BANKING SERVICES AND METHODS OF PAYMENT

PART – 1
BANKING SERVICES AND METHODS OF PAYMENT

Goods Shipped on Consignment
From the importer’s point of view this method of payment is the most favourable because there is no commercial risks involved. Under the term of consignment, the importer will remit payment only after the goods are sold, and if the goods are not saleable he may even return them to the supplier without any payment. However, from the point of the view of exporter, consignment operations are best for certain categories of goods particularly fast moving consumer products which require the maintenance of ample stock in the importing country (importing agent) to meet demand. The manufacturer or supplier will normally extend this favourable method of payment to the well established and trustworthy agent only

On Open Account
The open account system is also the most favourable method of payment for the importer. The mechanism is simple and rapidly becoming the main method of settlement for international trade. Under the open account system the supplier will dispatch he goods, forward the relative invoice and shipping documents made out to the order of the importer, and then wait for payment say 30 or 60 days from the date of invoice. If the supplier expect prompt payment he may offer discount incentive e.g., 5% discount fore payment within 14 days from date invoice or statement. (Goh Tianwah, EXPORT-IMPORT PROCEDURES & DOCUMENTATION, 1990 )


PART – 2
Method Of Transfer of Funds
Importer may remit proceeds of sales in the following ways:
1. T.T. – Telegraphic Transfer- This is the most speedy method of settlement as the importer instructs his bankers to send a short cable to their correspondent with instruction to pay the supplier a certain sum of money. In this case the importer should inform the supplier of such payment by telex.
2. M.T.- Mail Transfer- This is another method of settlement, the buyer can instruct his bank to remit fund by air mail transfer through is branch or overseas correspondent with instruction to pay the supplier.
3. Importer’s Chaques - Importer may settle his account with the overseas supplier by means of his cheque drawn on his own banker and made payable to the supplier. In normal banking practice, such cheque will be treated by foreign bank on collection basis and subject to final payment by the drawer.

Bill Finance By Bank
The exporter who sells goods to an overseas buyer on credit terms can request his bank to make an advance against the security of the documentary bills. This method of finance is usually known as purchase of documentary collections subject to final payment by the buyer. In other words, the purchasing bank has the right of recourse to the exporting customer in the event that the buyer fails to pay the bill.
(Goh Tianwah, EXPORT-IMPORT PROCEDURES & DOCUMENTATION, 1990 )

Part – 3
06-Nov-2009

The banking procedure is as follows:-
1. The exporting customer draws a bill of exchange on the buyer for the full value of the invoice. The bill of lading must be in negotiable form, that is consigned to order and endorsed in blank by the shipper. The insurance policy/certificate also must be blank endorsed so that the title to the goods can be easily passed on to a final buyer. The documents must be accompanied by a remittance letter.
2. The financing bank requires a letter of hypothecation signed by the exporting customer. The purpose of this document is to entitle the bank to take possession of the goods in the event that the buyer files to pay the bill and also in the consequence of the financing bank’s inability to recover the loan made to the exporter.
3. When the bill is finally paid, the bank’s will charge the customer with interest payable at the bank’s current rate for the period from the that of negotiation up to the approximate that of arrival of the proceeds of the bill. In some cases, interest is payable by the buyer.
4. Normally, the lending bank may advance from 50% up to 100% of in the voice value and hold the balance, if any, as margin on bill’s. When the relative bill is finally paid by the buyer, the bank will release the balance of the bill amount to the customer after charging interest due thereon.

Part – 4

Banking Procedure On Bills For Collection
In normal practice most exporter will usually entrust the collections to their bankers (remitting banks) which may take about one to two days to process and forward the documents to their overseas branch or correspondent bank (collecting bank) for collection. On receipt of the relative document the collecting bank will follow the instructions given in the collection order and deliver the documents to the drawee for payment or acceptance depending on the tenor of the bill.

D/P – Document Against Payment
Documents against payment term is similar to C.O.D. (cash on delivery) or C.A.D. (cash against documents). Under D/P term, the bill usually payable at sight (on demand). In some cases, D/P bill can be drawn payable “At 30 days D/P.” which means documents against payment may be deferred for a period up to 30 days after sighting by the drawee. Anyway, the collecting bank will not release the documents until payment has been received from the drawee.

D/A – Document Against Acceptance
Where an exporter who sells goods on credit terms can draw a time bill (also known as usance bill) payable at a future date e.g. “ At 60 days after sight” or “At 120 days after the date of this draft” or At 80 days after the date of bills of lading.” This type of usance bill is usually under D/A term – which means the collecting bank is authorized to release the documents to the drawee only after his acceptance of the bill.(Goh Tianwah, EXPORT-IMPORT PROCEDURES & DOCUMENTATION, 1990 )