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International trade course 2

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International trade, payment, open account, advance payment, documentary collection, documentary credit

Published in: Economy & Finance
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International trade course 2

  1. 1. INTERNATIONAL TRADE Course 2 Yudy Yunardy S.E., M.M.
  2. 2. WHO AM I ? Fifteen years of Banking experience, six years’ experience in Trade Finance Operations background with Unsecured Loan experience, equipped with another seven years’ experience in Management Information Analyst and Dashboard Reporting. Vastly experienced in Bank Indonesia reporting (LBU, SID, LBBU, BMPK etc.)
  3. 3. EMPLOYMENT SUMMARY 2014 Present Indonesia Banking School 2013 2014 Deutschebank AG 2011 2012 Misys Plc 2010 2011 DBS Indonesia 2010 2010 ANZ Bank 2005 2010 RBS Bank 2004 2005 Vendor at Bank Mandiri, BCA and Circle K 1999 2004 HSBC Bank 1998 1999 MetLife Insurance 1997 1998 Demographic Institution FEUI 1996 1997 Private Investment Manager
  4. 4. RULES 1.Disable your comm. device 2.Presence 80% minimum 3.Time alloc. 08.00 – 10.30
  5. 5. TEXTBOOK Koch, Timothy (2015), Bank Management, The Dryden Press
  6. 6. GRADING EVALUATION 1. Participation 5% 2. Quiz / exercise 10% 3. Assignment 15% 4. Midterm 35% 5. Final 35%
  7. 7. PREVIOUSLY…
  8. 8. LAST WEEK’S ASSIGNMENT Answer • E-commerce will be booming in 2015, because of bigger mobile device trends, always connected to internet, the battle to win customer loyalty will force us to engage in B2B as well as B2C • Social media makes it easy to become a seller in facebook, wordpress, tumblr or site that will focus solely on shopping • Analytical engine will become more intrusive but also more accurate in predicting our needs and wants
  9. 9. LAST WEEK’S ASSIGNMENT in billion dollars 2012 2013 A gricultural pro ducts 1,647.65 1,744.83 F uels and mining pro ducts 4,128.61 3,996.98 M anufactures 11,467.50 11,848.00 A gricultural pro ducts (A o A ) a 1,371.37 1,450.26 N o n-agricultural go o ds (N A M A ) 16,585.50 16,850.38 T o tal Wo rld M erchandise Expo rt 18,615.13 19,040.07 B 2C Sales wo rldwide 1,058.00 1,233.00 Percentage to total world merchandise export 5.68% 6.48% Percentage to NAM A world export 6.38% 7.32% Percentage to fuel and mining world export 25.63% 30.85% Percentage to clothing world export 252.38% 267.89% Value
  10. 10. INTERNATIONAL PAYMENT
  11. 11. INTERNATIONAL PAYMENT • CHIPS (Clearing House Interbank Payment System) • SWIFT (Society for Worldwide Interbank Financial Transfer) • IBAN (International Bank Account Number)
  12. 12. INTERNATIONAL PAYMENT MECHANISM 1. Applicant bank 2. Applicant’s correspondence bank 3. Beneficiary’s correspondence bank 4. Beneficiary bank
  13. 13. INTERNATIONAL TRADE PAYMENT
  14. 14. 1. Open Account 2. Advance Payment 3. Documentary Credit (Letter of Credit) 4. Documentary Collection INTERNATIONAL TRADE PAYMENT METHODS
  15. 15. OPEN ACCOUNT
  16. 16. OPEN ACCOUNT Definition An arrangement between the buyer and seller whereby the goods are manufactured and delivered before payment is made. This is the most advantageous to the buyer in cash flow and cost terms, but it posts the highest risk for the seller
  17. 17. OPEN ACCOUNT Advantage to buyer 1. The buyer pays for the goods or services only when they are received and/or inspected 2. Unlike advance payment, the buyer’s working capital is not tied up 3. Payment is subject to political, legal or economic situations in the buyer’s country
  18. 18. OPEN ACCOUNT Advantage to seller 1. It enhances the seller’s competitiveness in the global market 2. It helps to establish and maintain long- term trade relationship with the buyer
  19. 19. OPEN ACCOUNT Key considerations 1. It is recommended to use to secure trading relationships in competitive markets 2. Seller must be confident that the buyer will accept shipment and pay on the agreed time
  20. 20. OPEN ACCOUNT Key considerations 3. Seller need to assess the political, legal or economic conditions in the buyer’s country to avoid delay in payment 4. Seller may mitigate risk of non- payment by using various trade financing options such as accounts receivable financing, export credit insurance, factoring and forfaiting
  21. 21. ADVANCE PAYMENT
  22. 22. ADVANCE PAYMENT Definition An Advance Payment is the whole or part of a contractually due sum that is paid by the buyer in advance prior to shipment of goods or provision of services
  23. 23. OPEN ACCOUNT Advantage to buyer The buyer may be able to negotiate for a discount in prices in lieu of advance payment
  24. 24. OPEN ACCOUNT Advantage to seller 1. The seller can have immediate use of funds 2. The risk of non-payment is eliminated
  25. 25. OPEN ACCOUNT Commonly used, if… 1. The buyer’s creditworthiness is doubtful 2. There is unstable political or economic environment in the buyer’s country 3. There is a potential delay in receiving funds from the buyer due to events beyond the buyer’s control
  26. 26. DOCUMENTARY COLLECTION
