Payment terms

Şefik Ergönül

sefik@utided.org 1
 Parties in Payment

• Exporter( Beneficiary)
• Exporter’s Bank( Advising/Confirming Bank)
• İmporter’s Bank (Issuing bank)
• İmporter(Amir )

sefik@utided.org 2
 Attentioooon!!!!!
• What would your payment term be?
• Place and time of payment?
• How will the payment be transferred?
• Acceptable delay?
• Consequences of unacceptable delay?

sefik@utided.org 3
Attentioooon!!!!!
• Security Issues
Shall we receive our money?

• Cost Issues
How much it will cost receiving money?

sefik@utided.org 4
 Payment Terms

• Advance Payment
• Against Documents
• Open account / Cash against goods
• Consignment Sales
• Barter

sefik@utided.org 5
 Payment Terms
Low Risk High Risk
Advance Payment
BPO
Bank Payment Obligation
EXPORTER

IMPORTER
Against Documents
Barter
Open Account
Cash Against Goods
Consignment Sales
High Risk Low Risk
sefik@utided.org 6
Advance Payment

Partially Cash
Totally Cash
Against input

sefik@utided.org 7
 Advance Payment
Time of Payment: Prior to shipment
Time of Delivery: After Payment

Risk of Exporter: None

Risk of Importer: Depends on the

exporter

sefik@utided.org 8
 What is a L/C
(Letter of Credit)
• A letter of credit is a promise to pay
• Of the issuing or confirming BANK.
• Within time & value limits
• Also against presentation of the documents
• Specified in the L/C content
• In accordance with the L/C conditions

sefik@utided.org 9
 Payment by L/C
(Letter of Credit)
As per Payment Conditions
Against Documents

1- At sight L/C
Payment

2- Deferred payment L/C

3- Acceptance L/C
4- Negotiation L/C

sefik@utided.org 10
 Payment by L/C
(Letter of Credit)
As per Confirmation
Against Documents

1- Unconfirmed L/C
Payment

2- Confirmed L/C
3- May add Confirmation L/C

sefik@utided.org 11
 Payment by L/C
(Letter of Credit)
Against Documents
According to features
1- Back-to-Back L/C
2- Stand-by L/C
3- Red clause L/C
4- Revolving L/C
5- Divisible/Transferable L/C
sefik@utided.org 12
 Payment by L/C
Against Documents

After shipment against

Time of Payment: presentation of conform
documents
Payment

Time of Delivery: After Payment

Risk of Exporter: Least

Risk of Importer: Depends on the exporter

sefik@utided.org 13
 Cash
Against Documents
1- Cash Against Documents (COD)
Against Documents

Deliver Payment (DP)

Payment

2- Deliver Against Acceptance

Deliver Acceptance (D/A)
2.1. Company Promisory Note
2.2. Bank avalized P/N

sefik@utided.org 14
 Cash
Against Documents
Against Documents

Time of Payment: Against documents at

importers bank
Time of Delivery: After payment
Payment

Risk of Exporter: What happens if the

documents not accepted?
Risk of Importer: Depends on the exporter

sefik@utided.org 15
 Deliver
Against Acceptance
Against Documents

Time of Payment At due date

Time of Delivery Before payment

Payment

Against company promisory notes

Risk of Exporter Depends on the importer.
Bank avalized notes bear bank’s
guarantee
Risk of Importer None

sefik@utided.org 16
 Open Account
Cash Against Goods
• Serious & high risk
• Payment time
• Payment Guarantee
• Export Insurance

sefik@utided.org 17
 Open Account
Cash Against Goods
Time of Payment: After delivery as agreed

Time of Delivery: Before Payment

Risk of Exporter: For the payment

Depends on the importer
Risk of Importer: None

sefik@utided.org 18
 Consignment Sale

A seller sends goods to a buyer or reseller

who pays the seller only as and when the goods are sold.

The seller remains the owner (title holder) of the goods

until they are paid for in full &,
after a certain period, takes back the unsold goods.

Also called sale or return, or goods on consignment

sefik@utided.org 19
 Consignment Sale

• Send the goods, wait the payment

• Seller is the title holder
• Whan can be sold?
• If not sold?
Sales to a third party?
Return to the origin
(cots + legal issues)
sefik@utided.org 20
 Consignment Sale
Time of Payment: After goods are sold

Time of Delivery: Before Payment

Risk of Exporter: Very High

Risk of Importer: Almost none

sefik@utided.org 21
 Barter
• Seller Buyer !!
• Can we sell barter goods?
• Are rates reasonable?
• Volume of the business?
Costs?
Risks?

sefik@utided.org 22
 BPO
Bank Payment Obligation

• BPO is an irrevocable undertaking

• Given by obligator bank to recipient bank that
• Payment will be made on a specified date
• After a specified event has taken place and
• On condition that the data received from recipient bank
• Match the data on the Established Baseline

sefik@utided.org 23
 BPO
Bank Payment Obligation

• Payment secured by banks

• Application like Open Account
• Matching data in electronic environment
• Fast and secured process

sefik@utided.org 24
 BPO
Bank Payment Obligation
BPO benefits will include:
• Mitigating risks in international trade for
buyers and sellers alike
• Speed, reliability, convenience
• Reduced costs and improved accuracy
• Enhanced risk management
• Assurance of payment
• Access to flexible financing (options)
• Securing the supply chain

sefik@utided.org 25