Page 40 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 2: Methods of Payment and Incoterms

Notes
3. Under this payment mode, goods are shipped directly to the exporter along with the
required trade documents and the exporter expects that the importer would make the
payment on the agreed date; which can be 30 days to 90 days.
4. Such a mode of payment can be effectively used if the exporter smartly uses this mode
with export credit insurance, export factoring and forfaiting and keeps in touch with his
bankers, the importer and his country’s economic and political situation.

Self Assessment

Fill in the blanks:

1. A ................................... letter of credit is one in which the advising bank undertakes and
confirms that payment will be made to the exporter provided trade documents are not
discrepant and presented accordingly to confirming bank.

2. The Inland Letter of Credit is popular among ................................... traders who procure
material from manufacturers and export it to overseas markets.
3. ................................... under cash-in-advance mode of payment may result in losing important
buyers to competitors as they may offer more favourable and attractive option of payment
to importer in today's globally competitive market.
4. The drawee is basically the party who ……………….the money or agrees to make the
payment and to whom the draft is addressed or made out.

5. An irrevocable letter of credit ………………be amended, altered and cancelled by either
party of the trade deal without seeking the consent of the other party.
6. An …………………….letter of credit is one that is forwarded by the advising bank directly
to the exporter.
7. ………………………….is the safest and secure mode of realization of export proceeds for
an exporter as he receives payments for trade deals before the shipment of goods from his
country.
8. ……………………..is the most risky mode of payment for any exporter as an open account
trade transaction means that the goods or services are shipped and delivered to the importer
on credit basis and payment will come after the due date, usually 30 to 90 days.

9. The …………………….. is the bank of the importer and facilitates in trade transaction by
getting the documents for the bank i.e. remitting bank.
10. ………………………………are used as support in cases when a less secure mode of payment
has been agreed between the exporter and importer.

2.2 INCOTERMS

The distinctive feature of export pricing is that it is based on Inco terms; also referred to as terms
of delivery, as they demarcate the functional activities to be performed by the exporter and
importer such as getting insurance cover, reserving shipping space, customs and excise clearance.
It helps the exporter and importer to divide the individual responsibilities and obligations of
the trade deal.
International Commercial Terms, briefly known as Inco terms, are an integral part of any
export-import transactions between exporter and importer. Through Inco terms, the
responsibilities and obligation of both the exporter and importer become clear and both can

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