PAYMENT TERMSPAYMENT TERMS

• ADVANCE PAYMENTS

• OPEN ACCOUNT TRADE

• DOCUMENTARY COLLECTIONS

• DOCUMENTARY LETTERS OF CREDIT

EXPORT TRADE PARTIESEXPORT TRADE PARTIESOFFSHORE

SOUTH AFRICA

FOREIGNIMPORTER

SOUTHAFRICAN

EXPORTER

LOCAL BANK

ECREIVES PAYMENT

RECEIVES PAYMENT FACILITATES PAYMENT

FACILITATES PAYMENT

PAYMENT

FOREIGN BANK

COMMERCIAL RISK

ADVANCE PAYMENTSADVANCE PAYMENTS • SELLER HAS BOTH GOODS AND MONEY

• ABSOLUTE TRUST BY BUYER THAT SELLER WILL DELIVER THE CORRECT GOODS

• EXCHANGE CONTROL IN BUYER’S COUNTRY MUST PERMIT ADVANCE PAYMENTS - MANY DON’T

• BUYER MUST BE FINANCIALLY SOUND

• COUNTRY RISK OF BUYER’S COUNTRY

• BUYER CAN OBTAIN CASH DISCOUNTS

OPEN ACCOUNT TRADEOPEN ACCOUNT TRADE

• BUYER HAS BOTH GOODS AND MONEY

• ABSOLUTE TRUST BY SELLER THAT BUYER CAN AND WILL PAY AT THE AGREED TIME

• BUYER’S COUNTRY WILL NOT IMPOSE REGULATIONS DEFERRING OR BLOCKING TRANSFER OF FUNDS

• BUYER MUST BE FINANCIALLY SOUND

• COUNTRY RISK OF BUYER’S COUNTRY

• SELLER HAS SUFFICIENT LIQUIDITY

DOCUMENTARY COLLECTIONDOCUMENTARY COLLECTION DEFINITION DEFINITION

A DOCUMENTARY COLLECTION IS THE COLLECTION, THROUGH A BANK, OF A SUM

OWNED BY A BUYER, AGAINST DELIVERY OF DOCUMENTS

PARTIES TO A DOCUMENTARY COLLECTIONPARTIES TO A DOCUMENTARY COLLECTION

CONTRACTOFSALE

DRAWER(EXPORTER)

DRAWEE(IMPORTER)

REMITTING BANK(SUPPLIER’S BANK)

COLLECTING BANK

DOCUMENTARY COLLECTIONSDOCUMENTARY COLLECTIONS METHOD OF OPERATIONMETHOD OF OPERATION

• TWO BASIC FORMS

- DOCUMENTS AGAINST ACCEPTANCE (D/A)

- DOCUMENTS AGAINST PAYMENT (D/P)

