becomes the issuing bank of the second L/C. In contrast to a 'transferable letter of credit,' permission of the ultimate buyer (the applicant or account party of the first L/C) or that of the issuing bank, is not required in a back- to-back L/C. It is used mainly by middlemen (intermediaries) to hide the identity of the actual supplier or manufacturer. Also called counter credit or reciprocal letter of credit. Back to Back L/C 29 Terms of L/C & UCP 600 L/C Opening 30 31 • A payment undertaking given by a bank (issuing bank) on behalf of a buyer (applicant) • To pay a seller (beneficiary) for a given amount of money on presentation of specified documents representing the supply of goods • Within specified time limits • Documents must conform to terms and conditions set out in the letter of credit • Documents to be presented at a specified place Elements of L/C 31 Terms of L/C & UCP 600 32 • Applicant’s details – Name, address, trade account number. • Beneficiary’s details – Name, address. • Beneficiary’s Bank details – L/C advising bank. • Goods covered by the L/C – Goods description, PO numbers, Qty., Unit price, Amount, Shipment date, etc. • The latest shipment date, meaning of the shipment date. • The latest date for presentation. • Expiry date. • The port (or point) of shipment and the port (or point) of destination. • The partial shipment/drawing is permitted or prohibited. • The transshipment is permitted or prohibited. • The L/C is transferable or non-transferable. • The type of risk and the amount of insurance coverage, if required. • The documents required. • Consignee on transportation documents. Details required for L/C opening 32 Lc.pdfAdobe Acrobat Document Terms of L/C & UCP 600 Banking and Shipping Cost 33 34 • Freight charge (e,g. HK to New York USD70.- / CBM, USD2.50 / KG) • CFS Charge (e.g. USD23.- / CBM) • Devanning Charge (DVAN) (e.g. USD0.88/CBM) • Bunker Adjustment Factor (BAF) (e.g. 5.2%) • Currency Adjustment Factor (CAF) (e.g. 6.3%) • Terminal Handling Charges (THC) (e.g. USD8.- / CBM) • Port Construction Fee (PCF (e.g. USD0.44 / CBM) • Port Security Charge (PSC) (e.g. USD0.11 / CBM) • Customs Declaration (e.g. USD22.- / job) • Documents Fee (DOCF) (e.g. USD20.- / set) • Customs Inspection (e.g. USD22.- / job) • Advance Manifest Submission (AMS Fee) (e.g. USD32.- / BL) • Trucking (e.g. USD16.- / CBM) Shipping Cost Banking and Shipping Cost 34 35 (charge rates are for reference only, details from the Committee of The Hong Kong Association of Banks) • Commission in Lieu of Exchange (CIE) – ¼% • L/C Opening Charge – ¼% per 6 months • L/C Advising Charge – HKD150.- • L/C Confirmation Charge – 1/16% per month • L/C Transfer – ¼% • Commission for Export Bills – ¼% • Document Handling – HKD200.- • Acceptances – 1/16% per month • Shipping Guarantees – HKD150.- (with additional ¼% if relative documents not received within 3 months) Banking Cost 35 Banking and Shipping Cost Q & A 36 Thank You 37