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Similar to International Payment terms – Guide To Imports.pdf
International Payment terms – Guide To Imports.pdf
- 1. REPORT THIS AD January8, 2019 What is International Payment Term? You pay for the goods you buy from the local market. Same as that you need to pay for the goods & servicea you buy from the international market. One business(Buyer) from one country buy goods from a/few business (Supplier) from another country for production of another good. There are methods we make the payment to those suppliers. Those methods are internationally recognised and agreed in order to avoid disputes in between suppliers and customers with regard to the payments. What ever the payment term you use,there should be a tennor to count the payment date. What are the common Terms? Advanced Payment DP – Documents Against Payment DA – Documents Against Acceptance ADVERTISEMENT International Payment terms
- 2. LC – Leer of Credit OPEN ACCOUNT CONSIGNMENT BASIS Terms in Detail Advanced Payment As the name reflect payment is done in advance. Sometimes Supplier starts production after customer made the payment. There are times where supplier request buyer to pay a percentage from the invoice value before the mass production and pay the rest of invoice value after production completion, goods shipped to the Consignee or after goods are on board. In some cases you may have seen 80% Advance + 20% After 30 Days from invoice date.Here payment term is a mix of advanced & DA payment terms. You may have seen cases where payment term mentioned as 100% on BL or TT on BL. Here customer is requested to make the payment only after they received the draft BL and still payment term goes as advanced payment Remember If payment is to be made upon the BL, consignee should present the BL to bank in order to arrange the payment. If the payment is on draft BL (100%TT on Draft BL), payment should be arranged once the draft BL is received instead waiting for the final BL. What is Telex? You might have heard people saying Telex/ Telegrapics payment or TT payment . Did you ever wonder about the difference of Telex and advanced payment? Telex or the telegraphic transfer (TT) is the method use by banks to inform another bank about payments made by one party to another (Buyer to Supplier). Most people call Telex to the advanced payment. Do remember Telex is the method use for inter bank communication and payment term should properly mention as advanced payment. What are the documents need to do the advanced payment? Proforma Invoice signed or stamped by the seller Do remember advanced payments are made against the Proforma invoice not against the commercial invoice. Request a proforma Invoice (PI) from your supplier. Please check whether supplier has mentioned the payment term as “Advance” & their bank details in PI properly. After the Payment… Make sure to collect the payment advice / Debit advice or the SWIFT copy from the bank as you need it for Customs clearance. Remember you do not have to present original documents for shipment clearance when payment term is 100% advanced. Endorsing copy documents from bank would be enough. Hence you can ask supplier just to e mail scan copies of original documents to save waiting time for original documents. What is Endorsing copy documents?
- 3. Present the copyof original invoice, packaging list, BL and payment advice to the bank. Then they will chop it with their seal and confirm the payment is tally with the commercial invoice and payment is properly made to the supplier . Bank will mention the referance number in debit advice or the SWIFT copy in invoice. That indicates payment you have made under the mentioned referance number is for the invoice bank has chopped. Please note for the advanced payments ,remitence you have done to the supplier should not exceed the invoice value of the cargo. What if the payment term is a mix of Advanced and DP/DA Consignee needs to arrange the agreed percentage of invoice value in advance if there is a balance to be paid as DP (Documents against payment ) or DA (Documents against acceptance) original documents set should be sent to the buyers bank by seller. For clearance original documents should be presented and balance payment should be made as agreed under DP or DA. Bank will endorse the documents as per the payment term mentioned in the commercial Invoice and release to the buyer. DP In order to clear the shipment from Customs you need the original documents of the cargo. Under DP term supplier send the original commercial documents to the buyer’s bank through suppliers bank. You can collect the original documents after you make the payment for invoice value. DP term also known as CAD where CAD stand for Cash Against Documents or NCAD where NCAD stand for Net Cash Agaist Documents There are cases supplier directly send original commercial documents to buyers bank without going through suppliers bank. In such si uation supplier should include their bank details separately to the document set in order to effect the payment under DP term. In common supplier send the original BL with the documents without surrendering .Most of the banks has their own format for supplier to fill and include in to document set when supplier send documents directly to buyers bank which is known as “Direct Covering Le er or Direct Collection Order” DA Term This term goes as Documents Against Acceptance where supplier offer a credit period to the buyer. DA 30 Days, DA 60 Days, DA 120 Days are most commonly used DA terms. Supplier will offer the credit period from the invoice date or the BL date. When the term is DA, supplier send the original documents through their bank to buyers bank. Without making the payment bank chop the original set of documents and release to the buyer to clear the shipment. Buyer is entitle for an agreed credit period and obliged to arrange the payment within the agreed period. When the payment term is mentioned as Net 30 Days, Net 60 Days that means payment should be arraned within 30 days, 60 days from invoice date