• EXPORTER HANDS ALL DOCUMENTS TO THE BANK

• BANK ACTS AS INTERMEDIARY BETWEEN EXPORTER AND IMPORTER

• BANKS CONTROL THE RELEASE OF DOCUMENTS AS PER INSTRUCTIONS FROM THE EXPORTER

• THE BANK DOES NOT ASSUME ANY RESPONSIBILITY IF THE IMPORTER IS UNWILLING OR UNABLE TO MEET HIS PAYMENT OBLIGATIONS

DOCUMENTARY COLLECTIONSDOCUMENTARY COLLECTIONSADVANTAGESADVANTAGES

• SIMPLE AND INEXPENSIVE HANDLING

• OFTEN QUICKER PAYMENT COMPARED TO OPEN ACCOUNT

• TITLE TO THE GOODS CONTROLLED VIA A BANK,

DOCUMENTARY COLLECTIONSDOCUMENTARY COLLECTIONSREASONS FOR BILLS BEING DISHONOUREDREASONS FOR BILLS BEING DISHONOURED

• DRAWEE IN PRISON FOR MURDER

• DRAWEE HAS GONE TO THE RACES, HOPES TO PAY TOMORROW

• WILL PAY WHEN SEEDS GERMINATE

• DRAWEE HAS BEEN DECLARED BANKRUPT AND THE LIQUIDATOR HAS BEEN PUT IN PRISON FOR HOMICIDE

DEFINITION OF ADEFINITION OF ALETTER OF CREDITLETTER OF CREDIT

A DOCUMENTARY CREDIT REPRESENTS A COMMITMENT OF A BANK TO PAY THE

SELLER OF GOODS OR SERVICES A CERTAIN AMOUNT PROVIDED HE

CONFORMS WITH THE SPECIFIED TERMS AND CONDITIONS WITHIN A PRESCRIBED

PERIOD OF TIME

PARTIES TO A DOCUMENTARY CREDITPARTIES TO A DOCUMENTARY CREDIT

CONTRACTOFSALE

APPLICANT

BENEFICIARY

ISSUING BANK

ADVISING BANK

CONFIRMING BANK

DOCUMENTARY CREDITSDOCUMENTARY CREDITSBASIC FORMSBASIC FORMS

• REVOCABLE CREDITS

• IRREVOCABLE, UNCONFIRMED CREDITS

• IRREVOCABLE, CONFIRMED CREDITS

DOCUMENTARY CREDITSDOCUMENTARY CREDITSREVOCABLEREVOCABLE

• CAN BE AMENDED OR CANCELLED WITHOUT BENEFICIARY’S CONSENT

• MAY NOT BE REVOKED IF PAYMENT HAS BEEN MADE OR IF DOCUMENTS HAVE BEEN TAKEN UP

• IF NOT CLEARLY MARKED REVOCABLE, IT IS DEEMED TO BE IRREVOCABLE

DOCUMENTARY CREDITSDOCUMENTARY CREDITSIRREVOCABLE, CONFIRMEDIRREVOCABLE, CONFIRMED

• IF THE CONFIRMING BANK IS A FIRST RATE BANK IN BENEFICIARY’S COUNTRY, THEN NO SOVEREIGN RISK

• BENEFICIARY MAY RELY SOLELY ON THE BANK WHICH HAS ADDED ITS CONFIRMATION

• BENEFICIARY CAN DEAL WITH A BANK IN ITS OWN COUNTRY

• AVAILABLE WITH CONFIRMING BANK

• PROCEEDS CAN BE DISCOUNTED

DOCUMENTARY CREDITSDOCUMENTARY CREDITSTYPES ACCORDING TO PAYMENT METHODSTYPES ACCORDING TO PAYMENT METHODS

• SIGHT CREDIT

• ACCEPTANCE CREDIT

• DEFERRED PAYMENT CREDIT

• NEGOTIATION CREDIT

• ADVANCE PAYMENT CREDIT

• REVOLVING CREDIT

DOCUMENTARY CREDITSDOCUMENTARY CREDITSTYPES ACCORDING TO PAYMENT METHODSTYPES ACCORDING TO PAYMENT METHODS

• SIGHT CREDIT - PROCEEDS PAID UPON PRESENTATION AND

EXAMINATION OF DOCUMENTS

- UCP ALLOWS BANKS 7 DAYS TO EXAMINE

- SIGHT CAN MEAN FEW DAYS DEFERRED PAYMENT

• ACCEPTANCE CREDIT - USANCE DRAFT DRAWN ON ISSUING OR ON

NOMINATED BANK ( 90 DAYS FROM SHIPMENT )

