Page 50 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 2: Methods of Payment and Incoterms

14. In the ....................shipping term, the exporter is under obligation to take responsibility of Notes
all risks and costs that are involved in trade transactions and associated with the cargo
until the cargo is not delivered
15. The incoterms .................and DEQ are used in case of mono-modal trade.

2.3 Summary

Special procedures have evolved for dealing with extra risks of international trade and
national and international institutions have been established to finance and regulate
international trade.
Before shipping goods to foreign buyers, many exporters require a letter of credit from a
reputable bank. This is a guarantee that the exporter will be paid if the goods are supplied
in good order.
Payment is made by a bill of exchange, or draft, which is sent by the exporter to the
importer or to the importer’s bank. The importer or importer’s bank signs the draft. If the
draft is payable on presentation, it is a sight draft. If it is payable at a future date, it is a time
draft.
The shipper gives the exporter a bill of lading, the original copy of which is required for
collection of the goods. The bill of lading is forwarded to the importer for the goods to be
released.
When an exporter is confident an importer will pay, goods may be sold on an open
account, and a bill presented after shipment. When an exporter suspects that the importer
may not pay, cash may be demanded before shipment occurs.

When an exporter lacks trust in the importer’s bank or country, the exporter can have the
importer’s letter of credit confirmed. A confirmed letter of credit is one way of avoiding
country risk.

Export credit insurance is an alternative to letters of credit for avoiding commercial and/
or country risks. Export insurance, however, typically involves a deductible portion of
coverage and differs from letters of credit in other ways that are sometimes important.

Official export financing agencies often provide direct buyer credits, as well as guarantees
on credits to buyers granted by domestic or financial institutions.

When an exporter’s time draft is accepted by the bank, the resulting accepted draft is called
a banker’s acceptance.
Bankers acceptance are a means of short-term trade financing typically up to 6 months.

The majority of trade occurs between countries which are members of customs unions or
free-trade agreements

2.4 Keywords

Bill of Exchange: An order written by an exporter instructing an importer, or an importer’s
agent, to pay a specified amount of money at a specified time.

Bill of Lading (or draft): A document issued to an exporter by a common carrier transporting
merchandise. It serves as a receipt, a contract, and a document of title.
Export-Import Bank (EXIM Bank): Agency of the Central Govt. whose mission is to provide aid
in financing and facilitate exports and imports.

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