1、7.1 Instruments of payment 支付工具,7.3 Combination of different modes of payment 不同付款方式的結(jié)合,7.2 Modes of payment 支付方式,chapter 7 Payment,1. Bill of exchange 匯票,2. Promissory note 本票,3. Check 支票,6.1 Instruments of payment 支付工具,A bill of exchange is an unconditional order in writing, signed by the person (

2、drawer) such as a buyer, and addressed to another person (drawee), typically a bank, requiring the drawee to pay a stated sum of money to another person (payee), often a seller, on demand or at a fixed future time.,1. Bill of exchange 匯票,A bill of exchange must fulfill the following requirements: th

3、e word Exchange or draft an unconditional order in writing name and address of the drawee drawer s signature, usually seller s signature date and place of issue name of the payee, usually the seller or its nominated bank.,tenor place of payment amount In practice, there are three original parties to

4、 a bill of exchange: the drawer, the drawee and the payee. Generally the drawer is the exporter, the drawee is the importer, and the payee is usually the exporter or the order person of the drawer.,(1) Sight Draft / Term Draft Sight Draft(demand draft) The sight draft is most commonly used in intern

5、ational trade. In a sight draft, the payment is on demand or on presentation of the negotiation documents to the paying bank or the importer. Term Draft The term draft，also called time draft or usance draft, is used in a deferred payment arrangement. The payment is on the maturity date determinable

6、in accordance with,Types of bill of exchange,the stipulations of the letter of credit (L/C). The maturity date can be at a stated period after sight or after date. (2) Clean Draft /Documentary Draft Clean Draft In a clean draft, no commercial or shipping documents are attached to the draft. The docu

7、ments are sent together with the goods, directly to the importer.,Documentary Draft In a documentary draft, the commercial or shipping documents are attached to the draft. The importer will be able to receive the commercial or shipping documents from the collecting bank only after he has accepted th

8、e draft for payment later or after he has paid the draft. (3) Commercial draft/Bankers draft Commercial draft,It is a bill issued by a commercial enterprise on another enterprise or on a bank.,Bankers draft It is a draft drawn by a bank on another bank. Both the payer and payee are banks.,The usage

9、of a bill of exchange includes such stages: issue presentation/acceptance payment endorsement dishonor,Handling a bill of exchange,A promissory note is a written note by the maker who promises to pay a specific amount of money at a specific time to a specific payee or bearer. As a promissory note is

10、 a promise by the maker (instead of drawer) to pay to the payee, there are only two parties concerned, the maker and the payee.,2. Promissory note 本票,Promissory notes can be commercial notes, which are issued by firms, or bank notes, which are made by bank. The commercial promissory note can be sigh

11、t promissory note or time promissory note, but bank promissory note is only the sight one. In international trade, most of promissory notes are drawn by bankers and commercial promissory notes are rarely used. In using the bankers promissory notes, the importer first needs to buy the promissory note

12、 from a bank, and then send it to the exporter for the settlement of payment.,2. Promissory note 本票,A check is an unconditional order in writing drawn on a bank signed by the drawer, requiring the bank to pay a certain sum of money to or to the order of a payee or to the bearer at sight. So it is al

13、so called a demand draft drawn on a bank. The drawer of a check must be a depositor that keeps an account current in the paying bank not less than the sum carried on the check, or the check will be dishonored when the holder presents it to the paying bank for payment. This kind of check is called bo

14、unced check.,3. Check 支票,1. Remittance 匯付,6.2 Modes of payment 支付方式,2. Collection 托收,3. Letter of Credit 信用證,Remittance means the importer on his own initiative remits money to the exporter through a bank or other ways according to the terms and time stipulated in the contract. Parties involved in r

15、emittance business Remitter-the importer,1. Remittance 匯付,A remitter is the person who requests his bank to remit funds to a beneficiary in a foreign country. A remitter is also called the payer. (1)Parties involved: Payee or beneficiary-the exporter A person who is addressed to receive the remittan

16、ce is called the payee or beneficiary. The remitting bank-the bank in importers place,1. Remittance 匯付,A remitting bank is the bank transferring funds at the request of a remitter to its correspondent or to its branch in another country and instructing the latter to pay a certain amount of money to

17、a beneficiary. The paying bank-the bank in exporters place A paying bank is the bank entrusted by the remitting bank with paying a certain amount of money to beneficiary named in the remittance advice.,Mail Transfer (M/T),Under this method, the importer gives money to the remitting bank which in tur

18、n issues a trust deed for payment and then sends it to the paying bank in the exporters country, entrusting it with paying the specific amount to the exporter. The instructions between the banks are sent by ordinary or air mail. The fee of the remittance is cheap but it is a little later for the exp

19、orter to receive the payment.,(2)Ways of Transfer,(2)Telegraphic Transfer (T/T),At the request of the importer, the remitting bank sends a trust deed for payment by cable or SWIFT directly to the paying bank and entrusts it with paying money to the exporter. The difference between M/T and T/T is tha

