UNIT 6 - PAYMENT IN INTERNATIONAL TRADE

international payment

the transmission of some commonly accepted liquid asset in exchange for g&s, or non-liquid assets across natioanl borders

open account

the exporter ships the goods to the buyers and just wait till a fixed dates agreed in their contract for payment from the buyer

documentary letter of credit

a document issued by a bank, whereby the bank replaces the importer as the paying party. The exporter is basing his risk of being paid on the bank rather than on the importer. The bank will have to be reimbursed by the importer

letter of credit (documentary credit)

method of financing overseas trade where payment is made by a bank in return for delivery of commercial documents, provided that the terms and conditions of the contract are met

revoccable letter of credit

a letter of credit that maybe cancelled at any time without prior notice to the beneficiary

irrevocable letter of credit

a letter of credit that cannot be cancelled or amended without agreements of both parties

deferred payment letter of credit

a letter of credit under which the documents are forwarded to the importer’s bank, while sight draft is presented at a later future date

red clause letter of credit

a letter of credit permitting the beneficiary to receive a sum prior to shipment

transferable letter of credit

a letter of credit that can be utilized by someone designated by the original beneficiary

revolving letter of credit

a letter of credit calling for renewed credit to be made available when the issuing bank informs the beneficiary that the buyer has reimbursed the issuing bank for the draft already drawn

back to back letter of credit

two letters of credit with identical documentary requirements, except for the difference in the price as shown by the invoice and draft

standby letter of credit

a letter of credit that can be drawn against, but only if another business transaction is not performed

advised letter of credit

a letter of credit issued by a bank and forwarded to the beneficiary by a second bank in his area. The second bank validates the signatures and attests to the legitimacy of the first bank

confirmed letter of credit

a letter of credit issued by one bank to which a second bank adds its commitment to pay

usance draft (time draft)

a draft that has been drawn to the payable after a specific number of days

banker’s acceptance

an usance draft drawn on a bank that stamp ACCEPTED across the face, thereby making it a prime obligation of that bank to pay. It is used to finance specified short-term, self-liquidating transaction, including foreign trade

bills for collection

a negotiate instrument, drawn by a company or individual, that is presented to be the drawee bank for payment

clean collection

a negotiate instrument presented for collection with no commercial document attached

documentary collection

a collection item with title documents that accompany the draft. The documents are released to the drawee, upon payment of the draft

advance payment

the payment method that the buyer agrees to make payment of whole grand values or partial values to the seller before the seller sends the cargo

invoice

list of goods sold as a request for payment

clean collection 

payment by bill of exchange to which documents are not attached

bill of exchange

signed document that orders a person or organization to pay a fixed sum of money on demand or on a specific date

bill of lading

document that shows details of goods being transported; it entitles the receiver to collect the goods on arrival

document of title

document allowing someone to claim ownership of goods

issuing bank (the importer’s bank)

bank that issues a letter of credit

collecting bank (the exporter’s bank)

bank that receives payment of bills,… for their customer’s account

confirming bank

bank that confirms they will pay the exporter on evidence of shipment of goods