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8 Types of Payment Terms for Exports

Views: 36     Author: Site Editor     Publish Time: 2022-08-10      Origin: Site

The transaction of an international trade order often starts with the payment. Below we will briefly list several common payment methods and the problems that will be encountered.


Payment is distinguished by the account received:

1. Public accounts: T/T, L/C, D/P, D/A, O/A

2. Private accounts: Western Union, Paypal, MoneyGram, T/T

Below we introduce you to 8 Types of Payment Terms for Exports:

T/T, L/C, D/P, D/A, Western Union, Paypal, MoneyGram, O/A

8 Types of Payment Terms for Exports



T/T (Telegraphic Transfer)

T/T (Telegraphic Transfer) is a remittance method in which a remitter sends a telex or telefax to a branch or correspondent bank in another country (i.e., the remitting bank) at the request of the remitter, instructing it to pay a certain amount to the recipient.


T/T payment method is settled by cash in foreign currency, your customer will remit the money to your company's designated foreign exchange bank account, T/T belongs to commercial credit, after the goods are ready, if the customer will pay the full amount of goods, you can send the documents directly to the customer, without going through the bank.


There are 2 types of T/T wire transfer, one is to pay 100% of the purchase price before the consignor ships the goods. This payment method is international trade, relative to the seller, the most secure way of trade, because the seller does not need to bear any risk, as long as the money received, the shipment, did not receive the money, it does not ship. This payment method can also be divided into a variety of flexible ways, first 20% to 40% deposit, after 80% to 60% of the shipment to the full before. Specific how much proportion, according to different circumstances, different flexible variation.


Another is to send the goods, the buyer to pay the balance. That the buyer is on what basis to pay off the balance? Generally, the balance is paid according to the copy of B/L. This payment mode is also more flexible, in general, the basic popular payment method is that the customer gives 30% deposit first, and the other 70% is the customer pays the balance after seeing the copy of B/L. Of course, there are some are 40% deposit, 60% see the bill of lading.


Common problems of T/T payment


1. the recipient information error leads to pending accounts, many customers are relatively careless, the recipient's name will be written wrong, such as the wrong words, such as the name is too long remittance space restrictions, and so on, the remittance really to the recipient's account, but because the information is not correct, resulting in the money can not be released. processing results: the general situation 15 days (or according to the actual situation of each bank) If there is no solution, the money will be returned to the original way. Solution: 1. inform the customer to make an amendment to the information, clearly inform the customer that we cannot collect the money without changing the information, and the order cannot be executed. 2. if the company name is too long after the second cooperation, you can tell the customer to write the part of the name that cannot be written in the address field, and you can also collect the money smoothly.


2. customer default final payment, some customers are more dragging, late payment, first of all, when signing the contract, clearly indicate the final payment time, such as see the B / L copy of the 3-5 working days to pay off the terms, to avoid the late receipt of the final payment of the situation. Of course, to avoid this situation, such as the need to analyze and study the customer, the best way to do prior risk avoidance.



L/C (Letter of Credit)

Letter of Credit, L/C refers to a written document in which the bank (issuing bank) makes payment to a third party (beneficiary) or its designated party in accordance with the requirements and instructions (of the applicant) or on its own initiative and in accordance with the terms of the letter of credit, with the prescribed documents. In other words, a letter of credit is a written document issued by a bank with a conditional promise to pay.


In international trade activities, buyers and sellers may not trust each other, and the buyer is worried that the seller will not deliver the goods as required by the contract after the advance payment; the seller is also worried that the buyer will not pay after the delivery or submission of shipping documents. Therefore, two banks are required to act as guarantors for the buyer and the seller to collect and deliver the documents on their behalf, replacing commercial credit with bank credit (bank credit is higher than commercial credit). The instrument used by the banks in this activity is the letter of credit.


As it can be seen, the letter of credit is a certificate of conditional guarantee of payment by the bank and becomes a common settlement method in international trade activities. According to the general provisions of this settlement, the buyer first deposits the purchase price with the bank, which opens a letter of credit, notifies the off-site seller's depository bank to forward it to the seller, who ships the goods according to the terms stipulated in the contract and the letter of credit, and the bank pays on behalf of the buyer.


