International Payment

International Payment

• Presentation Outline
• Cash Advance
• Letters of Credit (L/C)
• Documentary Collections
• Open Account

Trade Statistics

• According to U.S. Department of Commerce (October, 1999), U.S. exports to Taiwan amounted to U.S.$ 10.466 billion from January to July of this year, while during the same period only U.S.$ 7.466 billion worth of American products were sold to mainland China.
• The United States exported 1.4 times more goods to Taiwan than to the mainland. Mainland China is, however, 265 times the geographical size of Taiwan with a population 58 times larger.

• Cash in Advance

• Buyer pays before shipment
• Used in new relationship
• Transactions are small and buyer has no choice
• Maximum security to sellers
• No guarantee that goods are shipped

Draft:

• Draft:
• A bill of exchange-- an unconditional promise drawn by party (exporter), instructing the importer (buyer) to pay the face amount of the draft upon presentation

• Letters of Credit

• What is L/C?
• A document issued by a bank stating its commitment to pay someone (seller or exporter) a stated amount provided the seller or exporter meets specific terms and conditions
• also called the documentary letters of credit
• Most common payment method in international trade

• International Methods of Payment: Advantages and Disadvantages

• Methods of Payment
• Risk Protection

• Buyer

• Max

• Min

• Min

• Max

• Con-
• firmed

• Uncon-
• firmed

• Sight
• Draft

• Time
• Draft

• Cash in
• Advance

• Letter of
• Credit

• Documentary
• Collection

• Open
• Account

• Seller

• Steps in Obtaining L/C
• Buyer and seller agree on the terms of a sale, seller requests buyer to arrange for his bank to open a L/C
• The buyer’s bank (issuing bank) prepares a L/C
• The buyer’s bank then sends the L/C to its corresponding bank (buyer’s bank), which is called the advising bank
• The advising bank forwards the L/C to the buyer for approval-- terms can be amended
• After final terms (agreed), goods shipped