- ACCEPTED DRAFTS CAN BE DISCOUNTED

- BEWARE OF ACCEPTANCE CHARGES

DOCUMENTARY CREDITSDOCUMENTARY CREDITSTYPES ACCORDING TO PAYMENT METHODSTYPES ACCORDING TO PAYMENT METHODS

• DEFERRED PAYMENT CREDIT - NO ACCEPTANCE OF DRAFTS

- PAYABLE AT A DETERMINABLE FUTURE DATE

- PROCEEDS CAN ONLY BE DISCOUNTED WITH THE

ISSUING OR NOMINATED BANK

- FINANCING INSTRUMENT FOR THE BUYER

• NEGOTIATION CREDIT - SIGHT/USANCE WITH THE ISSUING BANK

- USUALLY DELAYS IN PAYMENT

DOCUMENTARY CREDITSDOCUMENTARY CREDITSBEFORE THE CREDIT IS ISSUEDBEFORE THE CREDIT IS ISSUED

• DECIDE ON THE FORM OF THE CREDIT DURING SALES NEGOTIATION

• THE SELLER OBTAINS THE BEST GUARANTEE OF PAYMENT WHEN THE CREDIT IS CONFIRMED BY A BANK IN HIS OWN COUNTRY

DOCUMENTARY CREDITSDOCUMENTARY CREDITSSSALES CONTRACT ?ALES CONTRACT ?

•AMOUNT AND CURRENCY

•TOLERANCE IN AMOUNT AND QUANTITY

•PLACE OF AVAILABILITY

•CONFIRMATION REQUIRED ? BY WHOM ?

•MUST THE CREDIT BE TRANSFERABLE ?

•EXPIRY DATE, LATEST SHIPMENT DATE, PERIOD FOR

PRESENTATION OF DOCUMENTS

•PAYMENT TERMS (SIGHT OR USANCE)

•PARTIAL/ TRANSHIPMENTS ALLOWED ?

•DELIVERY TERMS (INCITERMS)

•PORT OF SHIPMENT AND DISCHARGE

•WHICH CREDIT COSTS ARE TO BE BORNE BY WHOM

•THE NOMINATED BANK FOR NEGOTIATION AND/OR CONFIRMATION

HOW TO HANDLE DISCREPANTHOW TO HANDLE DISCREPANT DOCUMENTS DOCUMENTS

• RETURN DOCUMENTS TO BENEFICIARY FOR CORRECTION - REPRESENTATION MUST BE WITHIN PRESENTATION

PERIOD ALLOWED UNDER CREDIT

- SOME DISCREPANCIES CANNOT BE CORRECTED

• TELEX TO ISSUING BANK FOR AUTHORITY TO PAY

• SEND DOCUMENTS ON COLLECTION

• RETURN DOCUMENTS TO EXPORTER WITHOUT PAYMENT

• PAY WITH RECOURSE TO THE BENEFICIARY

TRANSPORT DOCUMENTS TRANSPORT DOCUMENTS • AIR WAYBILL

• PARCEL POST RECEIPT

• COMBINED TRANSPORT BILL OF LADING

• RAIL CONSIGNMENT NOTE

• ROAD WAYBILL

• BILL OF LADING

• HOUSE BILL OF LADING

COMMERCIAL DOCUMENTS COMMERCIAL DOCUMENTS • PROFORMA/COMMERCIAL INVOICE

• CERTIFIED INVOICE

• WEIGHT NOTE

• PACKING LIST

• SPECIFICATION

• INSPECTION CERTIFICATE

• ANALYSIS CERTIFICATE

COMMON DISCRPEPANCIESCOMMON DISCRPEPANCIES

•CREDIT EXPIRED

• LATE SHIPMENT

• LATE PRESENTATION

• DESCRIPTION OF GOODS ON INVOICE DIFFER FROM THE CREDIT

• DOCUMENTS NOT ENDORSED CORRECTLY

• INSURANCE DOCUMENTS INCORRECT

• ABSENCE OF SIGNATURES, ESPECIALLY TO AMENDMENTS ON

DOCUMENTS

• SHORT SHIPMENT

• MARKS AND NUMBERS DIFFER BETWEEN DOCUMENTS

• CARRIER/AGENT/MASTER

• PORT OF LOADING AND DESTINATION

• COMMERCIAL INVOICE (TAX)

• CLEAN ON BOARD NOTATION