Page 165 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes Clean payment method offers a relatively cheap and uncomplicated method of payment for
both importers and exporters.

There are basically two types of clean payments:
1. Advance Payment: In advance payment method the exporter is trusted to ship the goods
after receiving payment from the importer.

2. Open Account: In open account method the importer is trusted to pay the exporter after
receipt of goods.

The main drawback of open account method is that exporter assumes all the risks while the
importer get the advantage over the delay use of company’s cash resources and is also not
responsible for the risk associated with goods.

9.2.2 Payment Collection of Bills in International Trade

The Payment Collection of Bills also called “Uniform Rules for Collections” is published by
International Chamber of Commerce (ICC) under the document number 522 (URC522) and is
followed by more than 90% of the world’s banks.
In this method of payment in international trade the exporter entrusts the handling of commercial
and often financial documents to banks and gives the banks necessary instructions concerning
the release of these documents to the Importer. It is considered to be one of the cost effective
methods of evidencing a transaction for buyers, where documents are manipulated via the
banking system.
There are two methods of collections of bill:
1. Documents against Payment D/P: In this case documents are released to the importer only
when the payment has been done.
2. Documents against Acceptance D/A: In this case documents are released to the importer
only against acceptance of a draft.

9.2.3 Letter of Credit L/C

Letter of Credit also known as Documentary Credit is a written undertaking by the importers
bank known as the issuing bank on behalf of its customer, the importer (applicant), promising
to effect payment in favour of the exporter (beneficiary) up to a stated sum of money, within a
prescribed time limit and against stipulated documents. It is published by the International
Chamber of Commerce under the provision of Uniform Custom and Practices (UCP) brochure
number 500.
Various types of L/Cs are:

1. Revocable & Irrevocable Letter of Credit (L/C): A Revocable Letter of Credit can be cancelled
without the consent of the exporter. An Irrevocable Letter of Credit cannot be cancelled or
amended without the consent of all parties including the exporter.
2. Sight & Time Letter of Credit: If payment is to be made at the time of presenting the
document then it is referred as the Sight Letter of Credit. In this case banks are allowed to
take the necessary time required to check the documents. If payment is to be made after
the lapse of a particular time period as stated in the draft then it is referred as the Term
Letter of Credit.

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