Page 164 - DMGT547_INTERNATIONAL_MARKETING

Unit 9: Terms of Payment and Delivery

While the ownership and possession passes to the buyer in the case of open account system, the Notes
ownership remains with the seller in the case of consignment sale.
In the case of goods exported on consignment basis, freight and marine insurance must be
arranged in India.

9.1.4 Documentary Collection

The Exporter prepares the proper financial and commercial document including the transport
document and hands over to his Banker requesting in clear terms as to how the documents are
to be delivered to the Importer at the other end.
Four main parties to a documentary collection are the Principal, i.e. the Exporter, The Remitting
Bank – The Exporter’s Bank, The Collecting Bank – The Bank in the Importer’s country and The
Importer, the consignee.
When the Exporter wants the Bank to hand over the export documents to the Importer only
against payment immediately, the bill of exchange is called a Sight Draft. In case the Exporter
wishes to give some time (30 days, 60 days, 90 days, etc.) to the Importer to arrange for the funds
but at the same time would not like to part with the documents before payment of money, the
appropriate bill of exchange is called a D/P (Document against Payment).
Banks act as intermediaries to collect payment from the buyer in exchange for the transfer of
documents that enable the holder to take possession of the goods. The procedure is easier than
a documentary credit, and the bank charges are lower. The bank, however, does not act as surety
of payment but rather only as collector of funds for documents.
For the seller and buyer, a documentary collection falls between a documentary credit and open
account in its desirability.

Self Assessment

Fill in the blanks:

1. The ......................., the central bank of India has been driving force in the development of
the national payment system in India.
2. Under the ....................... system, an amount is paid before it is earned or incurred.
3. In an ....................... system, when an Exporter agrees to sell the commodity to the Importer,
he despatches the goods to the buyer directly followed by the transport documents and an
invoice requesting payment.

9.2 Types of payment

There are three standard ways of payment methods in the export import trade international
trade market:
1. Clean Payment
2. Collection of Bills

3. Letters of Credit L/c

9.2.1 Clean Payments

In clean payment method, all shipping documents, including title documents are handled directly
between the trading partners. The role of banks is limited to clearing amounts as required.

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