International Trade Finance 2011-2012 Fall Semester
Required textbook: Tarsem Singh Bhogal and Arun Kumar Trivedi, International Trade Finance: A Pragmatic Approach, Palgrave Macmillan, 2008 Recommended textbooks: Anders Grath, The Handbook of International Trade and Finance, Kogan Page; illustrated edition (July 28, 2008) Eric Bishop, Finance of International Trade (Essential Capital Markets) (Paperback) Butterworth-Heinemann; 1 edition (December 8, 2003) 王立军，商业银行国际贸易融资及风险控制，对外经济贸易大学出版社 2006 赵薇，国际结算－国际贸易融资支付方法，东南大学出版社，2006
Chapter Two Methods of Payment in International Trade
Chapter Outline • Payment Risk Diagram • Cash-in-Advance • Letters of Credit • Documentary Collections • Open Account
2. Cash-in-Advance • Wire transfer A wire transfer is an electronic transfer of money. • Different wire transfer systems and operators provide a variety of options relative to the immediacy and finality of settlement and the cost, value, and volume of transactions. • SWIFT环球银行同业金融电讯协会 • CHIPS交换银行相互收付系统 • CHAPS交换银行自动收付系统 • FEDWIRE联邦电子资金划拨系统 • TARGET欧元跨国清算系统 • EDI电子数据交换 • CNAPS中国现代化支付系统
2. Cash-in-Advance A chequeis an unconditional order in writing addressed by the drawer (depositor) to his bank(the drawee) signed by the drawer authorising the bank topay on demand a specified sum of money to or to the order of a named person or to bearer (the payee). The bank will pay the cheque because he candebitthe amount to the drawer’s account.
4. Documentary Collections • Documents Against Payment (D/P) Collection • Documents Against Acceptance (D/A) Collection
5. Open Account • How to Offer Open Account Terms in Competitive Markets • Export Working Capital Financing • Government-Guaranteed Export Working Capital Programs • Export Credit Insurance • Guarantee • Standby letter of credit • Export Factoring • Forfaiting
6. Other method • Consignment • under a consignment, an exporter (consignor) enters into a consignment with a foreign distributor, by which the exporter ships the goods to the foreign distributor that will sell the goods for the exporter on a best effort basis. • After the goods have been sold, the foreign distributor will deduct its commission and fees out of the proceeds from sales and then remit the rest to the exporter.
Example The Sports Exports Company produces footballs and exports them to a distributor in the United Kingdom. It typically sends footballs in bulk and then receives payment after the distributor receives the shipment. The business relationship with the distributor is based on trust. Although the relationship has worked thus far, Jim Logan (owner of the Sports Exports Company) is concerned about the possibility that the distributor will not make its payment. Q1: what kind of method of payment could Jim use to ensure that he will be paid for the products he exports?
Example (continue) Q2: Jim has discussed the possibility of expanding his export business through a second sporting goods distributor in the United Kingdom; this second distributor would cover a different territory than the first distributor. The second distributor is only willing to engage in a consignment arrangement when selling footballs to retail stores. Explain the risk to Jim beyond the typical types of risk he incurs when dealing with the first distributor. Should Jim pursue this type of business? ANSWER: With a consignment arrangement, the Sports Exports Company would retain title to the merchandise. Thus, it would not receive payment until after the second distributor sold the footballs. Also, even if the second distributor does sell the footballs but fails to pay for them, the Sports Exports Company has limited recourse.
Quick Quiz • What is the most secure methods of payment in international trade for an exporter? What is it for an importer? • When to use Cash-in-Advance Terms? • How to offer Open Account Terms in competitive markets?
Web Reference • http://trade.gov/media/publications/pdf/trade_finance_guide2007.pdf • http://www.bank-of-china.com/cbservice/cb3/
End of Chapter Any question?