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International finance

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OPEN ACCOUNT, ADVANCE PAYMENT & CONSIGNMENT

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International finance

  1. 1. OPEN ACCOUNT, ADVANCE PAYMENT &CONSIGNMENT NABEEL FIRDAUS BIN MOKHTAR 08DPI12F2019 PUTERA ACHRUFF ICHKANDAR BIN ROSLY 08DPI12F2010 MOHD ASWADI BIN ISMAIL 08DPI12F2016 NORHASHIMAH BINTI MOHD ISMAIL 08DPI12F2028 NUR AZILA BINTU RUSLIN 08DPI12F2023
  2. 2. Advancepayment •Is the part of a contractually due sum that is paid or received in advance for goods or services. •The balance included in the invoice will only follow the delivery. •It is called a prepaid expense in accrual accounting for the entity issuing the advance -DEFINITION-
  3. 3. Advancepayment Are the safest method of payment for exporter Are least attractive option for the buyer (importer) exporter importer
  4. 4. Advancepayment Importer need to pay advance payment (ex: 50%) of goods price before exporter sent the goods When exporter receive the advance payment, they will sent the goods to importer The importer will pay the balance payment when they receive the goods
  5. 5. Advancepayment -RISK &BENEFIT- • Are the least secure payment method for importer • Foreign buyers may be concerned that the goods may not be sent if payment is made in advance. • An exporter can avoid credit risk because payment is received before the ownership of the goods is transferred • The exporter is relieved of collection problems and has immediate use of the money
  6. 6. Openaccount The goods, along with all the necessary documents, are shipped directly to the importer who has agreed to pay the exporter’s invoice at a specified date, which is usually in 30, 60 or 90 days The exporter should be absolutely confident that the importer will accept shipment and pay at the agreed time and that the importing country is commercially and politically secure. Open account terms may help win customers in competitive markets and may be used with one or more of the appropriate trade finance techniques that mitigate the risk of non-payment. Open account is typically used between established and trusted traders.
  7. 7. Openaccount Open Account Transaction Flow
  8. 8. Openaccount Risk o Buyer defaults on payment obligation. o Delays in availability of foreign exchange and transferring of funds from buyer’s country occur. o Payment is blocked due to political events in buyer’s country. SELLER
  9. 9. Openaccount BUYER oSeller does not ship per the order (product, quantity, quality, and/or shipping method). oSeller does not ship when requested, either early or late.
  10. 10. Consignment • Variation of open account in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer. • Transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells the goods for the exporter who retains title to the goods until they are sold. • Payment to the exporter is required only for those items sold. • Appropriate insurance should be in place to cover consigned goods in transit or in possession of a foreign distributor as well as to mitigate the risk of non-payment.
  11. 11. Consignment PARTIES INVOLVES:
  12. 12. Consignment Partnership in Exporting on Consignment partner with a reputable and trustworthy foreign distributor or a third- party logistics provider (3PL) that is based in its selected overseas market Export Working Capital Financing need financing to ensure that they have access to working capital and credit while waiting for payment from the foreign distributor Government- Guaranteed Export Working Capital Programs Export-Import Bank offer programs that guarantee export working capital facilities Export Credit Insurance Export credit insurance provides protection against commercial losses HOWTO EXPORT ON CONSIGNMENT
  13. 13. Consignment EXPORTER will not receive any money until part or all of the consigned stock has been sold exposed to higher product returns if the agents or consignees simply allow the goods to rot or become damaged in warehouses IMPORTER Payment to exporter are not guarantee RISK

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