The sale of goods is a process of convection of goods and payment. In international trade, in accordance with the provisions of the United Nations Convention on Contracts for the International Sale of Goods, the seller must “deliver the goods, hand over all documents relating to the goods and transfer ownership of the goods”, the buyer must “pay the price of the goods and receive the goods”. This payment is affected by a variety of factors, it is directly related to the smooth conduct of trade, buyers and sellers in the consideration of what payment method to be taken carefully, so the choice of payment method in international trade practice is of great significance.
The main payment methods of international trade
(A) remittance
Remittance, also known as remittance, is the simplest way of international settlement, refers to the remitter to request the local remitter to entrust the recipient’s local bank to pay the recipient by telecommunication. The remittance method of settlement, the seller will ship the goods to the buyer, the relevant freight documents sent by the seller to the buyer, the buyer will be remitted to the seller through the bank. There are three kinds of remittance: letter transfer, ticket transfer and wire transfer. Among them, wire transfer because of its security, high speed, the bank can not occupy the funds and is the most widely used.
(B) collection
Collection is the exporter after loading the goods in order to collect payment from foreign buyers, according to the value of the goods issued a bill of exchange (self-made, or according to bank requirements), or with the invoice and other shipping documents, entrusted to the local bank to the buyer’s location of the relevant bank to request payment on schedule. General trade payment collection are with the single collection, with the single collection can be divided into payment and acceptance of the delivery of documents. Payment delivery (D / P) refers to the exporter in the shipment of goods and delivery of documents through the collection bank and the agent bank for collection, and require the bank in the foreign buyer to pay for the goods before delivery of documents. Acceptance of delivery of documents (D/A) is the delivery of documents to the buyer on behalf of the receiving bank is not conditional on the latter’s payment, but only on the buyer’s commitment to guarantee payment of the bill of exchange after a certain date mutually agreed upon.
(C) Letter of Credit
Letter of credit is a written guarantee made by the bank to the exporter at the request of the importer, promising that the exporter will accept and pay for the bill of exchange and documents in accordance with the requirements, and is a settlement method based on bank credit. It solves the problem of mutual distrust between parties in international trade through the substitution of bank credit for commercial credit.
Risk analysis of main payment methods comparison
(A) Remittance
The use of prepayment, the importer’s capital possession time is longer, and will bear almost all the risks; if the goods on delivery or credit O / A, the risk will be borne by the exporter, its economic burden is equally heavy; in the use of bills of exchange, if the credit is not good, may use fake bills of exchange or forged bills of exchange, resulting in money and goods empty; in the use of wire transfer or letter transfer, the remitter may be handled by the good remittance procedures of the bank After faxing the receipt of the wire transfer or letter transfer to the exporter, and then before the money is unpaid to the remitting bank to withdraw the remittance request.
(B) Collections
In the actual use of collection, there are many risks, mainly in the following two aspects.
First, although the risk to the exporter has been much reduced compared with cash on delivery, but the collection method still belongs to the nature of commercial credit. The seller entrusts the bank to collect payment from the buyer, and whether the payment can be received depends entirely on the buyer’s credit, such as some buyers with bad credit refuse to pay or ask for discounts in the case of falling goods market. Therefore, in practice, the use of collection method to collect payment still has a greater risk for the seller. Second, collection is often affected by the laws and regulations of the country concerned and social unrest, and the practice of collection often differs from country to country and region to region. In some countries in South America, due to some local customs and practices, they equate the D/P method with the D/A method in actual operation. Using the D/P method in these areas may lead to the failure of collecting foreign exchange if they do not understand these customs and practices.
(C) Letter of Credit
There are also many risks in using L/C in international trade settlement, which are mainly reflected in the following aspects.
