1. Introduction ( Export Finance)
2. Methods of Payment
1. Payment in Advance
2. Open Account
3. Consignment Sale
4. Letter of Credit
5. Documentary Bills
3. Negotiation – Meaning
4. Negotiation / Collection
5. Methods in Negotiation of
Unlike any other business, export
producers have to take high interest in
the financial aspect of their business.
Export finance involves various
specialized institutions involved in the
export finance business or foreign
It starts when an exporter gets an
order from a foreign importer and end
when money received by the export
Export FinanceExport Finance
Methods of Payment
The sale contract between the exporter
and the importer must clearly specify,
“when the payment will be made and
how it will be made”.
It depends upon a number of factors
like exporters knowledge of the buyer,
buyer financial capacity, the degree of
the risk involved in receiving payment,
foreign exchange restrictions in the
importing country, demand and supply
of the product to be exported,
competition in the foreign market etc.
Most commonly used important
methods of payments are ;
1. Payment in advance
Under this method, an exporter may
receive a bank draft or bank advice either
on confirmation of order or before the
shipment is made.
The case when the importer will be ready
to make advance payments
when the buyer is unknown to the exporter and
there is n trust between them.
If the exporter is a monopolist in the market
In this system the burden of export payment is
borne by the importer.
The exporter sends the invoice and other
documents directly to the overseas buyer
with a covering letter stating the amount of
money to be remitted to him.
The importer remitted the amount
A credit period is allowed. Importer will
make the payment on the expiry of the
The exporter accept this order of payment of :
There is keen competition among various sellers.
There is a long and established relationship
between the exporter and the importer.
The foreign exchange regulations of the exporting
country shall permit such an arrangement etc..
The goods are shipped a foreign
distributer who sell them on behalf of
The exporter retains title to the goods
until they are sold, at which payment is
sent to the exporter.
The exporter has greatest risk and least
control over the goods
Receiving payment may take quite a
Letter of Credit
It is popular mode of payment, because it
involves less risk for the exporter.
The bank of the importer under take the
responsibility to pay the exporter under
The writer undertaking of the importers
bank to exporter is known as a letter
One of the important advantages of the
letter of credit from the point of view of
exporter is that immediately after the
shipment of goods he can present the bill
of exchange and other documents and
obtain payment from a bank at his own
The bank agrees to act as a media between
the exporter and the importer
The exporter agrees to submit the
document to his bank along with the bill of
The documents usually required are full
set of bill of lading, invoice and marine
The exporters bank then sends the bill
along with the other documents to its
correspondents bank in the importers
country and present the bill before the
importer either for payment or for
acceptance as per the terms of the bill.
Negotiation - Meaning
After the goods has been physically loaded
on board, exporter collect bill of lading,
which is the primary document in the
process of shipment of goods.
After collecting all the relevant documents
that the importer requires in terms of the
contract, exporter present the document to
collect payment. The process is known as
negotiation of document with bank.
“Presentation of documents by the exporter
to the bank for collecting payments of
exported goods is known as negotiation of
documents or realization of export
There are two methods in negotiation
of documents ;
1.Negotiation Of Document Under
2.Negotiation Of Documents Under
Documentary Letter Of Credit
Negotiation Under Documentary
BillsUnder this system the bank agrees to
become media between the importer and
The exporter agrees to submit on
documents to his bank along with one bill
The documents usually required are full set
of bill of lading, invoice and marine
The exporters bank sends the bill and the
other document to the correspondent
importers bank and it presents the bill
before the importer either for payment or
for acceptance as per the terms of the bill.
There Are Two Types Of Payment In
Negotiation Under Documentary Bill:
1.Document Against Payment (D/P)
2.Documents Against Acceptance (D/A)
PaymentThe exporters bank will send the
documents to its correspondent
importers bank in the importing
country which will present the
documents to the buyers and on
payments of bill exchange, will
delivers the documents to him, so
that, he can take the possession of
AcceptanceIn this case exporters correspondent
bank will submit the bill of exchange to
be signed by the buyer to indicate his
acceptance of one payments obligation
After he accept the bill, he will get
possession of the documents. On the
date of payment the bank will again
present the bill of the buyer who then
Under D/A bills, the exporter will have
to wait for payment to the bill is finally
paid for. But the negotiating bank are
very often willing to discount the bill.
Under D/P if the importer fails to accept
the document by making the required
payment, the document will remain in
the hands of bank, and the exporter
may not lose the title of goods.
In such a case the exporter will have
two option either to get the products
back or to find out some other agent to
sell the product.
Negotiation under letter of
creditUnder L/C, the buyer (importer) instruct
the bank to open documentary L/C in
favor of seller (Exporter).
When L/C is open to favor of exporter,
exporter negotiates the documents with
the negotiating bank.
Negotiating bank is, the bank which
pay or accept the draft of the exporter.
Exporter gets on payments if the
documents are in conformity with the
terms of letter of credit
Whether there is L/C or not the exporter
has to draw the bill of exchange on D/A
or D/P basis in terms of contract for
presenting the documents to the bank.
When documents can be
When the exporter present the documents
the, the first thing negotiating bank does is
to carefully scrutinize the documents
whether they are as per the terms and
conditions of L/C.
The bank should exercise extreme care in
verifying that there are no minor or major
discrepancies in the documents.
The document should also be in accordance
with the interpretation of various clauses
contained in the uniform customs and
practices for documentary credit,
application at the time of the negotiation