TEXT A. INTERNATIONAL TRADE PAYMENT

I. Read the article and give synonyms for the underlined words. Use the dictionary of synonyms or/and the dictionary of economic terms.

The right paperwork plays an important part in making and receiving payment.

Documentary collections and documentary credits are payment methods often used in international trade. By using special paperwork, the risk of the customer failing to pay or the supplier failing to deliver is reduced:

With a documentary collection, the exporter prepares a bill of exchange stating how much is to be paid and when. Once the customer accepts this bill of exchange, the customer is legally liable for payment. Only then does the exporter, usually through the bank in the overseas country, allow the customer to have the transport documents needed to take possession of the goods.

With a documentary credit, the customer arranges a letter of credit from their bank. The bank agrees to pay the exporter once all the right documentation - such as transport documents showing the right goods have been despatched - is received. The exporter must provide the required paperwork within the agreed time limit and with no discrepancies.

If you are using one of these payment methods, it's important to understand what documentation is required and ensure it is accurate. Payments under letter of credit can be particularly problematic as the exporter must provide exactly the right documentation to get paid.

Regardless of what payment method you agree, you should have a clear written contract stating what amount is due, in what currency, and when. The contract should also make it clear who is responsible for any bank charges.

In some cases international trade requires special documentation.

If you are importing goods, you may need proof of which country the goods come from. For example, some imports into the UK are entitled to preferential rates of duty but require a form EUR1. See our guide on using trade preferences.

Similarly, if you are exporting, your customer may require a certificate of origin from you. Your Chamber of Commerce can issue these.

There are special UK requirements for some controlled goods, such as firearms, medicines, plants and animal products. For example, a licence may be required.

If you are exporting, you should check whether any special documentation is required overseas to satisfy local regulations. For example, you might need documentary proof that your goods meet local product standards.

Dangerous goods must be accompanied by appropriate special paperwork.

There are simplified processes for temporary exports, eg if you are taking samples to an overseas exhibition.

1. Documentary credit. One of the primary peculiarities of the documentary creditis that the payment obligation is abstract and independent from the underlying contract of sale or any other contract in the transaction. Thus the bank’s obligation is defined by the terms of the credit alone, and the sale contract is irrelevant. The defences of the buyer arising out of the sale contract do not concern the bank and in no way affect its liability. Banks deal with documents only, they are not concerned with the goods (facts). Accordingly, if the documents tendered by the beneficiary, or his or her agent, appear to be in order, then in general the bank is obliged to pay without further qualifications.

The policies behind adopting the abstraction principle are purely commercial and reflect a party’s expectations: firstly, if the responsibility for the validity of documents was thrown onto banks, they would be burdened with investigating the underlying facts of each transaction and would thus be less inclined to issue documentary credits as the transaction would involve great risk and inconvenience. Secondly, documents required under the credit could in certain circumstances be different from those required under the sale transaction; banks would then be placed in a dilemma in deciding which terms to follow if required to look behind the credit agreement. Thirdly, the fact that the basic function of the credit is to provide the seller with the certainty of receiving payment, as long as he performs his documentary duties, suggests that banks should honour their obligation notwithstanding allegations of misfeasance by the buyer. Finally, courts have emphasized that buyers always have a remedy for an action upon the contract of sale, and that it would be a calamity for the business world if, for every breach of contract between the seller and buyer, a bank were required to investigate said breach.

The “principle of strict compliance” also aims to make the bank’s duty of effecting payment against documents easy, efficient and quick. Hence, if the documents tendered under the credit deviate from the language of the credit the bank is entitled to withhold payment even if the deviation is purely terminological. The general legal maxim de minimis non curat lex has no place in the field of documentary credits.Documentary Credit (more secure for seller as well as buyer) is subject to ICC's UCP 600, where the bank gives an undertaking (on behalf of buyer and at the request of applicant ) to pay the shipper ( beneficiary ) the value of the goods shipped if certain documents are submitted and if the stipulated terms and conditions are strictly complied.

Here the buyer can be confident that the goods he is expecting only will be received since it will be evidenced in the form of certain documents called for meeting the specified terms and conditions while the supplier can be confident that if he meets the stipulations his payment for the shipment is guaranteed by bank, who is independent of the parties to the contract.

2. Advance payment (most secure for seller) is where the buyer parts with money first and waits for the seller to forward the goods.

3. Documentary collection (more secure for buyer and to a certain extent to seller) is subject to ICC's URC 525, sight and usance, for delivery of shipping documents against payment or acceptances of draft, where shipment happens first, then the title documents are sent to the [collecting bank] buyer's bank by seller's bank [remitting bank], for delivering documents against collection of payment/acceptance

4. Direct payment (most secure for buyer) is where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on open account terms.

When making payment for product on behalf of its customer, the issuing bank must verify that all documents and drafts conform precisely to the terms and conditions of the letter of credit. Although the credit can require an array of documents, the most common documents that must accompany the draft include:

5. Commercial Invoice

The billing for the goods and services. It includes a description of merchandise, price, FOB origin, and name and address of buyer and seller. The buyer and seller information must correspond exactly to the description in the letter of credit. Unless the letter of credit specifically states otherwise, a generic description of the merchandise is usually acceptable in the other accompanying documents.

6. Bill of Lading

A document evidencing the receipt of goods for shipment and issued by a freight carrier engaged in the business of forwarding or transporting goods. The documents evidence control of goods. They also serve as a receipt for the merchandise shipped and as evidence of the carrier's obligation to transport the goods to their proper destination.

7. Warranty of Title

A warranty given by a seller to a buyer of goods that states that the title being conveyed is good and that the transfer is rightful. This is a method of certifying clear title to product transfer. It is generally issued to the purchaser and issuing bank expressing an agreement to indemnify and hold both parties harmless.

8. Letter of Indemnity

Specifically indemnifies the purchaser against a certain stated circumstance. Indemnification is generally used to guaranty that shipping documents will be provided in good order when available.

Date: 2016-01-14; view: 991