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How to Understand Trade Settlement: Types and Definition

Views: 29     Author: Site Editor     Publish Time: 2022-12-06      Origin: Site

How to Understand Trade Settlement


How to Understand Trade Settlement: Types and Definition

International trade settlement is the settlement of debts caused by the mutual provision of goods or services by industrial and commercial enterprises in different countries. Payment is an important part of international trade. For both parties to the transaction, choosing an appropriate settlement method in international trade is of great significance to the smooth progress of the transaction.


At present, the international trade settlement methods mainly include letter of credit, collection and remittance. Remittance is the simplest settlement method in international trade, and the most common cross-border remittance is wire transfer. Bills of exchange, promissory notes, and checks all belong to the bill business in international settlement, and are usually used in combination with letters of credit, collections, and remittances. In the process of international trade transactions, the following settlement methods are often used:



Letter of Credit

In the letter of credit, the bank authorizes the exporter to issue a bill of exchange not exceeding the specified amount with the bank or its designated bank as the paying bank, subject to the conditions stipulated in the letter of credit, and to attach the shipping documents as required. The place to pick up the goods. A letter of credit is an irrevocable arrangement, whatever its name or description, which constitutes a firm undertaking by the issuing bank to honor a complying presentation.


According to whether there is another bank other than the issuing bank to participate in the letter of credit and guarantee the promise of payment, it can be divided into confirmed letter of credit and unconfirmed letter of credit: according to the different payment methods, it can be divided into sight payment letter of credit and usance Payment letter of credit, acceptance letter of credit and negotiation letter of credit; according to different purposes and application methods, it can be divided into transferable letter of credit, revolving letter of credit, folio letter of credit, opposite letter of credit and local letter of credit.



Remittance

Remittance is the simplest payment settlement method for international trade. When the payment is settled by remittance, after the seller ships the goods to the other party, the seller will send the relevant shipping documents to the buyer, and the buyer will directly hand over the payment to the seller through the bank.


According to the different remittance tools used, remittance is generally divided into: mail transfer (M/T), telegraphic transfer (T/T), draft transfer (D/T). Currently, wire transfer is widely used for settlement. During the negotiation, the two parties agreed to pay in advance, pay on delivery or pay against documents.


In international trade settlement, wire transfer is a bank (remittance bank) that transfers a certain amount of funds to an overseas branch or agency bank (remitter) at the request of a customer (remitter) by telegram, telex, global interbank financial SWIFT and other telecommunication means. into the line), instructing it to pay the designated person (payee). The bank is only an intermediary for fund transfer and does not undertake transaction risks.



Collecting

Collection refers to the processing of financial documents and/or commercial documents by the bank receiving the entrustment instruction in order to obtain acceptance or payment, or to hand over commercial documents against acceptance or payment, or to hand over documents under other conditions.


Collection is classified into clean collection and documentary collection according to whether documents are attached. Clean collection refers to a collection method in which the exporter only draws a bill of exchange without attaching any commercial shipping documents, entrusts the bank to collect the payment, and the shipping documents are directly mailed by the exporter to the importer; documentary collection is A settlement method in which the exporter submits the export business documents and the documentary draft for collection from foreign customers to the bank, and the bank sends it to the foreign agent bank, and instructs it to release the bill after the importer pays or accepts the draft.


Among them, documentary collection can be divided into documents against payment (D/P) and documents against acceptance (D/A). Documents against payment (D/P) means that the exporter (or collecting bank) presents documents on the condition that the importer pays; Conditional delivery of documents.


China's foreign trade enterprises mainly adopt the method of documents against payment (D/P) for export by collection, and generally do not use documents against acceptance (D/A). In the import business, especially in the business of processing with imported materials and external processing and assembly, the payment for imported materials and parts is often adopted in the form of documents against acceptance (D/A).

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