Modes of Payment
Payment in Advance:
¤ Payment is paid in advance by the importer
¤ I.e. prior to shipment of the goods
¤ In this case exporter does not need finance
¤ Not a very common mode
¤ Normally adopted in case of risky importers
Payment under Consignment Sale
¤ Title of goods lie with exporter
¤ Even after shipment and receipt of goods by importer
¤ Importer remits money after the sale
¤ Exporter’s capital is tied up in inventory
¤ Normally found in related companies only
Open Account:
¤ Like normal ‘Credit Sales’
¤ Goods are shipped and received by importer
¤ Title is also transferred
¤ Payment is received on a predefined future date
¤ Normally, to only creditworthy importers
Draft (Bill of Exchange):
¤ An Instrument through which
¤ An exporter (maker or drawer) instructs the
¤ Importer (drawee) or its agent (its bank)
¤ To pay a specified amount
¤ At a specified time.
Draft (Bill of Exchange) - TYPES:
¤ Demand Draft or Time Draft
n In case of DD - Payment is made immediately
n In case of refusal it is termed as Dishonor
n Time Draft – Payment is made after a specified time (tenor) written in draft
n Holder has option to keep till maturity and get the specified amount
n Or holder can sale it in Money Market at discounted rate.
¤ Clean Draft & Documentary Draft
n Clean Draft – No other document is attached with
n All other documents directly send to importer
n Normally, used in case Intra-firm sales
n Documentary Draft – Shipping documents are sent along with draft
n Goods can be release only after submitting these documents
n These documents have to be obtained from bank after due payment or acceptance of draft
¤ Documentary Draft
n When documents are obtained against full Payment of Goods, it is termed as Documents against Payment i.e. D/P
n When documents are obtained against the acceptance of draft (i.e. promise to pay), it is termed as Documents against Acceptance i.e. D/A
Letter of Credit (L/C):
¤ An Instrument signed by the Importer’s Bank
¤ Wherein it (bank) promises the exporter
¤ To make payment of the goods
¤ If he abide by conditions mentioned in L/C
¤ Importer’s bank gets a fee from importer
¤ L/C has an amount and expiration period
Factoring:
¤ Exporter receives payment after a no. of days
¤ During this period export is treated as Account Receivable
¤ But at the same time export may in need of finance
¤ Therefore, exporter can sell his receivables to a bank or other agencies
Forfaiting:
¤ Almost similar to ‘Factoring’
¤ But usually done in large and long-term export
¤ Which is generally the case of capital goods
¤ In this case importer write a promissory note (bill of exchange) to exporter i.e. promise of paying a specified amount on a specified date
Counter Trade:
¤ Those type of transactions in which
¤ Exporter gets value of exports not in cash
¤ But in the form of specific commodities
¤ As per the agreement b/w parties
¤ In other words, here imports are financed through exports
Export-Import Bank of India
¤ Apex body in the country estd. Jan.1982
¤ For direct finance and refinance facilities
¤ For encouraging foreign trade
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