Ibt Chap 14.docx

Chapter 14 Documentary collections transaction  one of the common methods of mitigating the two main international sales risks Two Types of Risks  the seller-exporter’s risk of nonpayment for delivered goods  the buyer-importer’s risk of not receiving goods for which it has made payment Different methods of payment on a risk scale from the perspective of the exporter-seller  payment in advance being the most pro-exporter (seller) Different methods of payment on a risk scale from the perspective of the importer-buyer  open account as the most pro-importer (buyer). purchase of goods by open account or on-account  the seller ships the goods on credit and transfers title to the buyer without receiving payment until some time after delivery, such as net 30 or 60 days. consignment of goods transaction  One variation of the on-account method  a bit less risky for the seller  the seller retains title to the goods.  buyer acts as an intermediary between the seller–consignor and the buyer, obtaining payment from the ultimate buyer and title from the seller cash in advance transaction  most pro-seller method  the buyer pays in advance and then awaits delivery of the goods.  places the risk of nondelivery with the buyer, that is, paying for goods that are never delivered. documentary collections and documentary credit methods.  d payment against documents  If the seller wants to be paid immediately  Seller will provide a sight draft, which requires the buyer to make payment when obtaining the documents. payment against acceptance  used when the seller allows the buyer additional time to make payment after receiving and accepting the documents.  It does this by providing a time draft that states a time after the delivery in which the buyer must make payment. The common methods of payment in international trade  (1) open account and consignment sales,  (2) documentary collection,  (3) documentary credit, and  (4) cash in advance. consignment sale  An intermediate form of cash in advance  the buyer receives use of the goods, but title remains with the seller until the goods are sold to a third party.  This method is most common when goods are shipped to a foreign distributor to be sold on behalf of the exporter.  The exporter retains title to the goods until the distributor sells them  Once the goods are sold, payment is sent to the exporter. documentary transactions  Documentary collections and  documentary credit transactions Documentary collections transaction

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one in which the buyer is obligated to pay upon delivery of documents (not delivery of goods). The documentary credit transaction also requires payment upon delivery of documents, but that payment is further guaranteed by a commercial bank through the issuance of a letter of credit.  The buyer receives payment through the letter of credit upon presentation of documents to the bank. Modes of Payment  Open Account  Cash in Advance  Consignment  Documentary Collections  International Sales Contract  Pricing Goods for Export  Pro Forma Invoice and Price Quotations Certificate of Origin (COO)  Signed statement required in certain nations attesting to the origin of the export item. North American Free Trade Agreement (NAFTA) certificate of origin is required for products traded between the Canada, Mexico, and the United States when lower tariff duty is claimed for NAFTA qualified goods. Certificate of Conformity  Signed statement from a manufacturer attesting that a product meets certain technical standards. Commercial Invoice  Document prepared by the exporter or freight forwarder and required by the foreign buyer to prove ownership. In most cases, the commercial invoice is used to assess customs duties. Consular Invoice  Document required in some countries that describes the goods being shipped and is certified by the consular official of the foreign country stationed in the country of export. Customs Declaration  Document that describes the nature of the goods, value, consignee, and the ultimate destination required for statistical purposes. Customs Invoice  Document used to clear goods through customs in the importing country by providing evidence of the value of goods. In some cases, the commercial invoice may be used for this purpose. Packing List  List that itemizes the exported material in each package and indicates the type of package, such as a box, crate, drum, or carton. Inspection Certificate  Document prepared by a third party to attest to the specifications of the goods shipped. Insurance Certificate  Document prepared by the exporter or freight forwarder that provides evidence that the goods are insured against loss or damage the goods. Pro Forma Invoice  Invoice prepared by the exporter before shipping the goods, informing the buyer of the goods to be sent, their value, and other key specifications. Shipper’s Export Declaration (SED)  Document used to control exports and act as a source document for official U.S. export statistics. SEDs are required for shipments when the value of the commodities is more than $2,500. Document Against Acceptance Collection  A document against acceptance collection, also known as a time draft, is used when the exporter extends credit to the buyer. By signing and writing “accepted” on the draft, the buyer is formally obligated to pay within the stated time. When this is done, the time draft is then called a trade acceptance. A date draft differs slightly from a time draft in that it specifies a date on which payment is due, rather than a time period after

acceptance of the draft. When either a sight draft or a time draft is used, a buyer can delay payment by delaying acceptance of the draft. A date draft can prevent this delay in payment. Documents in the Documentary Transaction  Commercial invoice is a bill for the goods prepared by the seller.