20、t the instructions of T/T are sent by cable instead of airmail.,This means that the exporter can receive the money more quickly, but at the same time, the importer has to bear extra costs. It is often used when the remittance amount is large and transfer of funds is limited by time. The only way of

21、authenticating a cable transfer is the test key. In recent years, T/T has become the most common method of remittance.,(3)Demand Draft (D/D),The importer buys a bankers demand draft from the bank and then sends it to the exporter. On the basis of the above bank draft, the exporter takes the money fr

22、om the relative bank in his place.,2 . Collection 托收,Collection is a payment arrangement by the use of drafts. In this method, the exporter draws a bill of exchange on the importer for the sum due after the delivery of the goods, with or without relevant shipping documents attached, and asks his ban

23、k to arrange for the acceptance or payment of the bill abroad. The bank will carry out his instructions through its branch or a correspondent bank in the importers place.,(1) Principal (2) Drawee (3) The remitting bank (4) The collecting bank,Parties to the collection arrangement,(1) The principal i

24、s the party (usually the exporter) who entrusts the handling of a collection to a bank.,(2) The drawee is the party (usually the importer) to whom presentation is to be made in accordance with the collection instruction.,(3) The remitting bank is a bank authorized by principal to effect the collecti

25、on from the drawee. Usually it is the exporters bank. (4) The collecting bank is usually the branch or a correspondent bank of remitting bank in importers country. It delivers the documents to the importer after receiving the payment under the instruction of remitting bank.,Types of collection,(1) C

26、lean Collection Clean Collection means collection of financial documents not accompanied by commercial document. (2) Documentary collection Documentary collection means collection of a financial documents accompanied by commercial documents, or commercial documents not accompanied by financial docum

27、ents.,Documents against Payment (D/P) Under this payment method, the exporter releases the documents on condition that the importer has made the payment. According to the time of making payment, D/P can be divided into two types: Documents against Payment at sight (D/P at sight) and Documents agains

28、t Payment after sight (D/P after sight). D/P at Sight,Under D/P at Sight, the exporter issues a sight draft, and then presents it with commercial documents to the importer through the remitting bank and the collecting bank. The importer must make the payment at once upon receiving the sight draft be

29、fore he can get the commercial documents.,D/P after Sight Under D/P after Sight, the exporter issues a time (or usance) draft payable on a specified due date or a certain number of days, for example, a draft at 30 days sight,which is then presented to the importer through the remitting bank and the

30、collecting bank. The importer makes acceptance on the draft upon receiving it. When the time is due, the importer obtains the shipping documents from the collecting bank only after he pays the money for the goods.,Under this method, the commercial documents will be released to the importer on the co

31、ndition that he has made acceptance on the draft. The exporter issues a time draft, and then presents it along with the commercial documents to the importer through the remitting bank and the collecting bank after shipment.,Documents against Acceptance (D/A),The collecting bank will release the docu

32、ments to the importer after he has made the acceptance, and the importer will make the payment only at the expiry of the draft. D/A is more risky than D/P for the exporter.,Step 1 The exporter ships goods and obtains the shipping documents,The process of collection,Step 2 The exporter, known as the

33、principal, delivers the following documents to the remitting bank: bill of exchange; shipping documents;,a collection order which contains the exporters instructions to the remitting bank.,Step 3 The remitting bank sends the collection instruction and the documents to the collecting bank. Step 4 If

34、the instructions are D/P, the collecting bank will release the documents to the importer only against payment. If the instructions are D/A, the collecting bank will release the documents against acceptance of the bill of exchange by the importer. Step 5 After the importer makes the payment, the coll

35、ecting bank will transfer accounts to the remitting bank. Step 6 The remitting bank transfers the account to the principal.,Definition of the L/C According to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 (“UCP600”), Credit means any arrangement, ho

36、wever named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.,3. Letter of Credit 信用證,Letter of Credit belongs to bank credit. As long as the beneficiary presents the stipulated documents in conformity with the L/C

37、, the issuing bank of the L/C must make the payment firstly.,3. Letter of Credit 信用證,Features of the L/C,Banks deal with documents. In letter of credit business, banks deal with documents, not goods or services or performance to which the documents may relate. That means the bank is not responsible

38、for the goods, but only for the documents. If the documents presented are not in conformity with the L/C, the bank will refuse to pay no matter whether the goods shipped agree with those stipulated in the contract.,A letter of credit is a self-sufficient document. Letter of credit is opened on the b

39、asis of the contract, and independent from the contract once it is opened. The bank is only bound by, responsible for the Credit, and makes payment against documents which are fully in conformity with the Credit.,(1)Applicant or opener (importer) (2)Beneficiary (3)Issuing bank or opening bank (4)Adv

40、ising bank (5)Confirming bank (6)Negotiating bank (7)Paying bank (8)Reimbursing bank,Parties to a letter of credit,Applicant means the party on whose request the credit is issued. The applicant or the opener is always an importer or a buyer, who fills out and signs an application form, requesting th