  27. 27. DOCUMENTARY COLLECTION Definition An arrangement whereby goods are shipped and the relevant bill of exchange (draft) is drawn by the seller on the buyer, and/or documents are sent to the seller’s bank with clear instructions for collection of payment through a bank located in the domicile of the buyer
  28. 28. DOCUMENTARY COLLECTION Advantage to buyer 1. Payment may be deferred until the arrival of goods or even later if delayed payment arrangements have been made between the buyer and seller 2. Documentary collection is relatively cheaper than documentary credit 3. The buyer may have the opportunity to inspect the documents prior to making payment
  29. 29. DOCUMENTARY COLLECTION Advantage to seller 1. Documentary collection is generally uncomplicated and inexpensive compared to a documentary credit 2. The seller may arrange the title documents to be released to the buyer only upon his payment or acceptance of draft
  30. 30. DOCUMENTARY COLLECTION Advantage to seller 3. In the event of non-payment or non- acceptance, the appointed Collecting Bank, if properly authorized, may arrange for releasing or warehousing of goods, insurance or even reshipment to the seller 4. It facilitates pre or post shipment financing related to the documentary collection
  31. 31. DOCUMENTARY COLLECTION Key Considerations 1. Documentary collection is a good trade-off if the seller is not prepared to transact on open account basis and does not want to go through the hassle of settling a transaction using documentary credit 2. Unlike documentary credit, banks do not guarantee payment under a documentary collection
  32. 32. DOCUMENTARY COLLECTION Key Considerations 3. Documentary collection is suitable for the seller if: a) the buyer’s creditworthiness is not in doubt; b) the political and economic situation in the buyer’s country is stable; and c) there is no foreign exchange control policy in the buyer’s country
  33. 33. DOCUMENTARY COLLECTION Key Considerations 4. By releasing a copy of the original bill of lading to the buyer made out to or endorsed the latter’s order, the seller will lose control over the titles of the goods
  34. 34. DOCUMENTARY CREDIT
  35. 35. DOCUMENTARY CREDIT Definition Documentary Credit (or Letter of Credit) is an undertaking issued by a bank for the account of the buyer or for its own account, to pay the seller provided that all the terms and conditions of the credit are complied with
  36. 36. DOCUMENTARY CREDIT Advantage to buyer 1. The buyer’s creditworthiness is enhanced with a bank willing to issue a documentary credit for his account 2. Payment is only made by the bank upon the seller’s fulfilment of the terms and conditions of the credit. 3. It helps to facilitate downstream import financing services
  37. 37. DOCUMENTARY CREDIT Advantage to seller 1. The Bank acts as a trusted third party to guarantee payment if the seller can fulfil the terms and conditions of the credit. 2. Title of the goods is retained by the seller or bank until payment or acceptance of documents by the buyer
  38. 38. DOCUMENTARY CREDIT Advantage to seller 3. Documentary credit operations are guided by recognized international rules and practices 4. It facilitates pre or post shipment financing related to the documentary credit
  39. 39. DOCUMENTARY CREDIT Key Considerations 1. When the seller is preparing quotations for prospective buyer, he has to be mindful that banks pay only the amount specified in the documentary credit, even if additional costs such as shipping or insurance charges are incurred and documented
  40. 40. DOCUMENTARY CREDIT Key Considerations 2. Payment under a documentary credit is based on documents rather that the terms of sale or the physical conditions of the goods 3. When the seller receives a documentary credit in his favor, he should examine its terms and conditions against the pre-agreed contractual terms
  41. 41. DOCUMENTARY CREDIT Key Considerations 4. Seller must be confident that he can fulfil the terms and conditions of the documentary credits in order to secure payment. If in doubt, the seller should approach the buyer to amend the terms and conditions in the documentary credit
  42. 42. DOCUMENTARY CREDIT Key Considerations 5. The terms and conditions of a documentary credit must not be ambiguous so as to avoid future disputes
  43. 43. ASSIGNMENT PT Bogasari imported 100 tons of wheat from their supplier in Australia using letter of credit issued in ANZ bank in Indonesia, due to continuous rain for days in Indonesia, the wheat absorb the water from humidity and makes them rotten and unusable after being stored in destination warehouse for two days. Normally the wheat is fine stored in the same condition for 1-2 weeks.
  44. 44. ASSIGNMENT Bogasari already paid their supplier through TT when latter find the goods is rotten. Bogasari sued ANZ bank as issuer of the LC, because as trust agent the banks should check and make sure the goods is in proper condition because it will affect bank’s reputation. Bogasari demand their money to be returned immediately. ANZ bank rejected the request. Who is the right party according to UCP600?
  45. 45. THANK YOU

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