外贸函电,外企必备

Unit 7 Terms of Payment

I. Introduction

The payment plays a very important role in business. The final result of all business activity should be to recover the value of goods supplied or services rendered. If payment is not ensured then all will be meaningless. Both the exporter and importer face risks in an export transition because there is always the possibility that the other party may not fulfill the contract.

For exporters there is the risk that buyers defaults; the customers might not pay in full for the goods. There are several reasons for this: the importers might go bankrupt; a war might ban importers of certain commodities. Another possibility is that the importer might run into difficulties getting the foreign exchange to pay for the goods. It is even possible that the importers are not reliable and simply refuse to pay the agreed amount of money.

For the importers there is risk that the goods will be delayed and they might only receive them after paying them. This may caused by port congestion or strikes. Delays in fulfillment of orders by exporters and difficult customs clearance in the importing country can cause loss of business. There is also a risk that the wrong goods might be sent.

Payment in foreign trade is complicated and settlement for foreign accounts may be made in a number of ways. The method of payment for each transaction is to be agreed upon between the two trading parties at the time of placing an order. The most often adopted method of payment in our foreign trade is payment by L/C,

Terms of payment means way or method of making payment. The methods we use in payment in the clearing of international trade are remittance, collection and the letter of credit (L/C).

Remittance is classified into 3 kinds: 1)Mail transfer (M/T) 2)Telegraphic transfer (T/T)

3)Demand draft (D/D) The buyer buys a draft from a local bank and sends it by mail to the seller, the seller or his appointed person can collect money from the relative bank at his end against the draft sent by the buyer.

Sometimes, the importer requests payment to be made by collection through banks under the terms of documents against payment (D/P) or documents against acceptance (D/A). In this case, the banks will only do the service of collecting and remitting and will not be liable for non-payment of the importer. D/P calls for actual payment against transfer of shipping documents. There are D/P at sight and D/P after sight. The former requires immediate payment by the importer to get hold of the documents. In the latter condition, the importer is given a certain period to make payment as 30, 45, 60 or 90 days after presentation of the documents, but he is not allowed to get hold of the documents until he pays. D/A calls for delivery of documents against acceptance of the draft drawn by the exporter. D/A is always after sight.

L/C is used in cases where the exporter wishes to avoid the risk, and it involves a guarantee of the bank opening the L/C. An L/C is a document issued by a bank (issuing bank) stating its commitment to pay the seller a stated amount of money on behalf of the buyer as long as the seller meets very specific terms and conditions. There are many types of L/C, such as Documentarty L/C, Irrevocable L/C, Revocable L/C, Transferable L/C, Sight L/C, Time L/C, Confirmed L/C, Unconfirmed L/C. Parties concerned to a documentary credit are: the applicant, the issuing bank, the advising bank, negotiating bank, the paying bank, confirming bank and the beneficiary. 1

The letters of payment of payment in international trade may discuss which terms of payment of OK for both parties, accept or decline a method of payment, urge to open the relevant L/C or ask for amendment to the L/C.

II. Study of sample letters

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III. Useful expressions

1. Our usual mode of payment is by confirmed, irrevocable L/C in our favor, available by draft at sight, reaching us ahead of shipment and allowing transshipment and partial shipments.

2. On examination, we find that the amount of your L/C is insufficient. Please increase the unit price from RMB￥0.55 to RMB￥0.60 and total amount to RMB￥37,000.00.

3. In compliance with your request, we will make an exception to our rules and accept delivery against D/P at sight, but this should not be regarded as a precedent.

4. We regret having to inform to you that although it is our desire to pave the way for a smooth development of business between us, we cannot accept payment by D/D.

5. We regret our inability to make any arrangement contrary to our usual practice, which is payment by confirmed, irrevocable L/C payable against presentation of shipping documents and valid for at least 15 days beyond the promised date of shipment.

6. We wish to draw your attention to the fact that as a special sign of encouragement, we shall consider accepting payment by D/P during this sales-pushing stage. We trust this will greatly facilitate your efforts in sales.

7. Payment is to be made against sight draft drawn under a confirmed, irrevocable and transferable L/C without recourse for the full amount of purchase.

8. As the amount of our Order No.111 is below ￡1000, please agree to payment by D/P, because an L/C will cost us much.

9. We propose to pay by bill of exchange at 30 days’ documents against acceptance. Please confirm if this is acceptable to you.

10 Much to our surprise, our draft on you dated 11 May and due 1 July was returned dishonored yesterday by our bank.

11. Please amend L/C No. 2345 to read as follows:

a) “metric ton”, as was contracted, instead of “long ton”;

b) “shipment latest 30th September and partial shipments and transshipment allowed.”

12. The shipment covered by your Credit No. 552 has been ready for quite some time, but the amendment advice has not yet arrived, and now an extension of 15 days is required.

Exercises

I. Put the following Chinese into English:

1. 汇付 2. 托收 3.保兑信用证 4. 信汇 5. 电汇

6. 票汇 7. 托收行 8. 运输单据 9. 付款交单 10. 承兑交单

11. 跟单信用证 12. 金额为 13. 洁净已装船提单 14. 承兑汇票

II. Multiple choice:

1. Payment should be made ___ sight draft.

A. at B. upon C. by D. after

2. Mr Yin could agree ___ D/P terms.

A. With B. to C. in D. ever

3. 90% of the credit amount must be paid __the presentation of documents.

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