Three distinctive features of L/C

Firstly, the letter of credit is a self-sufficient instrument, which is not dependent on the contract of sale and purchase, and the bank emphasizes the written form of authentication of the letter of credit separate from the underlying trade when reviewing the documents;


The second is that the letter of credit is a pure documentary transaction, which is based on a single payment, not on the goods. As long as the documents match, the issuing bank should pay unconditionally;


Thirdly is the letter of credit is a kind of bank credit, it is a kind of guarantee document of the bank, the issuing bank has the primary liability for payment.


Classification of Letter of Credit


There are many classifications of letters of credit, roughly speaking, the following can be distinguished.


A: Classified according to the documents of the letter of credit or the requirements of the letter of credit itself.


(1) By whether the bill of exchange under the letter of credit is accompanied by a shipping document or not:


① Documentary Credit, which is a letter of credit payable by documentary draft or by documents only. The documents here refer to the documents representing the ownership of the goods (such as ocean bills of lading, etc.), or documents proving that the goods have been delivered (such as railroad waybills, air waybills, parcel receipts). ucp600 documentary credit practice


② Clean Credit is a letter of credit for payment by Clean Draft without accompanying shipping documents. The bank pays with the Clean Draft Letter of Credit, and may also require the beneficiary to attach some non-freight documents, such as invoices, advance lists, etc.


In the settlement of international trade, most of them use documentary credit.


(2) They can be classified according to the responsibility of the issuing bank:


① Irrevocable L/C, which means that once the L/C is issued, the issuing bank cannot unilaterally modify and revoke it during the validity period without the consent of the beneficiary and the parties concerned, and the issuing bank must fulfill the payment obligation as long as the documents provided by the beneficiary are in accordance with the L/C.


② Revocable L/C, the issuing bank does not need to obtain the consent of the beneficiary or the parties concerned to cancel the letter of credit at any time, should be indicated on the letter of credit "revocable" words. However, UCP500 stipulates that a letter of credit cannot be revoked or modified as long as the beneficiary has obtained a negotiation, acceptance or deferred payment guarantee in accordance with the terms of the letter of credit. It also provides that if the letter of credit does not indicate whether it is revocable or not, it shall be deemed irrevocable.


The latest UCP 600 states that banks cannot open revocable letters of credit! (Note: commonly used are irrevocable letters of credit)


(3) Letters of credit can be classified according to whether they are guaranteed by another bank:


① Confirmed L/C is a letter of credit issued by the issuing bank and guaranteed by another bank to fulfill the payment obligation for the documents that meet the terms of the letter of credit. The bank that confirms the letter of credit is called the confirming bank.


② Unconfirmed L/C, the letter of credit issued by the issuing bank is not confirmed by another bank.


(4) According to the time of payment, it can be divided into:


① Sight L/C, which refers to the letter of credit in which the issuing bank or the paying bank performs the payment obligation immediately after receiving the documentary draft or shipping documents that meet the terms of the letter of credit.


② Usance L/C, which refers to the letter of credit in which the issuing bank or the paying bank fulfills the payment obligation within the specified period upon receipt of the documents of the letter of credit.


③ Usance Credit Payable at Sight, the letter of credit stipulates that the beneficiary will open a forward bill of exchange and the paying bank will be responsible for discounting it, and all interest and costs will be borne by the issuer. This type of letter of credit is still in fact a spot collection for the beneficiary, and there is a usance L/C payable at sight clause in the letter of credit.


(5) According to the transferability of the beneficiary's rights to the letter of credit, it can be divided into:


① Transferable L/C means that the beneficiary of the L/C (the first beneficiary) can request the bank that authorizes payment, assumes deferred payment, acceptance or negotiation (collectively referred to as the "transferring bank"), or when the L/C is freely negotiable, can request the transferring bank specifically authorized in the L/C to transfer the L/C, in whole or in part, to one or more beneficiaries. A letter of credit that can be assigned in whole or in part to one or more beneficiaries (secondary beneficiaries) when the letter of credit is freely negotiable. The issuing bank shall clearly state "transferable" in the letter of credit, and it can only be transferred once.


② Non-transferable letter of credit refers to a letter of credit in which the beneficiary cannot transfer the rights of the letter of credit to another person. Where the letter of credit does not state "transferable", it is a non-transferable letter of credit.


