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Trade Management
 Module 11.
 Main Topics:
 Payment and Delivery Terms on Domestic and
Foreign Trade ( see handout)
 Payment Tools
 Documents used in Foreign Trade Transactions
Trade Management
 Fours Types Payment tools
 D/P Documents against payment
 The export documents and the bill of exchange provided to a
collecting bank are only made available to an importer when
payment is made. The collecting bank then transfers the funds to
the seller
 D/A Documents against acceptance
 The export documents and a time/usance bill of exchange are
sent to a remitting bank. The documents are then sent to a
collecting bank with instructions to releases the documents
against a buyer’s acceptance of the bill of exchange
Trade Management
 Fours Types Payment tools (cont)
 Clean Collection
 The exporter creates a bill of exchange, which is sent without any
export documents to a buyer for collection through the remitting
bank to the collecting bank. There is less security for an exporter
since the documents are sent directly to the importer
 Cash against Documents
 This process lacks the security and legal protection of a
documentary collection since the export documents are sent
through a remitting bank to a collection bank without a bill of
exchange. It is however still a collection through the banking
system
Trade Management
 Bill Of Exchange
 A bill of exchange is an unconditional order in writing,
addressed by one person to another, signed by the
person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to or
to the order of a specified person, or to bearer.
Trade Management
 Notes on Export/Import Payments
Time of Payment Sight of documents or acceptance as agreed (30,60,90 days after)
Goods available
to Buyer
Upon arrival of goods after payment or acceptance of draft has been made
Risks to Seller
•Buyer defaults on payment obligation
•Delays in availability of foreign exchange and transferring from buyers
country
•Payment blocked due to political events in buyer’s country
Risks to Buyer
•Seller does not ship per order (quantity, product, quality, shipping method)
•Seller does not ship when requested, either early or late
Trade Management
 Notes on Export/Import Payments
When
Appropriate to
quote or use
credit
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Financing
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Seller and buyer have done some business together and are
transitioning away from a prepayment policy
Seller has some trust that buyer will accept shipment and pay at agreed
time
Seller is confident that the importing country will not impose
regulations deferring or blocking transfer of payment
Seller has sufficient liquidity or access to outside financing to extend
deferred payment terms
Seller finances buyer through deferred payment terms
Seller can use trade acceptances, which are negotiable instruments to
obtain financing
Leverage/ financing comes from domestic /global business
Government financing
Trade Management
 Documents used in Foreign Trade
 Indent (Order)
 Order placed by the importers to the exporters
 Contains key information:
 quality, quantity, packing, packaging, mode of payment,
price of goods etc
 Mate’s Receipt
 Receipt for goods received on boat or plane after
inspection of goods. Loading is done after receipt of
shipping order
 Includes: name of
Trade Management
 Documents used in Foreign Trade
 Mate’s Receipt
 Receipt for goods received on boat or plane after
inspection of goods. Loading is done after receipt of
shipping order
 Includes: name of ship, marks on packaging, conditions of
cargo etc
Trade Management
 Documents used in Foreign Trade
 Bill of Lading
 Prepared on basis of Mate’s Receipt
 Important shipping document
 Contract between exporter or the shipper and the
shipping company for the carriage of goods from the
port of loading to the port of destination
 Document to title of goods and is transferable by
endorsement(signing) and delivery
 Legal document for contract to carrying the goods
 Proof of handover
Trade Management
 Documents used in Foreign Trade
 Bill of Lading (cont)
 Contains:
 Name and address of shipping
 Name and address of importer or agent
 Quantity, weight and value of goods sent
 Place of loading and destination
 Date of loading
 Freight paid or to be paid
 Signature of issuing authority
Trade Management
 Documents used in Foreign Trade
 Letter of Credit
 Important document in international trade
 It is for safety and security of the exporter as regards
payment for the goods to be exported
 Defined as:
 “an undertaking by importer’s bank stating that payment
will be made to the exporter if the required documents are
presented to the bank”
 Before executing an export order, the exporter of goods
wishes to have adequate proof regarding the credit
worthiness of the importer
Trade Management
 Documents used in Foreign Trade
 Letter of Credit (cont)
 Defined as:
 Issued by the bank (in the importers country) in favour of
the foreign supplier
 Contains guarantee or an undertaking by one bank that the
bill of exchange drawn on the importer will be paid on
presentation to the amount specified in the letter
 Issued on the basis of the business of the importer with the
bank
 Contains: date of bill, date for shipment, shipment by
approved vessels under approved flags
Trade Management
 Documents used in Foreign Trade
 Letter of Credit (cont)
 Advantages:
 Exporter gets safety and security
 Exporter gets discounting facility through the bank
 Enables the exporter to take more initiative in promoting
exports and earns foreign courage for his country
Trade Management
 Documents used in Foreign Trade
 Certificate of Origin
 Shows goods to be exported are manufactured in a
certain country
 Issued by Chamber of Commerce or Export Promotion
Council
Trade Management
 Documents used in Foreign Trade
 Consular Invoice
 Trade consulate of the importing country stationed in the
exporters country
 Requires fee
 Contains information on the goods and value of the
goods
 Avoids customs delays if submitted ahead of good arrival
Trade Management
 Documents used in Foreign Trade
 Bill of Entry
 Required in case of import of goods
 Document testifies that the goods of the stated value and
description in specified quantity are entering the country
from abroad
 Customs office supplies the form (triplicate)
 Customs, Port and Importer
Trade Management
 Documents used in Foreign Trade
 Bill of Entry (cont)
 Divided into 3 classes
 Entry of duty free goods
 Entry of goods for consumption at home
 Entry for goods to be re-exported
 Contents:
 Name and Address of Importer and exporter
 Import license # of importer
 Value and description of goods
 Import duty payable
Trade Management
 Documents used in Foreign Trade
 Dock’s Receipt
 Issued once goods are unloaded and stored in the sheds
at docks
 Clearing and forwarding agent clears the documents
through the customs authorities
 Approaches the Port Authorities to obtain Carting order
 Carting order allows goods to be brought inside the docks
to load on ship
 Many times immediate loading is not possible
Trade Management
 Documents used in Foreign Trade
 Commercial Invoice
 Basic export document
 Contains all the information required for preparation of
all other documents
 Exporter’s bill for goods which the importer has to pay
 Contains:
 Name and Address of Importer and exporter
 Description of goods (weight, quality, quantity, rate, etc)
 Net amount payable by the importer
 Terms and Conditions of the sale
Trade Management
 Documents used in Foreign Trade
 Commercial Invoice (cont)
 Other details of shipment to be included:
 Name of ship on which goods are loaded
 Letter of Credit #
 License # of exporter
 Bill of lading#
 Packaging specifications
 Shipping terms and conditions