Friday, October 31, 2014
             
   
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Payment

Payment

Payment Terms

Payment Terms Of Foreing Trade. International Terms Of Payment.

Cash Against Documents (CAD)

A payment arrangement in which an exporter instructs a bank to hand over shipping and title documents (see document of title) to the importer when the importer fully pays the accompanying bill of exchange or draft. Also called documents against payment.

Disadvantage:

1. Shipment in trust by seller and no guaranty for payment from buyer side.
2. Documents in trust in buyer’s bank. 
3. Buyer will pay when buyer need documents for customs clearance (based on previous experience) 

PB - Performance Bond
This is a type of bank guarantee which is issued from the Seller to the Buyer. It guarantees that the Seller will meet the terms of the contract. Normally issued in the amount of 2 % of the total amount of the contract, a performance bond can be drawn upon by the Buyer in the event that the Seller breaks the contract and fails to provide the product which was stipulated in the contract.

POP - Proof of Product
A Proof of Product (POP) is often requested by customers or agents who believe it will give them some guarantee of the existence of the product and ability of the supplier to deliver the product. In practice many POPs are false. POP offers no proof at all, because once a POP has been drafted it is automatically out of date - the product could have been sold to another buyer and therefore no longer exists. Nevertheless, a POP is still occasionally requested as apparent proof that a seller has the product, A POP is realistically provided only when the Buyer's bank issues a Bank Confirmation Letter (BCL) to the Seller and or seller's bank via SWIFT. Then the Seller's bank can check the availability of funds in the Buyer's bank and issue a POP to the Buyer's bank within an agreed time period (e.g. 5 days). A seller will not issue a POP to buyer without a non- operative letter of credit opened.

RWA - Ready, Willing and Able
This is a document which is issued by the Buyer's bank. The bank confirms that their client has the sufficient funds in their possession and is ready, willing and able to engage in the contract.

SOFT PROBE. This is an authorization from the buyer to the seller to contact the buyer's bank to verify the buyer has the financial capability to purchase the amount of goods and the method of payment agreed in the (LOI) Letter of Intent.

SWIFT
Society for Worldwide Interbank Financial Telecommunication - a global service which is responsible for facilitating communication between banks. Most payments are made via SWIFT.

Table 1. Terms Ranked from LEAST RISK to MOST RISK for the Seller

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SWIFT 700 against SWIFT 760

Buyer: (SWIFT 700) – AGAINST BG Seller: (SWIFT 760) - MAJOR WORLD BANK -103%

CONTRACT PROCEDURES
1. BUYER SENDS ICPO
2. BUYER SIGNS NCND AND IMFPA
3. SELLER ISSUES FULL CORPORATE OFFER (FCO) AND BUYER RETURNS ONE COPY OF FCO DULY COUNTERSIGNED SIGNIFYING ACCEPTANCE OF ALL TERMS AND CONDITIONS HEREIN STATED
4. SELLER SENDS THE DRAFT CONTRACT TO THE BUYER
5. BUYER SENDS CONTRACT DULY SIGNED, STAMPED AND SEALED TO SELLER IN ELECTRONIC FORMAT
6. SELLER RETURNS CONTRACT TO THE BUYER DULY SIGNED, AND SEALED IN ELECTRONIC FORMAT
7. BUYER SENDS A LETTER (ADDENDUM 4) ABOUT READINESS TO ISSUANCE THE FIRST PAYMENT BY SWIFT MT700 WITH A DRAFT OF SWIFT MT700 (ADDENDUM 1) COORDINATED BY BUYER’S BANK AND CONTRACT DULY SIGNED AND SEALED BY COURIER TO THE SELLER
8. WITHIN 2 (TWO) BANKING DAYS AFTER RECEIVING OF A LETTER ABOUT READINESS TO ISSUANCE THE FIRST PAYMENT FROM THE BUYER THE SELLER SENDS INVOICE THROUGH FAX AND COURIER WITH A HARD COPY OF CONTRACT TO THE BUYER            
9. WITHIN 2 (TWO) BANKING DAYS BUYER’S BANK SENDS THE FIRST PAYMENT BY SWIFT MT700 ACCORDING TO THE INVOICE TO THE SELLER’S ACCOUNT
10. SELLER SENDS THE BANK GUARANTEE (BG) BY SWIFT MT760 (ADDENDUM 2) TO THE BUYER’S ACCOUNT AFTER THEN SWIFT MT700 WILL BE COME UNCONDITIONALLY IMMEDIATELY
11. SHIPMENTS BEGIN ACCORDING TO CONTRACT AND CONTINUE UNTIL FULLY CONTRACTED QUANTITY IS SHIPPED AND DELIVERED (ADDENDUM 3)

PAYMENT TERMS AND GUARANTEES

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TOP-30 World Banks

TOP -30 the most reliable banks in the world 2012
Rank     Bank     Country     Total Assets (US$b)     Date
1     Deutsche Bank     Germany     2,805.50     31/03/2012
2     Mitsubishi UFJ Financial Group     Japan     2,641.22     31/03/2012
3     HSBC Holdings     UK     2,637.22     31/03/2012
4     Industrial & Commercial Bank of China     China     2,607.75     31/03/2012
5     BNP Paribas     France     2,545.34     31/12/2011
6     Credit Agricole Group     France     2,514.81     31/03/2012
7     Barclays PLC     UK     2,430.74     31/12/2011
8     Japan Post Bank     Japan     2,363.15     31/03/2012
9     JPMorgan Chase & Co.     USA     2,320.33     31/03/2012
10     Royal Bank of Scotland Group     UK     2,246.52     31/03/2012

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UCP 600

UCP 600

UCP 600 are the latest revision of the Uniform Customs and Practice that govern the operation of letters of credit.
UCP 600 comes into effect on 01 July 2007
The 39 articles of UCP 600 are a comprehensive and practical working aid to bankers, lawyers, importers, and exporters, transport executives, educators, and everyone involved in letter of credit transactions worldwide.

ICC Uniform Customs and Practice for Documentary Credits (UCP 600)

Foreword

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