(6) Letter of credit with red clause, which allows the issuing bank to make advance payment to the seller after receiving the documents. This type of letter of credit is commonly used in the manufacturing industry.


B. According to the purpose of the letter of credit


(1) Revolving L/C


It means that after the letter of credit has been used in whole or in part, its amount is restored to the original amount and can be used again until it reaches the required number of times or the total amount specified. It is usually used in the case of uniform delivery in batches. In the case of revolving letters of credit by amount conditions, the specific practices for restoration to the original amount are.


① Automatic revolving. When a certain amount is used up in each period, it can be automatically restored to the original amount without waiting for a notice from the issuing bank.


② Non-automatic revolving. After a certain amount is used up in each period, you must wait for a notice from the issuing bank to arrive before the letter of credit can be restored to its original amount for use.


③Semi-Automatic Revolving. In other words, if the issuing bank does not give notice of stopping the revolving use within a certain amount of days after each use, the credit can be automatically restored to the original amount from the xth day.


(2) Reciprocal L/C


A letter of credit opened by two L/C applicants with each other as beneficiaries. The two letters of credit are of equal or approximately equal amount and can be opened simultaneously or successively. It is mostly used for barter trade or processing of incoming materials and compensation trade business.


(3) Back to Back L/C


It is also called back to back L/C, which means that the beneficiary requests the notifying bank of the original L/C or other banks to open a new L/C with similar content based on the original L/C. The issuing bank of the back to back L/C can only open it based on the irrevocable L/C. The opening of a counter-letter of credit is usually used by an intermediary to resell the goods of another person, or by a third party to communicate the trade when the two countries cannot directly handle the import/export trade. The amount (unit price) of the original L/C should be higher than the amount (unit price) of the counter-letter of credit, and the shipment period of the counter-letter of credit should be earlier than that specified in the original L/C.


(4) Anticipatory credit/Packing credit


It means the issuing bank authorizes the representative bank (notifying bank) to prepay all or part of the letter of credit amount to the beneficiary, and the issuing bank guarantees the repayment and bears the interest, i.e. the issuing bank pays before and the beneficiary delivers the bill after, contrary to the forward letter of credit. The advance letter of credit is paid on the basis of the exporter's bare draft, and the beneficiary is also required to attach an instruction responsible for making up the documents stipulated in the letter of credit, and when the freight documents are delivered, the paying bank will deduct the interest on the advance payment when paying the remaining amount of the goods.


(5) Standby credit


Also known as Commercial paper credit, refers to the issuing bank according to the request of the issuing applicant to the beneficiary to open a commitment to assume a certain obligation of the certificate. In other words, the issuing bank guarantees that if the issuer fails to fulfill its obligations, the beneficiary can obtain reimbursement from the issuing bank by submitting proof of default of the issuer with the provisions of the standby credit. It is a bank credit and for the beneficiary is a way to obtain reimbursement in case of default of the issuer.


Explanation of common terms in letter of credit

Issuer: The person who applies to the bank to open a letter of credit, also known as the issuer in a letter of credit. Obligations: to open the letter of credit according to the contract; to deliver a proportional deposit to the bank; to make timely payment for redemption. Rights: inspection and return of the redemption order; inspection and return of goods (all based on the letter of credit)


Description: The application for issuance has two parts, namely, the application for issuance of the issuing bank and the issuing bank's declaration and guarantee (affirming that the ownership of the goods before the redemption payment to the bank; the issuing bank and its agents are only responsible for whether the surface of the document is qualified; the issuing bank is not responsible for errors in the transmission of documents; not responsible for "force majeure"; guarantee payment due for redemption The issuing bank has the right to make additional deposits at any time; it has the right to decide on the insurance of the goods and increase the level of insurance at the expense of the issuer.


