ChapterSeven

InternationalPayments2021/5/91SEIBOFGDUFSLearningobjectivesAfterlearningthischapteryouwillbeableto:identifythekeyissuesinhandlinginternationalpaymentsunderstandtheuseofpayinginstruments,especiallythebillofexchange2definethethreebasictermsofpaymentcompareandcontrastthecharacteristicsoftermsofpaymentidentifythemajorpartiesinvolvedindifferentpaymentmethodsstatethestagesinvolvedinusingaletterofcreditexplainthevariationsofdocumentarycreditestablishabasicunderstandingofexportfinancing2021/5/92SEIBOFGDUFS7.1IssuesInConcernWhowillbearthecreditrisk?Inwhatcurrencythepaymentwouldbemade?Whatarethecostsofeachmethodofpayment?Whatmightbethepoliticalorlegalrisks?2021/5/93SEIBOFGDUFSDeterminantFactorsofPaymentNatureofmerchandiseIndustrynorms/practicesDistancebetweenbuyerandsellerPotentialcurrencyfluctuationPolitical&economicstabilityRelationshipbetweenbuyerandseller2021/5/94SEIBOFGDUFSInternationalPaymentCreditinstrumentsBillofExchange/Draft匯票PromissoryNote本票Check支票TermsofpaymentRemittance匯付Collection托收LetterofCredit信用證2021/5/95SEIBOFGDUFSDifferencesbetweenpaymentinstrumentsandpaymenttermspaymentinstruments---Financialdocumentswhichcanbeusedindifferentmannersservingspecificpayingpurposepaymentterms---AseriesofactivitiesoroperationsfacilitatingthemovementoffundsfromonedestinationtotheotherInternationalPayment2021/5/96SEIBOFGDUFS7.2PayingInstrument:

Draft/BillofExchange匯票Definition:

Adraftisanunconditionalwrittenorderaddressedbyonepersontoanother,singedbythepersongivingit,requiringtheaddressedpersontopayatsightoratafixedfuturetimethesumofmoneyclearlyspecified,tothepayeeortohisorder.2021/5/97SEIBOFGDUFSThreepartiesconcernedA:ThedrawerNormallytheexporterFillinthecontentofabillofexchangeandsignhisnameB:Thedrawee/payerThepartytowhomB/EisaddressedIfsightdraft,makepaymentIftimedraft,acceptthedraftandpaywhentheamountisdueUnderL/C–thebankUndercollection–theimporterC:Thepayee/beneficiaryThepartywhoissupposedtoreceivethepaymentusuallytheexporterorthebankatwhichthedrawerhashisaccountPresentB/Etothepayerforpaymentoracceptance2021/5/98SEIBOFGDUFSThreepartiesconcerned2021/5/99SEIBOFGDUFSThecontentofaB/E(Specimen7.1-7.4)Thewordsof“BillofExchange”or“Draft”ThedateandplaceofissuanceofdraftAspecificsumwhichshallbeexactlythesamewiththatindicatedonexportinvoiceThetenor,thatis,theperiodofcreditIfnotstipulated,regardedasSightdraftThenameofthedraweeThenameandsignatureofthedrawerThenameofthepayeeororderorbearerTheendorsementofthepayeewhenapplicable

2021/5/910SEIBOFGDUFSProcedureofaB/EpracticeIssuance出票TheactofthedrawerissuingadrafttothedraweePresentation示票TheactofthepayeeorthebearerpresentingthedrafttothepayerforpaymentoracceptanceTworesults:beinghonoredordishonored2021/5/911SEIBOFGDUFSProcedureofaB/EpracticePayment付款---DrafthonoredbypaymentForsightdraft,thepayerpaystothepayeeaspecifiedsumofmoneyindicatedonthedraftatpresentation.2021/5/912SEIBOFGDUFSProcedureofaB/EpracticeAcceptance承兌---DrafthonoredbyacceptanceTheactofthepayermakingacceptancebycross-signingonthefaceofthebillandpromisingtopayonorbeforetheexpirydateofatime/usancedraftAnacceptedbillshallbereturnedtothepresentingparty2021/5/913SEIBOFGDUFSProcedureofaB/EpracticeDiscount貼現(xiàn)AnaccepteddraftisnegotiableIftheholderwantstogetmoneybeforematuredate,thedraftcanbediscountedbyadiscountingbankattheprevailingdiscountrateItisthesaleofanacceptedtimebillforlessthanitsfacevaluebeforeitsmaturitydate.

