Bài thuyết trình Financing in foreign trade

Topic: FINANCING IN FOREIGN TRADE GROUP 19 GUESSING QUIZ CASH IN ADVANCE OPEN ACCOUNT LETTER OF CREDIT BILL OF EXCHANGE Group 19: FINANCING IN FOREIGN TRADE OUTLINE Cash in advance LC Draft, BE Documents used Financing techiques Open Account Financing techiques Summary Thanh Nguyen Van FINANCING IN FOREIGN TRADE PAYMENT TERM IN FOREIGN TRADE A n exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. Cash in advance Letters of credit (LCs) are one of the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter Letter of Credit A draft may be written with virtually any term or condition agreeable to both parties. A draft is a check that is drawn on a bank’s funds and guaranteed by the bank that issues it. Draft, Bill of Exchange An open account transaction is a sale where the goods are shipped and delivered before payment is due Open Account Thanh Nguyen Van The seller requires receipt of payment from the buyer before shipping goods. Payment may be made by wire-fund transfer from the buyer’s bank to the seller’s bank, or by company check, credit card, or other agreed upon means. Method Usual Time of Payment Goods available To Buyer Risk to Seller Risk to Buyer Comments CASH IN ADVANCE Before shipment After payment None Complete - relies on seller to ship exactly the goods expected, as quoted and ordered Seller's goods must be special in one way or another, or special circumstances prevail over normal trade practices CASH IN ADVANCE Thanh Nguyen Van LETTER OF CREDIT LC’S DEFINITION 01 STIPULATION OF PAYMENT CLAUSE IN A CONTRACT 02 PROCEDURES OF PAYMENT AGAINST DOCUMENTS 03 Nguyen Truong Nguyen LETTER OF CREDIT A written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank ). A letter of credit guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe. These documents almost always include a clean bill of lading or air waybill, commercial invoice, and certificate of origin. To establish a letter of credit in favor of the seller or exporter (called the beneficiary) the buyer (called the applicant or account party) either pays the specified sum (plus service charges) up front to the issuing bank, or negotiates credit. Nguyen Truong Nguyen BRIEFING Promising to honour seller’s drafts 02 Bank substitutes it’s own commitment 03 Seller must conform to terms 04 01 Written and signed by buyer’s bank A LETTER ADDRESSED TO SELLER Nguyen Truong Nguyen 9 CLAUSE IN A CONTRACT OF PAYMENT TERM TYPE OF LC ISSUING BANK ADVISING BANK VALUE BENIFICIARY CURRENCY VALIDITY DOCUMENTS REQUIRED DATE AND PLACE OF EXPIRY Nguyen Truong Nguyen PROCEDURES OF PAYMENT AGAINST DOCUMENTS Exporters delivers the goods to the carier 01 Exporters get transport documents from carrier . 02 Exporter presents shipping documents to advising bank 03 Issuing bank checks shipping documents and if appropriate, sends funds to advising bank 05 Advising bank send shiping documents to issuing bank 04 Nguyen Truong Nguyen Advising bank notifies exporter the availability of funds in exporter’s account 06 Issuing bank releases shipping documents to importer 07 Importer persents shipping documents to carrier and takes delivery of goods 08 Nguyen Truong Nguyen Bill of Exchange (Draft) Presented by Tran Ngoc Thuy Linh Definition An unconditional order in writing, signed by one party (drawer) such as a buyer to another (drawee) to pay a certain sum of money , either immediately or on a fixed date, for payment of goods or services received. Parties in B/E There are entities that may be involved with a bill of exchange transaction. They are: Drawee . The party on whom the B/E is drawn Drawer . The party who signs the B/E, requesting the payment. Bearer : the last beneficiary who presents the B/E for getting payment Beneficiary: The party who is paid by the drawee Contents (1)Title  The term "bill of exchange" is noted on the face of the document. (2) Amount . The amount to be paid, expressed both numerically and written in text. (3) Name of the drawee (4) Time of payment (5) Address of the drawee (6) Beneficiary (7) Place of drawing B/E, B/E date (8) Name, address of the drawer and signature of the legal representative of the drawer. Features Must be in writing and be dated . Contain certain sum of money and must be unconditional Be payable to a definite person Must be accepted by the party on whom order is made One language is used Advantages : Legal Relationship Terms and Conditions Mode of Credit Easy Transferability Wider Acceptance Mutual Accommodation Disadvantages : The bills of exchange are for short term service this not good option for banking services. If bills of exchange are not accepted then it is an additional burden on the person who was drawn it.. The discount allowed is also like an additional cost The drawee is liable to pay the bill in time as the date of payment is fixed Open Account Presented by Nguyen Minh Thang. When a buyer and a seller agree to deal an open account term, it means that the seller will dispatch his goods to the buyer and will also send an invoice requesting payment. The seller loses control of the goods as soon as he dispatches them. He trusts that the buyer will pay in accordance with