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- Negotiate your Sales/Purchase Contract
- Know your supplier / buyer
3. Negotiate your contract
Type of merchandise, unit price
Freight charges
Insurance of merchandises
Delivery responsibilities
Last date of shipment
Documents required
Sign a pro-forma invoice
4. Methods of payment
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1. In advance: Seller requests payment before shipment
2. Open accounts: The seller ships the goods before receipt of payment. This
provides 100% security for the buyer.
3. Documentary Collections
At Sight:
The seller ships the goods but sends the documents of title to the buyer’s
bank.
The documents are remitted to the buyer only after payment.
5. Methods of payment ( cont’d)
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4- Documentary Collections
Acceptance:
If the seller instructs the buyer’s bank to deliver the shipping documents against the
acceptance of a bill of exchange, the bank in this case does not guarantee the payment
on maturity date.
Note: AVAL
5- Letters of Credit:
Ensure that terms and conditions of the credit have been fulfilled before proceeding
with the payment.
Payment is based on documents only
6. Issuance of a Credit
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Issuing Bank/Advising Bank/Confirming Bank
The issuing bank is the buyer’s bank.
The advising bank is a bank in the seller’s country which notifies the
credit to them.
It is a conditional bank undertaking of payment given to the seller,
upon the buyer’s request, to pay an amount specified within a time
prescribed, when the seller presents documents in conformity with the
L/C
7. Types of credit
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A- Irrevocable Credit:
It gives the seller greater assurance of payment. The credit cannot be
amended or cancelled unless all the parties (issuing bank, confirming
bank and beneficiary) agree.
B- Confirmed Irrevocable Credit:
It gives the seller a double assurance of payment since a bank in his
country has added its own undertaking to that of the issuing bank.
8. Transferable credit
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A transferable credit is normally used when the first beneficiary does
not supply the merchandise himself but is a middleman. The first
beneficiary wishes to transfer part or all of his rights and obligations to
the actual supplier of goods (second beneficiary).
The credit can only be transferred once and the second beneficiary
cannot retransfer to a third beneficiary. The terms of the original
credit stay the same, except:
9. Transferable credit (cont’d)
The name and the address of the first beneficiary.
The amount of the credit and the unit price.
The period of validity (expiry date)
The last date for presentation of documents
The shipment date
10. Transferable credit (cont’d)
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1. Insurance Amount
2. The transferring bank should advise the second beneficiary bank that
payment will be remitted upon receipt of funds from the issuing bank of
the original credit.
11. :
Incoterms:
The purpose of Incoterms is to provide a set of International Rules for the
interpretation of the most commonly used Trade Terms in foreign trade :
FOB, CIF, etc
Uniform Customs and Practice for Documentary Credits:
They are the International Chamber of Commerce rules for the compliance
of issuing letters of credit and checking documents.
12.
13.
14. Summary
The buyer and the seller conclude a sale/purchase contract calling for
a letter of credit
The buyer instructs his bank (the issuing bank) to issue a credit in
favour of the seller (beneficiary)
The issuing bank asks a bank in the seller’s country to advise and/or
confirm the credit
The seller has to be satisfied with the terms and conditions of the
credit.
15. Summary ( Cont’d)
The seller sends the documents evidencing the shipment to the bank
where the credit is available.
The bank checks the documents against the credit. If they meet the
requirements of the credit, the bank will request payment from the
issuing bank.
16. Bill of Exchange
DATE:____________________
At_________________after date for value received,
Pay to the order of Bank ______________________the sum of
__________________________________USD___________
DRAWEE:
__________________________________
__________________________________
__________________________________
__________________________________
Signature:
____________________________
17. Guarantee
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The guarantees are instruments issued by Banks to guarantee the
payment of an amount in case of default of payment on execution of a
contract.
The guarantees are:
1- Financial: to guarantee non payment of a loan or financial obligation.
2- Non Financial:
Tender Bonds; Performance Bond; Advance payment on a contract.