Endorsement背書Theactofthetransferorintransferringadrafttothetransfereebymakingasignatureonthebackofthedraft2021/5/914SEIBOFGDUFSProcedureofaB/EpracticeDishonor拒付TherefusalofthedraweeorpayertomakepaymentoracceptanceofadulypresenteddraftHoldercanrecoursethedrawerforpaymentToexercisehisrightofrecourse,thebillholderneedstopresentaCertificateofProtest(拒付證明）fromanotarypublicDraftwiththeword“withoutrecourse”canhardlybediscounted2021/5/915SEIBOFGDUFSTypesofdraftCleandraftvs.documentarydraft 光票與跟單匯票Banker’sDraftvs.Commercialdraft 銀行匯票與商業(yè)匯票Sightdraftvs.timedraft 即期匯票與遠期匯票2021/5/916SEIBOFGDUFSCleanDraftvs.DocumentaryDraftCleanDraftistheonewhichisusedwithoutthecompanyofanycommercialdocuments Eg.Banker’sDraftDocumentaryDraftistheonethatcallsfortheattachmentofrelevantcommercialdocuments.Popularininternationaltrade Eg.CommercialDraft2021/5/917SEIBOFGDUFSBanker’sDraftvs.CommercialDraftBanker’sDraftisanorderfromonebank(thedrawer)toanother(thedrawee)withwhomitnormallymaintainsacorrespondentrelationship,topaytoanamedperson(thepayee)aspecifiedsumofmoneyondemand.CommercialDraftisanorderfromafirmorindividual(thedrawer)toanotherfirm,individualorbank(thedrawee)topaytoanamedperson(thepayee)aspecifiedsumofmoneyondemand.2021/5/918SEIBOFGDUFSSightDraftvs.TimeDraft

Sightdraftistheonethatispayableonsightofthedocumentsoftitleoronfirstpresentationofthetitledocuments.Normallyusedwhentheexporterwishestoretaintitletothegoodsuntilitreachesitsdestinationandpaymentismade.Bearingthewordingas“atsightofthisbillofexchange,payto…”Notbankcredit,thereforehigherrisksTimedraft(usancedraft,termdraft)istheonethatispayableinaspecifiednumberofdaysaftersight,afterthedateofissuanceoracceptance,oratafixedfuturetime.Bearingthewordingas“at30/45/60/90dayssightofthisbillofexchange,payto….”Incaseofdishonor,theexporterortheforeignbankcansueforthemoneyonthebasisofdocumentarydraftalone2021/5/919SEIBOFGDUFS7.3.1RemittanceDefinition

Afterconclusionofabusinesstransaction,thedebtorinstructshisbanktosend(remit)thetransactionamounttohiscreditorinexportcountry.Itisthedebtorwhotakesinitiativetosendthepayableamounttohiscreditor.2021/5/920SEIBOFGDUFSProcedureofremittanceandpartiesinvolvedFirst,theremitter(theimporter)appliesforaremittance.Todosotheimporterneedstohavesufficientfundsinhisaccountinthebank.Theremittingbankeitherissuesaremittanceinstructionto,ordrawsadrafton,oneofitsoverseasbranchesorcorrespondentbanksintheexporter’scountry.Whentheoverseasbranchorcorrespondentbankreceivestheremittanceinstruction,itbecomesthepayingbankandwillcreditthepayee’s(theexporter’s)accountwiththerelevantamountaccordingly.Intheeventofusingademanddraft,theremittingbankwillgivethedrafttotheimporterandtheimporterwillthenprovidethedrafttotheexporterbyhisownway.Oncetheexporterreceivesthedraft,hecanpresentittothenominatedpayingbankforthewithdrawalofpayment.2021/5/921SEIBOFGDUFSProcedureofremittanceTheimporter/theremitterTheexporter/theremitteeTheremittingbankThepayingbank1.Submitapplicationa2.Issuetheremittanceinstruction(telex,SWIFT)b2.Drawadraftonpayingbank(normallyademanddraft)a3/b5.Makepaymentb4.Presentthedraftb3.Surrenderthedraft2021/5/922SEIBOFGDUFSTypesofremittanceThreetypesofremittanceMailtransfer(M/T)信匯bymaillowercharges,butslowTelegraphictransfer(T/T)電匯bytelecommunicationsystem(telexortelegraphorswift).Faster,safer,butmoreexpensiveBanker’sDemandDraft(D/D)票匯Imp.buysacheckfromabankinimp.countryandsendstotheexp.Lowestcharge,slowestTransferable2021/5/923SEIBOFGDUFS7.3.2Collection托收Definitionanarrangementwherebythesellerdrawsadraftonthebuyerandauthorizesitsbanktocollect.

