Payment by Documentary Collection in International Business.

To collect payment from a foreign buyer using documentary collection, the seller sends a draft or other demand for payment with the related shipping documents through bank channels to the buyer's bank.

The bank releases the documents to the buyer upon receipt of payment or promise of payment. The banks involved in facilitating this collection process have no responsibility to pay the seller should the buyer default unless the draft bears the aval (ad valutem) of the buyer's bank8. It is generally safer for exporters to require that bills of lading be "made out to shipper's order and endorsed in blank" to allow them and the banks more flexible control of the merchandise.

Documentary collection carries the risk that the buyer will not or cannot pay for thgoods upon receipt of the draft and documents. If this occurs it is the burden of the seller to locate a new buyer or pay for return shipment. Because the bill of lading for ocean freight is a valid title to the goods and is a negotiable document whereas th comparable airway bill is not negotiable as an ownership title,

documentary collections are only viable for ocean shipments.

38. Risks in International Business: definition and types.

During the fulfillment of a commercial contract risks can appear both on the part of the exporter and on the part of the importer.

In general, by risk we understand the possibility, statistically speaking, to understand favorable or not so favorable results of a future action in the international economic relations.

In a more narrow definition, the risk is connected only with exterior events, which cannot be influence by the partner’s behavior. The risk contains a future and probable event which, in the case of realization, can bring about some losses. The event can be foreseen only if the factors that are influencing the risk can be anticipated and unforeseen when we talk about exceptional events.

By another definition we can understand by risk the possibility of a loss for an international economical transaction (export, import, cooperation) as a result of some unpredictable events.

The causes that are generating risk are numerous and can have commercially or non-commercially nature. These causes are used for commercially risks: buyer’s insolvability, no payment of the merchandise or for the service, unacceptance of the merchandise by the buyer.

The non-commercially risks are determined by:

the war situation, the expropriation and the government intervention, the canceling of import/export licenses, natural calamities.

The risks can be divided in internal risks which can be localized in the

human resource capacity, in the fixed capital, in the economic processes

for warehousing, manipulation and transportation of the merchandise of

The internal risk can be divided in:

a) Production risks

a. Innovationrisk, the production development for export

b. Technological risk, the production of new products, the

possibility of not realizing partially or totally the product in due

time.

b) Production cooperation – for complex exports or for export which implies cooperation between 2 or more producers.

c) Informational risk – the inefficiency in communication, no channels of exchanging information between two units in an export transaction.

d) Merchandise logistic risk – it means possible losses that can appear during the merchandise transportation or during the time the merchandise is in the warehouse (maneuvering risks).

The external risks can be divided in:

a) Execution risk

b) Insolvability risk

c) Price risk

d) Foreign Exchange rate risk

Date: 2016-03-03; view: 710