the invoice Exporter the open account balance is settled on a monthly or quarterly basis and transactions can be dealt within very much the same way as the domestic trade only the settlement payments pass through the banking system Advantages no guarantee of payment and control if the goods are lost payment can be in the form of a foreign cheque that will have to be negotiated or collected, causing further delay Disadvantages Importer retains control over the timing of settlement and the method by which funds are remitted Inspection of the goods is usually possible before payment is made Advantages has little control over shipment details and the timing of the receipt of the goods no control over the quality of the goods Disadvantages DOCUMENTS USED IN FOREIGN TRADE Three most used documents: BILL OF LADING (most important) COMMERICAL INVOICE INSURANCE CERTIFICATE Tran Quyen Linh Bill of lading (B/L) B/L is one important shipping document necessary and useful in export-import trade transactions. It is a document issued by the shipping company after the shipment of goods. Tran Quyen Linh THE BILL OF LADING CONTAINS FOLLOWING INFORMATION Name and address of the exporter and the shipper Name and address of shipping company. - Name and address of importer or agent. Quantity, weight and value of goods sent - Place of loading and port of destination. - Date of loading of goods on the ship. - Mark description and number of packages. - Port at which the goods are to be discharged. - Freight paid or to be paid. Signature of the issuing authority with da t e - Any other relevant details Tran Quyen Linh Commercial invoice Commercial invoice is a basic export document. It contains all the information, which is required for preparation of all other documents. It is the exporter's bill for goods which the importer has to pay. Tran Quyen Linh COMMERCIAL INVOICE CONTAINS THE FOLLOWING INFORMATION Name and address of exporter and importer Value of goods after discount, if any Net amount payable by the importer Description of goods (weigh t , quality, quantity, rate, etc.) Terms and Conditions of sale Tran Quyen Linh A certificate of insurance (COI) CO I is a non-negotiable document issued by an insurance company or broker verifying the existence of an insurance policy and summarizing key aspects and conditions of the policy Tran Quyen Linh FINANCING TECHNIQUES BANKER’S ACCEPTANCES 01 DISCOUNTING LETTER OF CREDIT 02 Tran Hoang Son BANKER’S ACCEPTANCES A banker's acceptance (BA) is a  short-term debt  instrument issued by a company that is guaranteed by a commercial bank. Banker's acceptances are issued as part of a commercial transaction Tran Hoang Son DISCOUNTING LETTER OF CREDIT Tran Hoang Son DISCOUNTING L/C Discounting of Letter of Credit is a short-term crediting of the seller by the bank 01 Letter of Credit issuing bank's commitment to pay the amount mentioned in the Letter of Credit at a certain date serves as a credit guarantee to the bank 02 For discounting the Letter of Credit the bank applies corresponding discounting fee 03 Tran Hoang Son FACTORING AND FORFAITING Presented by Hoang Phuc Definition of Factoring Factoring is defined as a method of managing book debt, in which a business receives advances against the accounts receivables, from a bank or financial institution (called as a factor). THE FACTOR (FINANCIER) THE CLIENT (SELLER OF GOODS) DEBTOR (BUYER OF GOODS) PROCESS OF FACTORING - The borrower sells trade receivables to the factor and receives an advance against it - The advance provided to the borrower is the remaining amount a certain percentage of the receivable is deducted as the margin or reserve, the factor’s commission is retained by him and interest on the advance - The borrower forwards collections from the debtor to the factor to settle down the advances received. Definition of Forfaiting Forfaiting is a mechanism, in which an exporter surrenders his rights to receive payment against the goods delivered or services rendered to the importer, in exchange for the instant cash payment from a forfaiter. Process of Forfaiting The forfaiter is a financial intermediary that provides assistance in international trade. It is evidenced by negotiable instruments bills of exchange and promissory notes. It is a financial transaction, helps to finance contracts of medium to long term for the sale of receivables on capital goods. However, at present forfaiting involves receivables of short maturities and large amounts. Key Differences Between Factoring and Forfaiting TERMS AND DEFINITIONS Nguyen Thanh Phuong Bill of lading Document that shows details of goods being transported; it entitles the receiver to collect the goods on arrival. Nguyen Thanh Phuong Bill of exchange signed document that orders a person or organization to pay a fixed sum of money on demand or on a specified date. Nguyen Thanh Phuong Letter of credit method of financing overseas trade where payment is made by a bank in return for delivery of commercial documents, provided that the terms and conditions of the contract are met Collecting bank Issuing bank Documentary collection Documents of title Nguyen Thanh Phuong Thank you Nguyen Thanh Phuong