Ameansofpaymentensuringthatthegoodsarehandedovertothebuyeronlywhenhepaystheamountshownonabillorwhenheacceptsthebillandcommitstopaybyaspecifieddate.PartiesinvolvedDrawer/exporter/principal委托人Drawee/importer/payer付款人Remittingbank（托收行）inexportingcountryCollectingbank（代收行）intheimportingcountry2021/5/924SEIBOFGDUFSProcedureofDocumentaryCollectionExportercollectingshippingdocuments;ExporterdrawingaB/Eonimporter;Exportersubmittingalldocumentswithcompleteinstructionsforcollectiontoalocalbank(remittingbank)andinstructingthebanktoeffectcollectionforhim;RemittingbankforwardingB/Ewithotherdocumentstoitscorrespondentbank(collectingbank)intheimporter’scountrypassingonexactlytheinstructionsreceivedfromexporterCollectingbank/presentingbankpresentingbillanddocumentstoimporter;Collectingbank/presentingbankreleasingdocumentstotheimporteruponreceiptofpaymentsoracceptancefromimporter;Collectingbankremittingpaymentstoremittingbank;Remittingbankcreditingpaymenttoprincipal(exporter)’saccount.2021/5/925SEIBOFGDUFSProcedureofDocumentaryCollectionandPartiesInvolvedDrawer(seller)Remittingbank(drawer’sbank)Drawee(buyer)Collectingbank(drawee’sbank)1.Contract2.Goods3.Application+Documents+Draft4.Adviceoftermsofcollection+documents+draft5.Adviseofcollection9.Payment8.Payment6.Payment/Acceptance7.Documentsreleased2021/5/926SEIBOFGDUFSTypesofCollectionDocumentaryCollectionDocumentsagainstPayment(D/P)付款交單thecollectingbankreleasesthedocumentstotheimporteronlyuponfullandimmediatecashpayment.

DocumentsagainstAcceptance(D/A)承兌交單Ifaperiodofcredittotheimporterisagreedupon,ausancebillwillbeusedThedocumentswillbereleasedagainstacceptancebytheimporter.CleanCollection光票托收–withoutthecompanyofcommercialdocuments2021/5/927SEIBOFGDUFS7.3.3LetterofCreditDefinition

Thewrittenpromiseofabank,undertakenonbehalfofabuyer,topayasellertheamountspecifiedinthecreditprovidedthesellercomplieswiththetermsandconditionssetforthinthecreditFeaturesBankcreditSecurityofpaymenttoexporterEnsureimporterreceivegoodsasordered(paymentreleasedonlyiftitledocumentsarereceived)Careonlyfordocuments,notforactualtransactionofthegoods2021/5/928SEIBOFGDUFSContentofL/C(SeeSpecimen7.9)Name&addressofopeningbankDateofissuanceofL/CNumberofL/CCreditamountDescriptionofcargoTypeofL/CName&addressofthepartiesconcernedDocumentsprovidedDetailsofshipmentValidityperiodforL/CSettlementinstructionsFeesclausesSpecialclause,ifany2021/5/929SEIBOFGDUFSProcedureofL/CAftersigningthesalescontractwiththeseller,thebuyer(theapplicant)willpresenttohislocalbank(theissuingbank)thecontract,anapplicationletterandotherdocumentsrequiredfortheopeningofanL/C.Theissuingbankthenissuestheletterofcredittooneofitsbranchesorcorrespondentbanksintheseller’scountry(theadvisingbank)iftheapplicantcomplieswithalltheconditionsrequired.Theadvisingbankwillnotifythesellerofthearrivalofthecredit.Oncepayinganadvisingfee,theseller(thebeneficiary)receivestheoriginalofthedocumentarycredit.Hehastoexaminethecreditcloselybeforeheacceptsit.2021/5/930SEIBOFGDUFSIssuingBank/Buyer’sBankSeller/BeneficiaryL/CApplicationBuyer/ApplicantAdvisingBankLetterofCreditL/CAdviceContract(1)(2)(3)(4)OpeninganL/C2021/5/931SEIBOFGDUFSMethodsofsettlement

