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Payment methods from least secure to most secure for the exporter

Open account => bills for collection => documentary letter of credit => advance payment (Open account: Exporter ships goods, waits for fixed date, requires trust. Bills for collection: Negotiable instrument drawn and presented to drawee bank. Documentary LC: Issued by bank, replaces buyer to pay. Advance payment: Pay whole/part prior to shipment)

Why are there 4 modes of payments in international trade?

Because international trade poses risks for both importers and exporters. While exporters fear that they might not receive the payment, importers worry they are not able to receive shipment after paying. Hence, a number of modes of payments are designed to reduce the risk.

What are the ACTIVE roles of banks in common payment methods?

Involve in the payment process, supporting both export and import activities, especially in L/C: Check the accuracy and legitimacy of documents, and Guarantee payments.

What are the PASSIVE roles of banks in common payment methods?

Transfer documents and funds with no guarantee. (Documentary collection: Transfer documents and collect funds. Open account: Process payment after goods received. Advance payment: Transfer funds before shipment).

What are the risks faced by exporters in OPEN ACCOUNT?

No guarantee that they will be paid, and they lose control of the goods.

What are the risks faced by exporters in DOCUMENTARY COLLECTION?

Importer may fail to accept the bill of exchange, or may dishonour the bill of exchange at maturity. Exporter may have to ship the goods back home.

What are the risks faced by exporters in LETTER OF CREDIT (L/C)?

Few risks, but failure to present compliant documents to the bank will result in the exporter losing the protection of the credit.

What are the risks faced by exporters in ADVANCE PAYMENT?

No risk associated with non payment. The exporter receives the payment in full or part of the whole value before the goods are dispatched.

What is the difference between documents against payment (D/P) and document against acceptance (D/A)?

Documents against payments (D/P): Importers can only receive documents after paying the sight draft; exporter retains ownership until payment. Documents against acceptance (D/A): Importers receive documents after accepting the time draft; exporter loses control of goods after acceptance.

How does a documentary collection differ from a letter of credit (L/C)?

Documentary collection: Bank acts as an intermediary, does not verify documents, guarantee payments or take risks (just controls document flow). L/C: Provide assurances for both sides; bank verifies accuracy/legitimacy of documents and guarantees payments.

Why would an exporter ask for a confirmed letter of credit?

The confirmed letter of credit transfers the risk from the ISSUING BANK to the CONFIRMING BANK, giving the exporter MAXIMUM assurance of payments. If the ISSUING BANK collapses, the CONFIRMING BANK has to pay.

When do people use OPEN ACCOUNT and ADVANCE PAYMENT?

Open account: When 2 sides have established a long trading relationship. Advance payment: When 2 sides are unfamiliar.

When do people use L/C and DOCUMENTARY COLLECTION?

L/C: Importer's credit rating is uncertain (exporter needs L/C to obtain financing). Documentary collection: Ongoing business relation, and importer is situated in a politically and economically stable market.

Distinguish need, want and demand in Marketing

Needs: Basic human requirements. Wants: Needs directed to specific things which might satisfy the needs. Demand: Wants for specific products backed by the ability to pay.

What are the 8 types of digital marketing?

Email marketing, Social media marketing, SEO (Search engine optimization), SEM (Search engine marketing), Affiliate marketing, Viral marketing, Content marketing, and Pay per click advertising.

Difference between the selling concept and marketing concept

Selling concept: Focus more about promoting existing products rather than new products; approach to sell the products (have products first then sell). Marketing concept: Focus more about knowing customer's wants/needs and produce products based on them; approach to find wants and fulfill wants.

What are the roles of advertising in the 4 stages of a product lifecycle?

Introduction stage: Create awareness. Growth stage: Building the brand. Maturity stage: Differentiate the product. Decline stage: No advertising.

What should companies do to lengthen the product lifecycle?

Find new customers by innovating product; Find new market/extend market; Change packaging; Change ways of advertising; Add more functions.

What is the definition of logistics?

It is the process of planning, implementing and controlling the flow and storage of goods, which aims at ensuring that the right product will be in the right place at the right time in the most cost efficient way based on customer's needs.

What are the 6 RIGHTS of Logistics? (Paragraph format)

The 6 RIGHTS of Logistics include delivering the right goods at the right quantity and in the right condition, while ensuring they are delivered at the right place, at the right time, and for the right cost.

What are the 4 main elements in the logistics cycle?

1. Serving Customers. 2. Product Selection. 3. Quantification & Procurement. 4. Inventory Management, Storage & Distribution. (All monitored by LMIS and Quality Monitoring).

What are the 4 core characteristics of insurance?

1. Pooling of losses (spreading losses, predicting by law of large numbers). 2. Payments of fortuitous loss (unforeseen/unexpected losses). 3. Risk transfer (transferred to insurer). 4. Indemnification (restored to approximate financial position prior to loss).

Why is marine insurance required in international trade?

Exporters/importers face uncertainties of loss of goods. Insurance protects financial interests against risks/actual losses. Without it, trade is negatively affected. Also, liability of carrier is very limited.

What risks are excluded from an insurance policy?

Willful misconduct of the insured, Delay, Ordinary leakage and breakage, Wear and Tear, and Inherent vice.

What claim documents are required for an insurance loss?

Original policy and certificate, Invoices and packing specification, Origin bills of lading/transport documents, Survey report/evidence of damage, Landing account/weight notes, and Correspondence of carrier/other parties.

Explain the Principle of Indemnity and Principle of Insurable Interest

Principle of indemnity: Insurer pays no more than actual loss (prevents profiting, reduces moral hazard). Principle of insurable interest: Insured must lose financially if a loss occurs (prevents gambling, measures loss).

Explain the Principle of Subrogation and Principle of Utmost Good Faith

Principle of subrogation: Insurer substitutes insured to claim indemnity from third party (prevents collecting twice, holds negligent person responsible). Principle of utmost good faith: Higher degree of honesty imposed on both parties.