Beneficiary: The person named in the letter of credit who is entitled to use the letter, i.e. the exporter or the actual supplier. Obligations: After receiving the L/C, the applicant shall promptly check with the contract and request the issuing bank to amend or reject the L/C as soon as possible or request the issuing applicant to instruct the issuing bank to amend the L/C; if accepted, the applicant shall ship the goods and notify the consignee, prepare all documents and deliver the documents to the negotiating bank for payment at the specified time; he shall be responsible for the correctness of the documents and shall execute the instructions of the issuing bank to change the documents if they do not match and still deliver the documents within the period specified in the L/C. Rights: the right to unilaterally revoke the contract and reject the letter of credit after notification to the other party; if the issuing bank closes down or unreasonably refuses to pay after delivery, the issuing applicant can be asked to pay directly; if the issuing applicant goes bankrupt before collection, the shipment of goods can be stopped and handled by itself; if the issuing bank closes down when the letter of credit has not been used, the issuing applicant can be asked to open another.


Issuing bank: The bank which accepts the commission of the issuer to open the letter of credit and assumes the responsibility of guaranteeing the payment. Obligation: to open the letter of credit correctly and in time; to assume first responsibility for payment. Rights: charge fees and deposits; reject the beneficiary or negotiation bank's non-conforming documents; after payment, if the issuer is unable to pay for the redemption, it can deal with the single, goods; insufficient goods can be recovered from the issuer for the balance.


Notifying bank: The bank entrusted by the issuing bank to forward the letter of credit to the exporter, which only proves the authenticity of the letter of credit and does not assume other obligations, and is the bank where the place of export is located. It is required to certify the authenticity of the letter of credit; the forwarding bank is only responsible for forwarding it as it is.


Negotiating bank: The bank that is willing to buy the documentary draft delivered by the beneficiary. According to the letter of credit issuer's payment guarantee and the beneficiary's request, according to the provisions of the letter of credit for the beneficiary to deliver the documentary draft advance or discount, and to the letter of credit provisions of the payment bank claims (also known as the purchase of the bank, the deposit bank and posting current; generally is the notification bank; there are limited negotiation and free negotiation). Obligations: strict scrutiny; advancing or discounting documentary bills of exchange; back approval of letters of credit; rights: negotiable or non-negotiable; negotiable (freight) documents can be handled; negotiable after the failure of the issuing bank or excuse to refuse to pay can be recovered from the beneficiary advances.


Paying bank: The bank designated for payment on the letter of credit, in most cases, the paying bank is the issuing bank. The bank that pays the beneficiary for the documents conforming to the L/C (it can be the issuing bank or another bank entrusted by it). It has the right to pay or not to pay; once paid, it has no right of recourse against the beneficiary or the holder of the bill of exchange.


Confirming bank: A bank entrusted by the issuing bank to guarantee the letter of credit in its own name. It is an irrevocable firm commitment; it is responsible for the letter of credit independently and pays with the bill; after payment, it can only claim from the issuing bank; if the issuing bank refuses to pay or fails to pay, it has no right of recourse to the beneficiary and the negotiating bank.


Accepting bank: The bank that accepts the bill of exchange submitted by the beneficiary, and is also the paying bank.

Reimbursing bank: A bank that is entrusted by the issuing bank on the letter of credit to settle the advance to the negotiating bank or paying bank on behalf of the issuing bank (also called clearing bank). Only the payment is not audited; only the reimbursement regardless of the refund; not reimbursement when the issuing bank reimburses.


The process of letter of credit

(1) The applicant for the issuance of the letter of credit fills out an application for the issuance of the letter of credit according to the contract and pays a deposit or provides other guarantees, and asks the issuing bank to open the letter.


(2) The issuing bank issues a letter of credit to the beneficiary according to the contents of the application and sends it to the notifying bank at the exporter's location.


(3) The notifying bank checks the seal for accuracy and delivers the letter of credit to the beneficiary.


(4) After reviewing the contents of the letter of credit and the contract, the beneficiary will ship the goods, prepare the documents and issue the bill of exchange according to the provisions of the letter of credit, and send it to the negotiating bank for payment within the validity period of the letter of credit.


(5) The negotiating bank will advance the payment to the beneficiary after reviewing the documents in accordance with the terms of the L/C.


(6) The negotiating bank sends the draft and shipping documents to the issuing bank or its specific paying bank for claim.


(7) The issuing bank verifies that the documents are correct and pays the negotiating bank.


(8) The issuing bank notifies the issuer of payment for redemption.


Common countries where large amounts must be paid by LC: Bangladesh, Ethiopia, Algeria, Uzbekistan, etc.