SettlementbysightpaymentSettlementbydeferredpaymentSettlementbyacceptanceSettlementbynegotiation2021/5/932SEIBOFGDUFSSettlementbySightPaymentDocsreleasedBuyer/ApplicantSeller/BeneficiaryIssuingBank/Buyer’sBankPresentingBankDocsDocsGoods(5)(10)(7)(6)Payment(9)Payment(8)Payment(11)2021/5/933SEIBOFGDUFSSettlementbyDeferredPaymentDocsreleasedBuyer/ApplicantSeller/BeneficiaryIssuingBank/Buyer’sBankPresentingBankDocsDocsGoods(5)(8)(7)(6)Payment(10)Payment(9)Payment(11)2021/5/934SEIBOFGDUFSSettlementbyAcceptanceDocsBuyer/ApplicantSeller/BeneficiaryIssuingBank/Buyer’sBankPresentingBankDraft&DocsDraft&DocsGoods(5)(7)(6)Payment(11)Payment(8)Payment(9)DraftdrawnonAcceptancenotice(12)(10)2021/5/935SEIBOFGDUFSSettlementbyNegotiationDocsReleasedBuyer/ApplicantSeller/BeneficiaryIssuingBank/Buyer’sBankNegotiatingBankDraft&DocsDraft&DocsGoods(5)(11)(8)(6)Payment/Acceptance(7)Payment/Acceptance(9)Payment(10)Draftdrawnon2021/5/936SEIBOFGDUFSTypesofLetterofCredit

1.Revocablevs.IrrevocableCreditRevocablecredit可撤銷的信用證AnL/Cwhichcanbeamendedorcancelledbytheissuingbankwithoutpriornoticeofthebeneficiary.unfavorabletotheexporterthereforenotwidelyemployedThecancellationcanbemadebeforethedatetheL/Cexpires.Otherwise,theopeningbankshallreimbursethenegotiationbankorpaymentbankifthepaymentiseffectedbythembeforereceiptofthenoticeofcancellation.Irrevocablecredit不可撤銷的信用證AnL/Cwhichcannotbecancelledoramendedwithouttheagreementofthebeneficiary(theexporter)andallotherparties.Givesassuranceofpayment,butlessflexibletochangecredittermAccordingtoUCP600,ifthewordingofrevocableorirrevocablenotfoundonthecredit,thiscreditshallbedeemedasirrevocable2021/5/937SEIBOFGDUFSTypesofLetterofCredit

2.Confirmedvs.UnconfirmedCreditConfirmedcredit已保兌信用證AnL/Cthatabank,otherthantheissuingbank,undertakestohonorthecreditissuedbyaddingitsconfirmationConfirmingbanksignsunderthestatement,“Weherebyaddourconfirmationtothiscredit”.Confirmingbankwillbeliableforpaymentincaseofdefaultbytheissuingbank.Itshouldbeanirrevocablecredit.DoubleinsuranceofpaymentUnconfirmedcredit未保兌信用證AnL/Cwhichdoesnotindicatetheundertakingtoeffectpaymentbyanyotherbank,excepttheissuingbank2021/5/938SEIBOFGDUFSTypesofLetterofCredit

3.Sightvs.UsanceCreditSightcredit即期信用證AnL/Cunderwhichtheopeningbankwillimmediatelyeffectpaymentuponpresentationofalldocumentsaslongasthedocumentsareinaccordancewithtermsincredit.Usance/termcredit遠期信用證AnL/Cwhichindicatesthatpaymentwillnotbemadeatthedateofreceiptofdocumentsuntilthematuritydatespecifiedinthecreditprovidedthatallthedocumentspresentedareinaccordancewiththecredit.2021/5/939SEIBOFGDUFSTypesofLetterofCredit

