Slide 1

PAYMENT TERMS
• ADVANCE PAYMENTS

• OPEN ACCOUNT TRADE

• DOCUMENTARY COLLECTIONS

• DOCUMENTARY LETTERS OF CREDIT


Slide 2

EXPORT TRADE PARTIES
OFFSHORE
FOREIGN
BANK

FOREIGN
IMPORTER

FACILITATES PAYMENT

RECEIVES PAYMENT

SOUTH AFRICA

PAYMENT
FACILITATES PAYMENT

ECREIVES PAYMENT

SOUTH
AFRICAN
EXPORTER

COMMERCIAL RISK

LOCAL
BANK


Slide 3

ADVANCE PAYMENTS
• SELLER HAS BOTH GOODS AND MONEY
• ABSOLUTE TRUST BY BUYER THAT SELLER
WILL DELIVER THE CORRECT GOODS
• EXCHANGE CONTROL IN BUYER’S COUNTRY
MUST PERMIT ADVANCE PAYMENTS - MANY
DON’T
• BUYER MUST BE FINANCIALLY SOUND
• COUNTRY RISK OF BUYER’S COUNTRY
• BUYER CAN OBTAIN CASH DISCOUNTS


Slide 4

OPEN ACCOUNT TRADE
• BUYER HAS BOTH GOODS AND MONEY
• ABSOLUTE TRUST BY SELLER THAT BUYER CAN
AND WILL PAY AT THE AGREED TIME
• BUYER’S COUNTRY WILL NOT IMPOSE
REGULATIONS DEFERRING OR BLOCKING
TRANSFER OF FUNDS
• BUYER MUST BE FINANCIALLY SOUND
• COUNTRY RISK OF BUYER’S COUNTRY
• SELLER HAS SUFFICIENT LIQUIDITY


Slide 5

DOCUMENTARY COLLECTION
DEFINITION
A DOCUMENTARY COLLECTION IS THE
COLLECTION, THROUGH A BANK, OF A SUM
OWNED BY A BUYER, AGAINST DELIVERY
OF DOCUMENTS


Slide 6

PARTIES TO A DOCUMENTARY COLLECTION

DRAWER
(EXPORTER)

REMITTING BANK
(SUPPLIER’S BANK)
CONTRACT
OF
SALE

COLLECTING BANK

DRAWEE
(IMPORTER)


Slide 7

DOCUMENTARY COLLECTIONS
METHOD OF OPERATION
• TWO BASIC FORMS
- DOCUMENTS AGAINST ACCEPTANCE (D/A)
- DOCUMENTS AGAINST PAYMENT (D/P)
• EXPORTER HANDS ALL DOCUMENTS TO THE BANK
• BANK ACTS AS INTERMEDIARY BETWEEN EXPORTER
AND IMPORTER
• BANKS CONTROL THE RELEASE OF DOCUMENTS AS PER
INSTRUCTIONS FROM THE EXPORTER
• THE BANK DOES NOT ASSUME ANY RESPONSIBILITY IF
THE IMPORTER IS UNWILLING OR UNABLE TO MEET HIS
PAYMENT OBLIGATIONS


Slide 8

DOCUMENTARY COLLECTIONS
ADVANTAGES
• SIMPLE AND INEXPENSIVE
HANDLING
• OFTEN QUICKER PAYMENT
COMPARED TO OPEN ACCOUNT
• TITLE TO THE GOODS
CONTROLLED VIA A BANK,


Slide 9

DOCUMENTARY COLLECTIONS
REASONS FOR BILLS BEING DISHONOURED
• DRAWEE IN PRISON FOR MURDER
• DRAWEE HAS GONE TO THE RACES,
HOPES TO PAY TOMORROW

• WILL PAY WHEN SEEDS GERMINATE
• DRAWEE HAS BEEN DECLARED
BANKRUPT AND THE LIQUIDATOR HAS
BEEN PUT IN PRISON FOR HOMICIDE


Slide 10

DEFINITION OF A
LETTER OF CREDIT
A DOCUMENTARY CREDIT REPRESENTS A
COMMITMENT OF A BANK TO PAY THE
SELLER OF GOODS OR SERVICES A
CERTAIN AMOUNT PROVIDED HE
CONFORMS WITH THE SPECIFIED TERMS
AND CONDITIONS WITHIN A PRESCRIBED
PERIOD OF TIME


Slide 11

PARTIES TO A DOCUMENTARY CREDIT

APPLICANT

ISSUING BANK

ADVISING BANK

CONFIRMING BANK

BENEFICIARY

CONTRACT
OF
SALE


Slide 12

DOCUMENTARY CREDITS
BASIC FORMS

• REVOCABLE CREDITS

• IRREVOCABLE, UNCONFIRMED CREDITS

• IRREVOCABLE, CONFIRMED CREDITS


Slide 13

DOCUMENTARY CREDITS
REVOCABLE
• CAN BE AMENDED OR CANCELLED
WITHOUT BENEFICIARY’S CONSENT
• MAY NOT BE REVOKED IF PAYMENT HAS
BEEN MADE OR IF DOCUMENTS HAVE
BEEN TAKEN UP