- 4. Same as inDP term supplier might send original set of documents to buyers bank directly without going through their bank. with the direct covering le er When the term is DA document set will include the Bill of Exchange (What is Bills of Exchange) which should be signed by the buyer and needs to be hand over to the buyer’s bank. One more thing to be remembered. If the BL is surrendered (What is Surrendered BL) First need to go to the shipping line and collect the DO. Present it to the bank for bank to release the original documents . If the BL is “Original” first collect documents from bank and handover one original BL to shipping agent when obtaining D/O (Delivery Order) from them. LC Le er of Credit is a quiet vast area. Due to the factors like distance ,different laws in countries as well as not practical to know the parties involved in transaction personally LC plays a crusial role in international business. Safest payment method for both buyer and supplier. Remember if you are going to buy a vehicle making payment through a LC is a must.First we will look in to the industrial jargon related to the LC. Applicant Applicant is the party who apply or fill application and open the LC from a bank. Applicant is always the buyer or consignee Benificiary The party who enjoy the benefits of opening the LC by monitory terms is called benificiary. In a business benificiary is the supplier Advising Bank Advising bank is the supplier’s bank or the bank which receives the LC Issuing Bank As the name reflects issuing bank is the bank which issue the LC, since buyer apply for the LC buyers bank will be the issuing bank Negotiations Bank When advising bank and issuing bank has no direct dealing negotiation bank act as an intermediary bank to make sure flow of bank process go smoothly Latest shipment date – Before this date shipment should be departed from the origin . Commonly known as LSD. LSD will be decided by the agreed date of shipment in between supplier and buyer
- 5. LC Expiry date– By this date shipment should have departed from the origin and original documents should have sent to the buyers bank. Normally after the shipment sailing date there is a time period given to supplier in order to finalize the documents and send them to buyers bank. Expiry date can be calculated once the document presentation period is added to the latest shipment date. When filling the LC application if the buyer has not mentioned the document presentation period it is automatically taken as 21 days as a standard practice LC Expiry Place- LC expiry place should be the country of supplier Documents Required to open a LC Duly signed Proforma Invoice or Sales Confirmation issued by supplier Request le er to bank asking to issue a LC for requested supplier Duely filled LC application issued by bank Central Bank form LC is opened by the buyer of a contract. Once they submi ed the required documents to bank, bank will open the LC. Same as in DP and DA terms once cargo dispatched from origin country Shipper will send the original documents to buyers bank through suppliers bank. Once bank received the documents they will cross check the documents with the filled LC application. If there are any discrepancies bank will inform to the buyer and if buyer has no issue regarding the discrepancies bank will endorse and release the documents. . Here when releasing the original set of documents bank take the responsibility of making sure, buyer make the payment and supplier will receive the full payment timely. According to the Uniform Customs and Practice for Documentary Credit (UCP) LC has standard rules & regulations which can not be changed or amended. Further UPS interprit LC as an “Irrevocable” document so it is not allowed to make any changes to the original LC in legal nature which encourage both seller’s & buyer’s to engage in large scale international businesses with legal protection. If payment term is LC at sight : Bank will remit the payment value to supplier and release the original document set related to the LC If credit period is offered it will be mentioned as LC (credit period) from (Invoice date /BL date) Ex: LC 60 Days from BL date/ LC 30 Days from invoice date By the due date payment will be arranged Open Account Open account is also a DA payment term but more conveniant way for buyers. Here no bank involvement for the transfer of document . Supplier directly send the original documents to buyer and buyer do the clearance with the payment term open account. Here supplier gives a credit period to buyer. Upon the given period buyer present the “Commercial Invoice, CusDec, & BL” to bank and
- 6. arrange the payment.This method can be practised when there is a good relationship in between supplier & buyer as there is a risk for supplier on receiving the payment since no bank is involved to guarant the payment International Commercial Terms International commercial terms or shortly INCOTERMS are the internationally identified and recognized cargo delivery terms to facilitate international trade. These terms are published by the International Chamber of Commerce and discussed and updated time to time. Currenty INCOTERMS 2010 is widly use and agreed around the world.Don’t get confused INCOTERMS with payment methods. Payment terms are only for making the payment of invoice or value of goods to the supplier. INCOTERMS recognise the cost and risk born by both supplier and customer when transporting them from origin to destination. This helps to minimize/remove conflicts inbetween international traders when transporting goods INCOTERMS only applicable for water Transport INCOTERMS only applicable for air Transport INCOTERMS applicable for any Transport mode Bl What is BL? Bills of Lading is a transport document which is issued by the carrier to their customers for their goods handed over to carrier for the purpose of delivering to the desired destination Is BL a contract? BL is not a contract, but evidence of contract. In order to be a contract BL should be signed by both Shipper and carrier. But BL is issued by the carrier after the vessel is sailed and it is only signed by the carrier. Further terms and conditions in BL are already printed on the front side of BL as per the law governed /practice by the shipping line and Shipper only receive the BL after vessel is sailed. Hence BL is considered as evidence of contract not a contract What are the key functions of BL? BL has three functions 1. Document of Ti le – BL shows the owner of cargo. Whoever has the duly endorsed BL pocess the authority to receive the cargo.
