Professional Documents
Culture Documents
CHAPTER 2
1. What is payment by open account ? What are the risks for the
exporter if he accepts payment by open account ?
Open account means the exporter ships the goods to the
buyer and just waits till a forced date as agreed in their
contract for payment from the the buyer. Normally, the
exporter only accepts open account method of payment if he
has known the buyer quite well and they have established a
long-term and trustworthy business relationship.
2. What is Export credit insurance?
Export credit insurance is a guarantee of payment for the
exporter from a third party, an insurance company, which
issues an export credit insurance policy covering the risk of
non-payment. The exporter has to pay the costs for that
guarantee. The insurance company will pay the exporter in
case the buyer fails to do so.
3. What is a bank guarantee ?
- Both of them are guarantee of payment from a third party, providing the
exporter with some level of security in terms of payment.
- For ECI, the exporter has to pay for that guarantee while it is the buyer who
pays for a BG. The third party offering export credit insurance is the
insurance company while the bank offers a BG.
- There is always a long wiat between the time when the buyer fails to pay
and the time when the insuarance company compensates the exporter, says
six months typically.
- When compensates is paid, it is unlikely to cover 100% of the original
invoice price.
So with ECI, te export is ownerd against the worst.
13.
Explain the two principles that make letters of credit safe for
both exporter and buyer: Autonomy and Strict compliance.
Autonomy means that the L/C is a contract in its own right,
entirely separate from the contract for the safe of goods.
Strict compliance means that the exporter must present to the
bank shipping documents that comply in all respects with the
terms of the credit. Small deviations will result in refusal by the
bank to pay.
14.