D/P (Documents against Payment)

Documents against Payment, D / P, refers to the collection bank must be paid in full after the importer, before the commercial (freight) documents to the importing party a form of settlement.


D / P Sight, the exporting party to issue a demand draft, by the collection bank to the importing party, the importing party to see the bill that must be paid, the payment of goods, the importing party to obtain freight documents.


D/P after sight or after date, the exporting party to issue a forward bill of exchange, by the collection bank to the importing party, the importing party accepted, in the bill of exchange due date or before the bill of exchange due date, the importing party to pay for the bill of exchange.


Risks of D/P


In the D/P business, the bank does not examine the content of the documents, and the bank does not assume the payment obligation. The bank only provides services such as forwarding documents, prompting documents on behalf of the bank, and collecting and transferring funds on behalf of the bank. In D/P export business, exporters should pay attention to the following important issues.


1. In D/P business, the exporter's guarantee to get the payment is the credibility of the importer, so focusing on the importer's ability to pay and business reputation is an important prerequisite to get the payment.


2. After the delivery of goods, the flow of documents from the exporter to the importer, attention should be paid to control the goods through the control of the documents, and the documents should be firmly controlled before the importer pays.


3. The place where problems often arise in practice is in the flow of documents, the handover point, namely, the handover point from the exporter to the bank, the handover point from the seller's bank to the buyer's bank, and the handover point from the buyer's bank to the importer. Therefore, the need to control these handover points, the documents should be in accordance with the standard flow.


4. Try to use the way to indicate the bill of lading. This can be controlled by controlling the bill of lading to control the goods.


D/P risk although the two cases of the importing bank must be in the importer payment before delivery of documents to the importer, and thus the two in the legal risk should be said to be the same, but due to the different risks faced in commercial practice, the exporter directly to the buyer's designated bank to prompt payment risk is greater. According to the International Chamber of Commerce "Uniform Rules for Collection", the normal collection practice is that the exporting company entrusts its correspondent bank for collection, which is the collection bank, and the collection bank then entrusts itself to the importer's correspondent bank or entrusts the bank named by the importer for prompting payment, etc. (collection bank). However, in the collection business, the collecting bank is not obliged to accept the exporter's commission. In other words, the bank has the right to refuse to handle the collection instructions upon receipt. The exporter through their own correspondent bank (collection bank) for collection, the collection bank will arrange for the collection bank (regardless of whether the bank is named by the importer, and whether it is the importer's correspondent bank) to handle the prompting and collection on behalf of the importer. The collecting bank is required to assume the obligation to the exporter for the risk in the process of mailing the collection document. Moreover, if any problem arises in the process of prompting payment, the collecting bank will make full and effective contact with the collecting bank.



D/A (Documents Against Acceptance)

Documents against Acceptance, abbreviated as D/A, is to point out that the exporter's delivery of documents to the importer on the bill of exchange as a condition of acceptance. That is, the exporter in the shipment of goods after the issuance of forward bills of exchange, together with commercial documents, through the bank to the importer, the importer accepts the bill of exchange, the receiving bank will be commercial documents to the importer, in the bill of exchange when due, the party to fulfill the payment obligations. Because the acceptance of the bill of exchange is the importer as long as the acceptance on the bill of exchange, you can get the commercial documents, with in order to extract the goods. Therefore, the promissory note delivery method is only applicable to the forward bill of exchange for collection.


Acceptance delivery is a common method of payment in international trade. The exporter instructs the collecting bank through the collecting bank to issue the title and other shipping documents to the importer after the importer accepts the bill of exchange. The exporter will face the risk of the importer not settling the bill as scheduled.


The so-called "acceptance" is the payer of the bill of exchange (the importer) in the collection bank to prompt the forward bill of exchange, the act of recognition of the bill of exchange. The procedure of acceptance is the payer sign on the bill of exchange, endorsing the word "accept" and the date, and return the bill of exchange to the holder. Regardless of how many times the bill of exchange has been transferred, the payer should pay with the bill of exchange on the due date.



