UNIT 3 Method & terms of payments in Export Credit & Risk Quality control and preshipment Inspection Export

Initiatives

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Methods of Payment

Cash-in-Advance With this payment method, the exporter can avoid credit risk Since payment is received prior to the transfer of ownership of the goods. There are three types of cash- in advancepayment method:
1. 2.

wire transfer, credit card, and

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Methods of Payment

Letters of Credit Letters of credit (LCs) are among the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter provided that the terms and conditions have been met, as verified through the presentation of all required documents. The buyer pays its bank to render this service.

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Methods of Payment

Documentary Collections A documentary collection is a transaction whereby the exporter entrusts the collection of a payment to the remitting bank (exporters bank), which sends documents to a collecting bank (importers bank), along with instructions for payment. Funds are received from the importer and 4/8/12 remitted to the exporter through the banks

Methods of Payment

Open Account An open account transaction means that the goods are shipped and delivered before payment is due, usually in 30 to 90 days. Obviously, this is the most advantageous option to the importer in cash flow and cost terms, but it is consequently the highest risk option for an exporter. Due to the intense competition for export markets, foreign buyers often press exporters 4/8/12

RISKS IN INTERNATIONAL TRADE

Language / communication Currency Banking regulations Credit terms and risks Transportation / Packaging Insurance Shipping War Regulations and laws vary by country
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COMMERCIAL RISKS
Any event that prevents the buyer from paying or prevents the seller from delivering the product or service

o o o o o o

Bankruptcy or insolvency by the buyer Protracted default Problems with payment arrangements Problems with the merchandise Contract disputes Additional costs for financing, insurance, and shipping

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INTERNATIONAL COUNTRY/POLITICAL RISKS

Any event or unforeseen factor not necessarily within control of the buyer and/or exporter caused by cross border issues
o o o o

Government or political intervention Problems with currency exchange Problems with the movement of merchandise Acts of God

Political risks vary by country/region and are a concern only in international sales. 4/8/12

COSTS
o

Various costs must be factored into the sales quote which can affect export & import-

Shipping/Freight Costs Cargo insurance Duties & customs clearance Payment Methods costs associated with processing & securing payment Foreign exchange risk hedging Financing Costs Insurance to cover commercial and political risks

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RISK COMPARISON TRADE TERMS MPARISON METHODS TERMS INTERNATIONAL TRADE OF

Exporter Risk
Open Account Documentary Collection(Time) Documentary Collection (Sight) Letters of Credit (Time) Letters of Credit (Sight) Payment in Advance

PAYMENT

Importer Risk

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