First, in terms of efficiency, its mechanical stereotypical consistency principle is often used by unscrupulous merchants, and once one of them goes wrong, even if it is a very minor problem, the party may suffer huge losses. Secondly, in terms of function, the role of letter of credit lies in both risk avoidance and settlement. Compared with the coverage of export credit insurance, the settlement by L/C not only covers the importer’s commercial risk, but also political and war risk. Thirdly, in terms of effectiveness, the letter of credit procedure is complicated, and its requirements for the documents submitted are strict. Compared with collection, it takes at least 5-6 working days more for the exporters to make the documents, negotiate with the bank and the issuing bank to examine the documents, and it takes even longer in the case of needing to reissue the documents or restricting the negotiation of the non-local bank.
Risk prevention measures
(A) the risk of remittance prevention and countermeasures
1. Strengthen the credit investigation of the importing party. The business style and creditworthiness of the transaction directly affects the smoothness of cooperation between the two parties and the quality of contract performance. Therefore, strengthen the credit investigation of the importer, choose a relatively strong financial strength, good credit importers is an important guarantee for the safe collection of foreign exchange.
2. Sign relatively favorable settlement terms. First of all, the exporter should strive to improve the proportion of advance payment. If possible, the exporter should strive to further increase this ratio, the higher the ratio, it means that the exporter’s risk in the performance of the contract is smaller, but also to ease the exporter’s financial pressure.
(B) Risk prevention and countermeasures of collection
1. Investigate the credit of the other party and choose a reliable partner. Exporters should carefully investigate the qualifications of partners before the transaction and choose reliable partners, even if they have dealt with customers for many times, they should also carefully investigate and examine their creditworthiness and business style.
2. Understand the relevant trade regulations and laws of the exporting country. Since the trade control regulations and laws of each importing country are not the same, so you must be careful when dealing with an importer from a country with strict trade control, and confirm the trade control conditions in advance.
3. Try to use the spot payment delivery. As the specific mastering method of D/P forward payment method is not yet clearly defined in the international arena, and the handling method of each country is also different, there are still many controversies in D/P forward collection, so exporters should be careful to use, if used, especially to control the period, generally should be mastered in no more than the transport time from the place of export to the place of import.
(C) the letter of credit risk prevention and countermeasures
1. Do a good job of customer credit investigation. Customer credit investigation mainly includes the other party’s business status, solvency, business scale, business performance and the market price of products, etc., through the information agencies to obtain relevant information and analysis of past transactions.
2. Strengthen the credit investigation of the issuing bank. Letter of credit belongs to bank credit, so the credit of the issuing bank is crucial. In actual business, some small banks with bad credit collude with importers to open letters of credit, and then refuse to pay for various reasons, so that exporters suffer losses. In order to prevent this risk, the exporter should know the economic and financial situation of the country or region where the importer is located and the practice of the local bank’s letter of credit business, specify the issuing bank of the letter of credit when contracting, and request another bank other than the issuing bank to confirm the certificate.
3. Conclude the sales contract carefully. In letter of credit settlement business, contract is the basis of letter of credit. Therefore, the contents of the letter of credit should be clearly stipulated in the sales contract in advance to avoid disputes later. There are various types of letters of credit, each with its own advantages and risks, and buyers and sellers should choose carefully. For example, for the buyer, it should strive to use forward letters of credit, which can ease the pressure of capital, speed up the efficiency of the use of funds, facilitate the production or sale of products, and if the seller has fraudulent behavior, there is a certain amount of time for the buyer to file a court order to cancel the trade, reducing their own losses. For the seller, it should strive for the other party’s issuing bank to open irrevocable confirming letters of credit to increase the safety of the use of letters of credit.
4. Strictly examine the letter of credit. After receiving the letter of credit, the exporter should carefully examine the following aspects of the letter of credit: first, whether the content of the letter of credit is consistent with the contract, whether there are conditions and soft terms; second, the authenticity of the letter of credit, the creditworthiness of the issuing bank, the type of letter of credit, etc.. For the “soft terms” of the letter of credit, the exporter can usually check the “soft terms” of the letter of credit. The bank will be the gatekeeper.
5. Carefully repair the documents to avoid discrepancies. As the letter of credit, when the documents are inconsistent or inconsistent, the bank will refuse to pay. Therefore, strengthen the communication between buyers and sellers, complete and error-free interpretation of the letter of credit, you can maximize the avoidance of discrepancies occur.