Methods of Payment Risk Assessment Positive Cash in
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+ Methods of Payment Risk Assessment Positive Cash in Advance Letters of Credit Vendor Financing • Standby • Commercial (Acceptances) • Insurance • Ex-Im Bank • CEFO • Confirmed • Transferable • Back-to-Back • Assignment of Proceeds Foreign Receivables Exporter (Seller) (Beneficiary) Foreign Exchange Neutral Zone Open Account - - Negative ent pm Shi Importer (Buyer) (Applicant) Documentary Collection + Positive
Letter of Credit Terms Involved Parties: Term Definition Activity Applicant Importer Buy Beneficiary Exporter Sell Opening Bank Importer’s Bank Issues L/C Advising Bank Exporter’s Bank Advises L/C Confirming Bank Advising Bank or 3 rd Party Bank Any bank as specified in L/C Confirms L/C Paying Bank Pays the Draft
Letter of Credit Terms Activities & Terms • • • Advice Amendment Confirmed Discrepancy Documentation Draft – – Sight Draft – Time Draft • • Irrevocable Issuance Negotiation Revocable
Types of Letters of Credit • • Back-to-Back Confirmed Straight Negotiation Sight Standby Transferable Usance
Export Letter of Credit Cycle 5. Product is Shipped 1. Beneficiary Exporter/Seller 4. 6. Documents 1. Buyer & Seller Agree 2. Application Letter of Credit 8. Documents 10. 3. Letter of Credit 7. Documents Exporter’s Bank/ Advising Bank 9. Importer’s Bank/ Issuing Bank Applicant Importer/Buyer 2.
Documentary Collection Terms • • • Buyer Seller Remitting Bank Collecting Bank Bill of Exchange/Draft Time/Usance Bill of Exchange
Documentary Collection 2. Product is Shipped 1. Exporter/Seller 1. 5. 3. 5. Importer/Buyer & Seller Agree 6. Documents & Draft Documents 4. Documents & Draft Exporter’s Bank/ Remitting Bank 5. Importer’s Bank/ Collecting Bank