41、e bank to issue a letter of credit in favor of an exporter or a seller abroad.,(1)Applicant or opener (importer),Beneficiary means the party in whose favor a credit is issued. The beneficiary is the exporter or the seller in whose favor the credit is issued. If there is a discrepancy between the cre

42、dit opened and the sales contract, the beneficiary may have the option to accept it or persuade the opener to have it amended so as to be in line with the contract. Once the beneficiary accepts the credit, he must deliver the goods in compliance with the contract. After shipment, he will present doc

43、uments to the bank for negotiation.,(2)Beneficiary,The issuing bank is one which issues a letter of credit at the request of an applicant. It undertakes to pay to the beneficiary. When an issuing bank determines that a presentation is complying, it must honor. If the applicant fails to pay after the

44、 issuing bank makes payment, the issuing bank has the right to sell the goods and claim against the applicant if the proceeds are not sufficient.,(3)Issuing bank or opening bank,The advising bank is one which advises or passes the credit to the beneficiary at the request of the issuing bank. It is l

45、ocated in the place of beneficiary, which is usually the issuing banks branch or correspondent acting as an agent of the opening bank in accordance with the instructions given.,(4)Advising bank,Confirming bank means the bank that adds its confirmation to a credit upon the issuing banks authorization

46、 or request. Once the confirming bank adds its confirmation on the L/C, it must be responsible for the beneficiary. When a confirming bank determines that a presentation is complying, it must honor or negotiate and forward the documents to the issuing bank. After making payment, the confirming bank

47、has no recourse right to the beneficiary if the issuing bank goes bankrupt.,(5)Confirming bank,The negotiating bank is one which negotiates or purchases the draft drawn by the beneficiary on the issuing bank or on other bank as specified in the credit. The negotiating bank has a right of recourse ag

48、ainst the drawer (beneficiary) in the event of dishonor by the issuing bank.,(6)Negotiating bank,The paying bank is always the drawee of a draft stipulated in the credit or a bank nominated by the issuing bank to make payment under the credit. Sometimes the paying bank is the issuing bank itself.,(7

49、)Paying bank,Reimbursing bank is the agent of issuing bank. It honors the reimbursement claims of a paying bank or an accepting bank or a negotiating bank under a particular credit in accordance with the instructions or authorization given by the issuing bank.,(8)Reimbursing bank,(1) Application (2)

50、 Issuing L/C (3) Forwarding the L/C (4) Shipping (5) Presentation,The process of a letter of credit transaction,(6) Negotiation (7) Sending documents (8) Payment by the Issuing Bank (9) Payment by the buyer (10) Releasing the documents,Importer (applicant for the credit) applies to the issuing bank

51、for opening a letter of credit in favor of the exporter (beneficiary) and provides a certain amount of deposit and formality fees.,(1) Application,The issuing bank issues the letter of credit on the terms specified by the importer in his instructions and forwards it to the advising bank which at the

52、 locality of the exporter.,(2) Issuing L/C,The advising bank authenticates the credit and forwards the original credit to the exporter.,(3) Forwarding the L/C,Exporter ships the goods to the importer and then prepares the documents required by the letter of credit.,(4) Shipping,Exporter presents the

53、 required documents to the negotiating bank (usually the advising bank) for negotiation, acceptance or payment.,(5) Presentation,The negotiating bank examines the documents making certain that they are in conformity with the terms of the credit and then pays, accepts or negotiates the documents incl

54、uding the draft based upon the terms of the credit.,(6) Negotiation,The negotiating bank sends the documents to the issuing bank.,(7) Sending documents,The issuing bank examines the documents making certain the documents conform to the terms of the credit and then pays the negotiating bank.,(8) Paym

55、ent by the Issuing Bank,The issuing bank advised the buyer that the documents have arrived. The buyer examines the documents making certain the documents are in conformity with the terms of the credit, and then makes cash payment.,(9) Payment by the buyer,The buyer gets the documents from the issuin

56、g bank and then takes delivery of the goods.,(10) Releasing the documents,Kinds of letter of credit,(1) According to the attaching of documents,(2) According to the revocability of credit,(3) According to the adding of confirmation,(4) According to the time of payment,(5) According to whether it can

57、 be transferred, Clean L/C A clean L/C is a credit under which the payment will be made only against a clean draft without any shipping documents attached or sometimes, against a draft with an invoice alone. It can be used in the case of prepayment in international trade. Documentary L/C,(1) Accordi

58、ng to the attaching of documents,A documentary L/C is a credit that should be negotiated by a documentary draft accompanied by shipping documents which representing title to the goods, such as a bill of lading. Even an L/C is negotiable only by shipping documents, without any draft, it is also calle

59、d a documentary credit. It is universally used as a method of payment in international trade., Revocable L/C A revocable L/C is a credit that can be amended or cancelled at any moment by the issuing bank without advising the beneficiary. This kind of L/C is unlikely to be acceptable to exporters in foreign trade for it does not provide any guarantees to them Irrevocable L/C,(2) According to the revocability of credit,An irrevocable L/C cannot be modified or withdrawn by either the issuing bank or the importer within the credit vali