4.Straightvs.OpenCreditStraightcredit限制議付信用證AnL/Cthatisavailabletothebeneficiarybypresentationofdocumentstotheissuingbank.BeneficiarypresentingdocumentsdirectlytotheissuingbankratherthantoanyotherbankInpractice,thebeneficiarynormallypresentsdocumentstoanominatedlocalbankknownasnegotiationbankOpencredit自由議付信用證AlsofreenegotiablecreditTheissuingbankcommitstohonoringdraftsanddocumentsheldbythirdpartiesaslongasthedocumentscomplywiththecredit.2021/5/940SEIBOFGDUFSTypesofLetterofCredit5.Transferablevs.Non-transferablecreditTransferrablecredit可轉(zhuǎn)讓信用證Underwhichthebeneficiaryisentitledtoinstructtheadvisingbanktotransferhisrights,inwholeorinpart,toanotherparty.UsedespeciallywhentheexporterisnotthedirectmanufacturerbutamiddlemerchantTransferor–theprime/firstbeneficiary;transferee–thesecondbeneficiaryAcreditmuststateclearlythatitis“transferable”AtransferableL/Ccanbetransferredonceonly,namely,fromfirstbeneficiarytosecondbeneficiary(ies).Wherethereareseveralsecondbeneficiariesinvolved,thecreditmustpermitpartialshipments.Non-transferablecredit不可轉(zhuǎn)讓信用證AnL/Cunderwhichthebeneficiaryisnotentitledtotransferhisrights,inwholeorinpart,toanotherparty.2021/5/941SEIBOFGDUFSTypesofLetterofCredit6.RevolvingCredit可循環(huán)信用證Arevolvingcreditobligestheissuingbanktorestorethecredittotheoriginalamountafterithasbeenutilized,withouttheneedforamendment.

Usedespeciallyforongoingtransactions.2021/5/942SEIBOFGDUFSTypesofLetterofCredit7.ReciprocalCredit對開信用證Areciprocalcreditisacountercreditunderwhichtheapplicantofafirstcreditbecomesthebeneficiaryofthesecondreciprocalcredit,whilethebeneficiaryofthefirstcreditbecomestheapplicantofthesecondreciprocalcredit.Itisoftenusedinbartertransactions,tradeofprocessingincomingmaterials,countertradeorcompensationtrade.2021/5/943SEIBOFGDUFSTypesofLetterofCredit8.BacktoBackCredit背對背信用證Creditpaymentarrangementinwhichadocumentarycreditisusedasthe“backup”forissuinganewcreditMainlyusedbymiddlepersonsThefirstcreditmustbeirrevocableandnon-transferable2021/5/944SEIBOFGDUFSTypesofLetterofCredit9.RedClause/AnticipatoryCredit紅條款/預(yù)支信用證Ananticipatorycreditauthorizestheadvisingbanktomakeadvancestothebeneficiarybeforehispresentationofdocumentsrequired.Theapplicantisbearingtheliabilityofrepaymentincaseofthebeneficiary’sfailureofpresentingdocumentsforsettlement.2021/5/945SEIBOFGDUFSTypesofLetterofCredit10.StandbyCredit備用信用證Astandbycreditisacleancreditthatguaranteesthepaymentforapossibleunfulfilledobligationonthepartoftheapplicant.ItissimilartoaLetterofGuarantee.2021/5/946SEIBOFGDUFSLetterofCreditCharacteristics–Itscontentshouldcomplywiththesalescontract,butonceopenedthecreditwillexistindependentfromthecontract.Itprovidesahighlevelofprotectionandsecuritytobothbuyersandsellersengagedininternationaltrade.Thesellerisassuredthatpaymentwillbemadebyapartyindependentofthebuyersolongasthetermsandconditionsofthecreditaremet.Thebuyerisassuredthatpaymentwillbereleasedtotheselleronlyafterthebankhasreceivedthetitledocumentscalledforinthecredit.Banksonlydealwithdocuments,notinvolvedinanydetailoftheactualtransaction.2021/5/947SEIBOFGDUFSLetterofCreditGovernedbyUniformCustomsandPracticeforDocumentaryCredits600(UCP600)2021/5/948SEIBOFGDUFS7.7LetterofGuarantee(L/G)Definition

LetterofGuaranteeisanirrevocableundertakingbywhichtheissuerholdsitselffinanciallyliablefortheconsequencesofnon-performanceoftheobligationsbyathirdpartytowardsthebeneficiary.2021/5/949SEIBOFGDUFSBothsellerandbuyercanbethebeneficiaryofanL/GTwokindsofL/G:creditL/GandpaymentL/GWidelyusedintradeofcommodityandserviceEssentialrequirementsofanL/G:IrrevocableUnconditionalFullytransferableAbstract(theguaranteemustnotbedependantonperformanceoftheunderlyingsupplycontractDivisible(eachindividualrepaymentamountanddatemustbespecified)7.7LetterofGuarantee(L/G)2021/5/950SEIBOFGDUFS7.8ExportFinancingTwocash-in-needperiodsforexportersPreshipmentandpostshipmentFactorstoconsiderwhileusingexportfinancing:TheneedforfinancingThelengthoftimeoffinancingThecostofthedifferentfinancingmethodsTherisksassociatedwiththetran