FOCUS 1. Read and discuss the lead-in and the letters.
LEAD-IN
Standard forms have been developed not only for delivery terms, but also for the terms of payment that should be agreed upon. However, no clear and internationally applicable definitions of the various terms of payment have so far been laid down by the International Chamber of Commerce or similar institutions; instead, certain terms of payment have become established as commercial practice.
The Buyer and the Seller pursue different interests when agreeing on terms of payment. The Seller will try to obtain payment as quickly as possible to finance some part of the production costs and avoid the risk of non-payment. The Buyer of the goods, in contrast, has an interest in delaying payment as long as possible, preferably until receipt of the goods themselves, to minimize his financing delay costs and to exclude delivery and quality risks.
Terms of payment can be assessed according to different criteria depending on the objectives embraced; e.g. according to the due date of payment, the place of payment, the security of payment for the exporter, the security of delivery for the importer, the interest charges incurred through financing the sale or purchase, and the transaction costs.
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These are the terms of payment commonly used in foreign trade:
· Advance payment. Downpayment. Payment before delivery of the goods. (CBD – cash before delivery, CWO – cash with order).
· Payment on invoice. Payment due upon receipt of invoice or goods. (COD – cash on delivery).
· Open terms at some days upon receipt of the invoice or statement of account.
· Collection arrangements:
– D/P – Documents against payment: payment for collection and documentary credit;
– D/A – Documents against acceptance of bills of exchange.
NEGOTIATING THE TERMS OF PAYMENT
Payment on invoice is to be effected within some time upon receipt of the invoice, i.e. at some days.
A Proforma Invoice is a detailed statement of costs, which is sent to the Buyer as a request to pay for the goods in advance, or as confirmation of quotations, or as information records to estimate the coming charges, or as a Customs document.
THE BUYER OFFERS NEW TERMS OF PAYMENT
RUSVNESHTORG
St.Petersburg Nevskij av. 16/2b
Our ref. Your ref.
May 30, 20__
WORLDWIDE INC.
11-14 Montague Street
New York USA
Dear Mr Stake,
Thank you for your letter of May 23, proposing us terms of payment.
Unfortunately we cannot accept either net cash payment on Proforma or COD. We have never practised such terms especially in transactions for big amounts.
On our part we would like to offer you our usual terms of payment by drafts at 3 months of the date of the invoice with interest at 4% per annum for the full value of the goods under the contract.
We will appreciate your soonest reply.
Best regards,
S.Andreev
S.Andreev
Manager
OPERATING ON OPEN ACCOUNT FACILITIES
In transactions on open account the Seller keeps a record of all invoices sent out to the Buyer and once a month (or once a quarter) issues a statement of account as at a certain date. Then the Buyer clears his account and effects payment on statement.
2.1 THE BUYER REQUESTS TO EXTEND CREDIT ON OPEN ACCOUNT TERMS
MACHINE BUSINESS LTD.
11b Novinskij bul.,
Moscow, Russia
October 27, 20__
PILFORAMA LTD.
18-H, Window Street,
Hendon Middlesex L13
Dear Sirs,
We have received three consignments against the trial orders placed with you between June and September and are pleased to say that the quality of the goods and the service are equally outstanding.
We therefore intend to place an increased volume of orders on a regular monthly basis and would greatly appreciate it if, instead of payment on invoice at 30 days, we could settle at 90 days.
Messrs. Bullfinch & Sons have been supplying us on these terms for 3 years past and you may, should you so desire, contact them on the subject. You can also apply for references to our bankers the ß-Bank, Moscow, M. Poryvaevoj 77.
These terms would simplify our business transactions with you and for that reason we sincerely hope that you will grant them to us. We can, of course, supply further references, should you deem them necessary.
Yours faithfully,
A.Vavilova
A.Vavilova (Ms)
Head of Administration
