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1、SEIB OF GDUFS,Chapter Seven,International Payments,SEIB OF GDUFS,2,Learning objectives,After learning this chapter you will be able to: identify the key issues in handling international payments understand the use of paying instruments, especially the bill of exchange2 define the three basic terms o
2、f payment compare and contrast the characteristics of terms of payment identify the major parties involved in different payment methods state the stages involved in using a letter of credit explain the variations of documentary credit establish a basic understanding of export financing,SEIB OF GDUFS
3、,3,7.1 Issues In Concern,Who will bear the credit risk? In what currency the payment would be made? What are the costs of each method of payment? What might be the political or legal risks?,SEIB OF GDUFS,4,Determinant Factors of Payment,Nature of merchandise Industry norms/practices Distance between
4、 buyer and seller Potential currency fluctuation Political Exporter drawing a B/E on importer; Exporter submitting all documents with complete instructions for collection to a local bank (remitting bank) and instructing the bank to effect collection for him; Remitting bank forwarding B/E with other
5、documents to its correspondent bank (collecting bank) in the importers country passing on exactly the instructions received from exporter Collecting bank/presenting bank presenting bill and documents to importer; Collecting bank/presenting bank releasing documents to the importer upon receipt of pay
6、ments or acceptance from importer; Collecting bank remitting payments to remitting bank; Remitting bank crediting payment to principal (exporter)s account.,SEIB OF GDUFS,26,Procedure of Documentary Collection and Parties Involved,SEIB OF GDUFS,27,Types of Collection,Documentary Collection Documents
7、against Payment (D/P) 付款交单 the collecting bank releases the documents to the importer only upon full and immediate cash payment. Documents against Acceptance (D/A) 承兑交单 If a period of credit to the importer is agreed upon, a usance bill will be used The documents will be released against acceptance
8、by the importer. Clean Collection 光票托收 without the company of commercial documents,SEIB OF GDUFS,28,7.3.3 Letter of Credit,Definition The written promise of a bank, undertaken on behalf of a buyer, to pay a seller the amount specified in the credit provided the seller complies with the terms and con
9、ditions set forth in the credit Features Bank credit Security of payment to exporter Ensure importer receive goods as ordered (payment released only if title documents are received) Care only for documents, not for actual transaction of the goods,SEIB OF GDUFS,29,Content of L/C (See Specimen7.9),Nam
10、e transferee the second beneficiary A credit must state clearly that it is “transferable” A transferable L/C can be transferred once only, namely, from first beneficiary to second beneficiary(ies). Where there are several second beneficiaries involved, the credit must permit partial shipments. Non-t
11、ransferable credit 不可转让信用证 An L/C under which the beneficiary is not entitled to transfer his rights, in whole or in part, to another party.,SEIB OF GDUFS,42,Types of Letter of Credit,6. Revolving Credit 可循环信用证 A revolving credit obliges the issuing bank to restore the credit to the original amount
12、after it has been utilized, without the need for amendment. Used especially for ongoing transactions.,SEIB OF GDUFS,43,Types of Letter of Credit,7. Reciprocal Credit 对开信用证 A reciprocal credit is a counter credit under which the applicant of a first credit becomes the beneficiary of the second recipr
13、ocal credit, while the beneficiary of the first credit becomes the applicant of the second reciprocal credit. It is often used in barter transactions, trade of processing incoming materials, counter trade or compensation trade.,SEIB OF GDUFS,44,Types of Letter of Credit,8. Back to Back Credit 背对背信用证
14、 Credit payment arrangement in which a documentary credit is used as the “backup” for issuing a new credit Mainly used by middlepersons The first credit must be irrevocable and non-transferable,SEIB OF GDUFS,45,Types of Letter of Credit,9. Red Clause/Anticipatory Credit 红条款/预支信用证 An anticipatory cre
15、dit authorizes the advising bank to make advances to the beneficiary before his presentation of documents required. The applicant is bearing the liability of repayment in case of the beneficiarys failure of presenting documents for settlement.,SEIB OF GDUFS,46,Types of Letter of Credit,10. Standby C
16、redit 备用信用证 A standby credit is a clean credit that guarantees the payment for a possible unfulfilled obligation on the part of the applicant. It is similar to a Letter of Guarantee.,SEIB OF GDUFS,47,Letter of Credit,Characteristics Its content should comply with the sales contract, but once opened
17、the credit will exist independent from the contract. It provides a high level of protection and security to both buyers and sellers engaged in international trade. The seller is assured that payment will be made by a party independent of the buyer so long as the terms and conditions of the credit ar
18、e met. The buyer is assured that payment will be released to the seller only after the bank has received the title documents called for in the credit. Banks only deal with documents, not involved in any detail of the actual transaction.,SEIB OF GDUFS,48,Letter of Credit,Governed by Uniform Customs a
19、nd Practice for Documentary Credits 600 (UCP600),SEIB OF GDUFS,49,7.7 Letter of Guarantee (L/G),Definition Letter of Guarantee is an irrevocable undertaking by which the issuer holds itself financially liable for the consequences of non-performance of the obligations by a third party towards the ben
20、eficiary.,SEIB OF GDUFS,50,Both seller and buyer can be the beneficiary of an L/G Two kinds of L/G: credit L/G and payment L/G Widely used in trade of commodity and service Essential requirements of an L/G: Irrevocable Unconditional Fully transferable Abstract (the guarantee must not be dependant on
21、 performance of the underlying supply contract Divisible (each individual repayment amount and date must be specified),7.7 Letter of Guarantee (L/G),SEIB OF GDUFS,51,7.8 Export Financing,Two cash-in-need periods for exporters Preshipment and postshipment Factors to consider while using export financ
22、ing: The need for financing The length of time of financing The cost of the different financing methods The risks associated with the transaction for financing The occasion of financing,SEIB OF GDUFS,52,7.8.1 L/C Related Financing,Packing Loan 打包贷款 A preshipment short-term financing provided by the
23、local bank to enable the exporter to prepare the goods for shipment The L/C received by the exporter is used as the only collateral of the loan. Negotiation under Documentary Credit 议付贷款 Postshipment financing based on a received documentary credit. Similar practice as settlement by negotiation Used
24、 when settlement by negotiation is not applicable.,SEIB OF GDUFS,53,7.8.2 Factoring 保理,A complete financial package that combines investigating the creditworthiness of buyers, assuming credit risk and giving protection against write-offs, collection and management of receivables and provision of fin
25、ance through immediate cash advances against outstanding receivables.,SEIB OF GDUFS,54,7.8.2 Parties in Factoring,Exporter the client of a factoring transaction Export factor normally an FCI member, purchasing the exporters receivables, responsible for collecting payments and taking credit risk Impo
26、rt factor also an FCI member, export factors correspondent factor, responsible for investigating the importer and handling local issues Importer target of investigation and payment collection,SEIB OF GDUFS,55,7.8.3 Forfeiting 福费庭,A payment arrangement in which the exporter after pledging acceptable
27、notes or bills, forfeits his rights to future payment and the funder by accepting the notes or bills forfeits his rights to recourse to the exporter in the event of non-payment from the guarantor of the notes or bills,SEIB OF GDUFS,56,7.8.2 Parties in Forfeiting,Forfeiter a bank or financial institu
28、tion in the exporters country, purchasing the credit instruments from the exporter Export factor by presenting a guaranteed usance instrument from the importer, receiving payment from the forfeiter Importer original drawee on the debt instrument issued by the exporter, enjoying a long tenor from the transaction of forfeiting Guarantor preferably an internationally recognized bank, whose reputation and solvency greatly influence the granting decision of the forfeiter,