Western Union

Western Union is the world's leading money transfer company, with a history of 150 years. It has the world's largest and most advanced electronic money transfer financial network, with agents in nearly 200 countries and regions around the world. Western Union is a subsidiary of First Data Corporation (FDC), one of the Fortune 500 companies in the United States. China Everbright Bank, China Postal Savings Bank, China Construction Bank, Zhejiang Chouzhou Commercial Bank, Jilin Bank, Harbin Bank, Fujian Strait Bank, Yantai Bank, Long Jiang Bank, Wenzhou Bank, Huishang Bank, Pudong Development Bank and many other banks are Western Union's partners in China.


For small private remittances, Western Union is preferred. You only need to give your name and nationality to the customer and the customer can pay.


Chinese GIVEN NAME is the first name, but also FIRST NAME


Chinese FAMILY NAME is the surname, tell the customer must not write the opposite, the customer will have a payment voucher after payment, which is often referred to as the water bill, there is an important information MTCN number, called the monitoring number, with this number, you can receive money at the above-mentioned bank counters or on the network operation. Here priority is given to Pudong Development Bank, which can be completed in one minute by downloading the APP on your cell phone.


The fee for Western Union is paid by the payer. Therefore, the cost of receiving remittances is zero.



PayPal

PayPal (PayPal Holdings, Inc.), a wholly owned subsidiary of eBay, Inc. was established in December 1998 by Peter Thiel and Max Levchin and is headquartered in San Jose, California, USA.


PayPal also works with some e-commerce sites as one of their payment methods for goods; however, PayPal charges a fee when transferring funds using this payment method.


Payment process


When a payer wants to pay an amount to a merchant or recipient via PayPal, it can be divided into the following steps.


1. With an email address, the payer can log in and open a PayPal account, become its user through verification, provide credit card or relevant bank information, increase the account amount, and transfer a certain amount of money from the account registered at the time of account opening (e.g. credit card) to the PayPal account.


2. When a payer initiates the payment process to a third party, he or she must first access the PayPal account, specify a specific amount to be remitted, and provide the payee's email account number to PayPal.


3. PayPal then sends an email to the merchant or payee notifying them of the pending pickup or transfer.


4. If the merchant or payee is also a PayPal user, the payment specified by the payer will be transferred to the payee after the merchant or payee decides to accept it.


If the merchant or recipient does not have a PayPal account, the recipient will have to follow the instructions in the PayPal email to register for a PayPal account on the website.


As you can see from the above process, if the recipient is already a PayPal user, then the money is sent to the PayPal account he has. If the recipient does not have a PayPal account, the website will send a notification email directing the recipient to register a new account on the PayPal website.


The disadvantage is that if the customer pays by credit card, even if you receive the money, PayPal can still recover it from you.



Moneygram

A kind of global fast money transfer business between individuals, which can complete the process of transferring money from the sender to the recipient in more than ten minutes, and has the characteristics of being fast and convenient. MoneyGram is a money transfer agency similar to Western Union.


The remitter does not have to choose a complicated remittance route and the recipient does not have to open a bank account before the funds can be transferred.


If remitting USD to withdraw RMB, this business is a settlement business, regardless of whether it is for domestic or foreign individuals and what kind of matters, each person can settle the equivalent of USD 50,000 (inclusive) per year with their valid ID. That is, there is no longer a limit on the amount of a single remittance settlement, as long as it does not exceed the equivalent of USD 50,000 in that year.


So when your customer tells you to send you a MONEY GRAM, you just need to ask your customer for:


(1)Reference number eight digits


(2) Sender's first name


(3)sender's surname


Then go to the local branch of the relevant partner bank with a special MONEY GRAM counter, they will give you a collection form, fill in the relevant information about the customer and yourself, bring your own ID card and you can get the money.



O/A (Open Account)

Open account payment in international trade, where the buyer receives the goods sent by the exporter and then pays at the end of the agreed credit period. The credit period can be a fixed period - 30 days, 60 days, 90 days, etc. There is a gap between the date of receipt of the purchase order and the date of receipt of payment, with activities such as production and transportation pending completion falling somewhere in between.


The time gap involved in this method places a burden on the exporter's working capital position. However, if the importer is a strong player with the prospect of a large number of future transactions, the exporter may choose this method of payment. Exporters may also agree to pay on credit if there is a relationship of trust between the parties or if the amount involved is negligible.

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