• IF NOT CLEARLY MARKED
REVOCABLE, IT IS DEEMED TO BE
IRREVOCABLE


Slide 14

DOCUMENTARY CREDITS
IRREVOCABLE, CONFIRMED
• IF THE CONFIRMING BANK IS A FIRST RATE
BANK IN BENEFICIARY’S COUNTRY, THEN NO
SOVEREIGN RISK
• BENEFICIARY MAY RELY SOLELY ON THE BANK
WHICH HAS ADDED ITS CONFIRMATION
• BENEFICIARY CAN DEAL WITH A BANK IN ITS
OWN COUNTRY
• AVAILABLE WITH CONFIRMING BANK
• PROCEEDS CAN BE DISCOUNTED


Slide 15

DOCUMENTARY CREDITS
TYPES ACCORDING TO PAYMENT METHODS
• SIGHT CREDIT
• ACCEPTANCE CREDIT
• DEFERRED PAYMENT CREDIT
• NEGOTIATION CREDIT
• ADVANCE PAYMENT CREDIT
• REVOLVING CREDIT


Slide 16

DOCUMENTARY CREDITS
TYPES ACCORDING TO PAYMENT METHODS
• SIGHT CREDIT
- PROCEEDS PAID UPON PRESENTATION AND
EXAMINATION OF DOCUMENTS
- UCP ALLOWS BANKS 7 DAYS TO EXAMINE
- SIGHT CAN MEAN FEW DAYS DEFERRED PAYMENT

• ACCEPTANCE CREDIT
- USANCE DRAFT DRAWN ON ISSUING OR ON
NOMINATED BANK ( 90 DAYS FROM SHIPMENT )
- ACCEPTED DRAFTS CAN BE DISCOUNTED
- BEWARE OF ACCEPTANCE CHARGES


Slide 17

DOCUMENTARY CREDITS
TYPES ACCORDING TO PAYMENT METHODS
• DEFERRED PAYMENT CREDIT
- NO ACCEPTANCE OF DRAFTS
- PAYABLE AT A DETERMINABLE FUTURE DATE
- PROCEEDS CAN ONLY BE DISCOUNTED WITH THE
ISSUING OR NOMINATED BANK
- FINANCING INSTRUMENT FOR THE BUYER

• NEGOTIATION CREDIT
- SIGHT/USANCE WITH THE ISSUING BANK
- USUALLY DELAYS IN PAYMENT


Slide 18

DOCUMENTARY CREDITS
BEFORE THE CREDIT IS ISSUED

• DECIDE ON THE FORM OF THE CREDIT
DURING SALES NEGOTIATION
• THE SELLER OBTAINS THE BEST
GUARANTEE OF PAYMENT WHEN THE
CREDIT IS CONFIRMED BY A BANK IN HIS
OWN COUNTRY


Slide 19

DOCUMENTARY CREDITS
SALES CONTRACT ?
•AMOUNT AND CURRENCY
•TOLERANCE IN AMOUNT AND QUANTITY
•PLACE OF AVAILABILITY
•CONFIRMATION REQUIRED ? BY WHOM ?
•MUST THE CREDIT BE TRANSFERABLE ?
•EXPIRY DATE, LATEST SHIPMENT DATE, PERIOD FOR
PRESENTATION OF DOCUMENTS
•PAYMENT TERMS (SIGHT OR USANCE)

•PARTIAL/ TRANSHIPMENTS ALLOWED ?
•DELIVERY TERMS (INCITERMS)
•PORT OF SHIPMENT AND DISCHARGE
•WHICH CREDIT COSTS ARE TO BE BORNE BY WHOM

•THE NOMINATED BANK FOR NEGOTIATION AND/OR CONFIRMATION


Slide 20

HOW TO HANDLE DISCREPANT
DOCUMENTS
• RETURN DOCUMENTS TO BENEFICIARY FOR
CORRECTION
- REPRESENTATION MUST BE WITHIN PRESENTATION
PERIOD ALLOWED UNDER CREDIT
- SOME DISCREPANCIES CANNOT BE CORRECTED

• TELEX TO ISSUING BANK FOR AUTHORITY TO
PAY

• SEND DOCUMENTS ON COLLECTION
• RETURN DOCUMENTS TO EXPORTER WITHOUT
PAYMENT
• PAY WITH RECOURSE TO THE BENEFICIARY


Slide 21

TRANSPORT DOCUMENTS
• AIR WAYBILL
• PARCEL POST RECEIPT

• COMBINED TRANSPORT BILL OF LADING
• RAIL CONSIGNMENT NOTE
• ROAD WAYBILL
• BILL OF LADING
• HOUSE BILL OF LADING


Slide 22

COMMERCIAL DOCUMENTS
• PROFORMA/COMMERCIAL INVOICE
• CERTIFIED INVOICE
• WEIGHT NOTE
• PACKING LIST

• SPECIFICATION
• INSPECTION CERTIFICATE
• ANALYSIS CERTIFICATE


Slide 23

COMMON DISCRPEPANCIES
•CREDIT EXPIRED

• LATE SHIPMENT
• LATE PRESENTATION
• DESCRIPTION OF GOODS ON INVOICE DIFFER FROM THE CREDIT
• DOCUMENTS NOT ENDORSED CORRECTLY

• INSURANCE DOCUMENTS INCORRECT
• ABSENCE OF SIGNATURES, ESPECIALLY TO AMENDMENTS ON
DOCUMENTS
• SHORT SHIPMENT
• MARKS AND NUMBERS DIFFER BETWEEN DOCUMENTS
• CARRIER/AGENT/MASTER
• PORT OF LOADING AND DESTINATION
• COMMERCIAL INVOICE (TAX)
• CLEAN ON BOARD NOTATION