Imports/Exports Process

Trade Contracts
Purchase contracts
Sales contracts
Proforma Invoices
Indents

Terms of Trade
Sellers Obligations
Buyers Obligations
Incoterms2000
Departure -EXW
Main Carriage Unpaid - FCA, FAS, FOB
Main Carriage Paid - CFR, CIF, CPT, CIP
Arrival - DAF, DES, DEQ, DDU,DDP

Shipping Documents
Commercial Invoices
Bills of Lading
Insurance Policies
Certificates of Origin
Other

Methods of Payment
An Overview
Payment in Advance
Documentary Credits (L/C)
Documentary Collections
Documents against Payment (D/P)
Document against Acceptance (D/A)

Consignment Account
Open Account

Payment in Advance
Buyer Takes all the risks
Seller takes some risk only if
payment is to be made only
immediately prior to effecting
shipment
Small value transactions
Part payment for very large
transactions

Documentary Credits (L/Cs)

Conditional undertaking
Issued by a Bank
For payment at sight or at a future date
Against documents complying with all terms
and conditions
Seller has, instead of cash, a bank guarantee
(against which they may be able to borrow)
Buyers risk lower than in the case of payment
in advance, but needs to be on guard
against possible fraud by unscrupulous
beneficiaries

Documents against Payment (D/P)

Buyer has no payment risk, they have to
pay only when documents are
presented at their bank
Seller takes a risk in having to ship the
goods trusting the buyer to pay
when documents are presented
Seller may however, exercise constructive
control over the goods

Documents against Acceptance (D/A)

Buyer has no payment risk, they have to
pay only when documents are
presented at their bank
Seller takes a higher risk than in D/P
Seller takes all the risks by giving control
of the goods to the buyer on acceptance
of a bill of exchange, trusting them to
pay on the due date

Bill of Exchange
USD 100,000

16 July 2005

At 120 days date pay this Sola of exchange

to the order of Bank of Ceylon being value received
for 1000 metric tons of Black Tea shipped pe ss Blue Horizon
To Sri Lanka Imports
1, Clifford Place
Colombo 2

.
ABC Exports Ltd
Director

Consignment Account
An arrangement where the buyer after
they sell the goods pays the seller the
sales proceeds, less expenses, and
commission at a pre-agreed rate
any unsold goods disposed as per
sellers instructions
Buyer takes no risks
Seller take a higher risk than even D/A

Open Account
Seller ships the goods and forwards the
relevant shipping documents direct
to the buyer
Buyer makes payment as agreed with
the seller
Became popular when two parties were
carrying out two-way trade between
themselves
Seller takes all the risks
No risk to the buyer

Buyers Risk

RISK SHARING

Sellers Risk

High

Low
Payment in Advance
Documentary Credits (L/C)
Documentary Collections
Documents against payment (D/P)
Document against Acceptance (D/A)

Consignment Account
Open Account
Low

High

Documents against Payments (D/P)

The Process
1 Contract

Buyer
7 Clear

5 Advice

Seller

Goods
2 Ship

Money 6 Documents

Collecting Bank

9 Money

8 Money

3 Colln. Instns.
and Documents

Remitting Bank

4 Colln. Schedl.
and Documents

Documents against Acceptance (D/A)

The Process
1 Contract

Buyer
7 Clear
10 (at maturity)
Money
Acceptance 6

Seller

Goods
2 Ship

Documents

12 Money

5 Advice
and B/E

9 Advice of
acceptance
3 Colln. Instns.
and Documents

11 Money

Collecting Bank

8 Advice of
acceptance

Remitting Bank

4 Colln. Schedl.
and Documents

Documentary Credit The Process

1 Contract

(Buyer)
Applicant

(Seller)
Beneficiary

Goods
5 Ship

4 LC
2 Application

6 Documents + LC

Issuing
Bank

Advising
Bank
3 LC

Documentary Credit The Process

1 Contract

(Buyer)
Applicant

(Seller)
Beneficiary

Goods
11 Clear

5 Ship

Money 10 Documents

4 LC

7 Money

2 Application

6 Documents + LC

9 Money

Issuing
Bank

8 Documents

Negotiating
Bank

3 LC

Documentary Credits (L/Cs) The Different Types

Revocable and irrevocable
Unconfirmed and confirmed
Sight payment, Negotiation, Acceptance,
Deferred Payment
Red clause and Green clause
Revolving
Against value
- Against time

Transferable

Transferable Credit The Process

Goods

(Buyer)
Applicant

1 Contract

7 Ship

Second
Beneficiary
(Supplier)

First
Beneficiary

1a Contract
4 LC
9 Drafts &
Invoices
2 Application

6 LC Transfer

5 Transfer Request + LC
8 Documents

Issuing
Bank

Advising
Bank
3 LC

Transferable Credit The Process

Goods

14 Clear

(Buyer)
Applicant

1 Contract

7 Ship

Second
Beneficiary
(Supplier)

First
Beneficiary

1a Contract
4 LC
Money 13 Documents

10 Money

2 Application

9 Drafts &
Invoices

6 LC Transfer

5 Transfer Request + LC
8 Documents

12 Money

Issuing
Bank

11 Documents
3 LC

Negotiating
Bank
10 Money

10

Back-to- Back Credit The Process

Applicant
LC1

1 Contract

Beneficiary
LC1

Supplier
1a Contract

4
LC1

2 Application

Issuing
Bank LC1

Advising
Bank LC1
3 LC1

Back-to- Back Credit The Process

Goods

Applicant
LC1

1 Contract

7 Ship

Beneficiary
LC1
Applicant LC2

Beneficiary
LC2
(Supplier)
1a Contract

4 LC
9 Drafts &
Invoices
2 Application

6 LC2 Advice

5 Application LC2
8 Documents
& L?C2

Adv.Bank LC1
Issuing
Bank LC2

Issuing
Bank LC1
3 LC

11

Back to Back Credit The Process

Goods

14 Clear

Applicant
LC1

1 Contract

7 Ship

Beneficiary
LC1
Applicant LC2

Beneficiary
LC2
(Supplier)
1a Contract

4 LC
Money 13 Documents

10 Money

2 Application

9 Drafts &
Invoices

6 LC2 Advice

5 Application LC2
8 Documents
& LC2

12 Money

Issuing
Bank LC1

11 Documents
3 LC

Negotiating
Bank LC2
10 Money

When Documents are Discrepant

Options Available to the Exporter
Cure the discrepancies
Telex approval to negotiate
Amendment to Doc. Credit
Negotiation under Letter of Indemnity
Negotiation under Reserve
Present documents for payment to
Issuing Bank

12