- 7. 2. Receipt forCargo – BL act as a receipt issued by carrier to the Shipper. Further it confirm carrier has cargo in their custody. 3. Evidence of Contract – Remember BL is not a contract. Because it is only signed by the Shipper. But there are evidence to say carrier and Shipper had some kind of agreement since carrier has Shippers cargo and BL contains details of Shipper and Consignee which are only available with Shipper and BL is prepared by the carrier.Further in order to loard cargo Release order is issued by the carrier to their customer Please refer below Q&A to have a be er understanding on functions of BL. What is clean BL When the goods are to be shipped in good condition, no visible damage. Issued BL is called as clean BL What is Clause BL When the goods are to be shipped are damaged clause BLs are issued. In BL it should be mentioned that cargo is damaged What will happen if a clean BL is issued for damaged cargo? As per the BL function “Receipt for Cargo “, Cargo should be delivered to its rightful owner in the same quality and condition carrier has received from the Shipper. Description of goods in BL is wri en based on the quality and condition of received cargo. If carrier has issued a clean BL, Consignee has the utmost power to demand the cargo which is in the BL. Hence carrier should not issue clean BLs for damaged cargo as Consignee has the right to held carrier responsible for the damaged cargo when the BL is clean. What is S.T.C comes under cargo description This is stand for Said To Contain.. Shipping agent put this clause under description of goods in BL. That means they have mentioned the description and quantity off goods as instructed by the supplier. When the shipment is LCL even supplier is given the instruction to BL if any fradualent activity has happend carrier will not get full legal protection with the clause and they will held liable Types of BL Master BL (MBL) – This is issued by the shipping line . Or the first BL issued to cover all shipments when there are one or few intermediary parties inbetween shipping line and final consignee(ultimate owner of cargo) House BL (HBL) – Also known as seaquest BL. BL issued by the Intermediary party (coloder, freight forwarder) in between Shipper and shipping line.
- 8. Is it possible tohave few HBLs to one MBL YES IT IS.. Consider yourself as a Shipper. You ask your freight forwarder to arrange the transport for your LCL shipment. If your Forwarder doesn’t have cargo to fill a container they will hand over the cargo to a NVOCC. In such case shipping line issue a MBL to the NVOCC and NVOCC will issue a HBL to your freight forwarder. Your freight forwarder will issue a HBL to you. Hence there has been two HBL for one master. Who is NVOCC? Non Vessel Own Common Carriers are the parties who dose not have vessels by their own but do handle the shipments of other parties. Normally what they do is they reserve a slot from a vessel under an agreed rate from a shipping line and get cargo from Shippers to fill it. Since they fill a large space of the vessel, shipping line offer a low rate to the coloader/NVOCC where Coloader is able to provide low rate to the freight forwarder. They will also identify as consolidaters as they console the shipments from various customers What is Surrendered BL If shipper has already taken the original BL from the shipping agent and wish to provide copy of BL to there buyer for clearance instead sending original BL shipper has the right to request from shipping line to surrender the BL. Original BL should be submi ed to shipping agent in order to surrender the BL. Once shipping agent get the original BL they will stamp the BL with “BL surrendered at Origin” meanwhile they should send the surrender message to their counter partat destination so the counter part get the information that they can release the DO without the original BL When the BL is Surrendered it is only required to have copy of BL to collect the DO. Further Surrendered BL does not hold the function “Document of Title “. Having a Surrendered BL is lot more easier as it eliminate the waiting time for original BL. Functions of BL in detail.. Document of Title This represents the ownership of cargo. Whoever hold the duly endorsed BL has the right to posses the cargo. Issuing cargo to a person while the proper endorsement has broken is a fraud. This function is not applicable for sea way bills (What is seaway bill) Receipt for Cargo Evidence of Contact Seaway BL Who is freight forwarder A 3PL service provider
- 9. CusDec What is CusDecStand for Customs Declaration What is CusDec Framming? What is Entry passing? Once the CusDec Framming is done next step is entry passing. Take all the documents related (what are the related documents) to the cargo to the Customs, they will check the documents and will sealed and signed. This process is called as entry passing What is clearing? Once the entry passing is done next step is to do the cargo clearance. Customs officers will check the document set and will examine the cargo. Under clearance officers check whether the cargo match with what is in the documents. After the examination CHA can pay the wear house rent and take the cargo out