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Unit 10 Terms of Payment

Unit 10 Terms of Payment. Teaching Objectives:  Knowledge Requirements: 1 To make students master different modes of terms of payment 2 To enable students to get familiar with different kinds of business letter about terms of payment  Competence Requirements:

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Unit 10 Terms of Payment

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  1. Unit 10 Terms of Payment Teaching Objectives:  Knowledge Requirements: 1 To make students master different modes of terms of payment 2 To enable students to get familiar with different kinds of business letter about terms of payment  Competence Requirements: To have students skillfully write business letters about terms of payment according to the useful words, expressions and sentences

  2. Part One Introduction • International payments are financial activities conducted among different countries. Paying for goods supplied in domestic trade is fairly simple matter because payment can be made either in advance or within a reasonable short period after delivery. Payment is much complicated in international trade. The sellers must sometimes wait several months for their money or the buyers may need to pay several months before they even see their goods. Clearly, both the sellers and buyers run certain risk of non-payment or non-delivery. So the appointment of agents for trust purpose becomes necessary. This function is usually entrusted to banks, which have branches or correspondent banks in most towns and cities overseas. • In international trade, the most frequently used means of payment include bill of exchange, promissory note, and cheque. The latter two are only used occasionally in foreign trade.

  3. On the basis of different criteria, bills of exchange may be classified into several types: • 1. Commercial Bill and Banker’s Bill • 2. Clean Bill and Documentary Bill • 3. Sight (or Demand) Bill and Time (or Usance) Bill • 4. Commercial Acceptance Bill and Banker’s Acceptance Bill • Sight draft terms involve less risk, since title to a consignment is only released against payment; even so the shipper may be left with his consignment on his hands, or rather, afloat, if the draft is dishonored. When drafts are presented under a letter of credit, however, the shipper has full protection, and only the opening and confirming banks run any risk. • Basically, there are three modes of payment that the buyers may adopt namely remittance, collection and letter of credit (L/C).

  4. 1. Remittance • This mode of payment means that the payer (usually the buyer) remits a certain sum of money in accordance with the parties’ agreement to the payee (usually the seller) through a bank. Payer may remit the sum in the following manners: (See the following table) • 1) Mail Transfer (M/T) • 2) Telegraphic Transfer (T/T) • 3) Demand Draft (D/D) • This method of payment is often used for down payment, payment of commission and for sample, settlement of claim, or as performance bond, etc.

  5. 2. Collection • Under collection, the exporter issues a draft with shipping documents attached, then forwards the draft to a bank in his place, i.e. the remitting bank, to make an application for collection and entrusts the remitting bank to collect the purchase price from the buyer through its correspondent bank abroad, i.e. the collecting bank. In the course of collection, banks only provide the service of collecting and remitting and are not liable for non-payment of the importer. • When the mode of collection has been adopted, the importer/exporter requests payment to be made through banks under the terms of documents against payment (D/P) or documents against acceptance (D/A). D/P calls for actual payment against transfer of shipping documents. D/A calls for delivery of documents against acceptance of the draft drawn by the exporter (See the following table).

  6. 1) Document against Payment (D/P) • Under this payment term, the exporter is to ship the goods ordered and deliver the relevant shipping documents to the buyer abroad through the remitting bank and the collecting bank with instructions not to release the documents to the buyer until the full payment is effected. According to the different time of payment, document against payment can be further divided into D/P at sight and D/P after sight. • 2) Document against Acceptance (D/A) • This term of payment is applicable only to a time bill that is used in documentary collection, in which the collecting bank will release the shipping documents to the buyer without any payment but merely against the acceptance of the bill by the buyer to honor the draft at a certain future date agreed upon between the seller and the buyer. D/A is always after sight. • Advantages and Disadvantages of Collection

  7. There are some advantages for the exporter under the mode of collection. Since the remitting bank instructs the collecting bank not to hand over the shipping documents to the buyer until the draft is accepted or paid, thus, a lot of risks in “shipment earlier, settlement later” can be avoided. What’s more, the buyer’s lack of commercial integrity can also be prevented. When facing a market with fierce competition, the exporter can use collection to win customers and promote its sales. On the other hand, the importer may also get advantages from collection. Firstly, it can facilitate the importer to obtain financing. Under D/P after sight, capital tie-up of the importer can be avoided or reduced. Secondly, the expenses are low. Under collection, the importer does not need to pay the service fee as required for the opening of L/C. • However, problems still exist. Under D/P, there is the possibility of the buyer or his bank refusing to honor the draft and take up the shipping documents, especially at a time when the market is falling. In such a case, the seller may face the risk of non-payment or late payment by the buyer, although he is still the owner of the goods.

  8. As for D/A, the most striking disadvantages is that after the buyer accepts the draft, the documents of title will be surrendered to him. So, if the buyer goes bankrupt or become insolvent before the payment of the draft, the seller will bear the losses of all the payment. Therefore, D/A is more risky than D/P for the exporter. • In international trade, payment through collection is accepted only when the financial standing of the importer is sound or where a previous course of business has inspired the exporter with confidence that the importer will be good for payment. • 3. Letter of Credit (L/C) • The most generally used method of payment in the financing of international trade is the letter of credit (abbreviated to L/C), which is a reliable and safe method of payment, facilitating trade with unknown buyers and giving protection to both sellers and buyers. The process of issuing a letter of credit starts with the buyer. He instructs his bank to issue an L/C in favor of the seller for the amount of the purchase. The buyer’s bank (the opening bank) then sends to its correspondent bank in the seller’s country, the L/C, giving instructions about the amount of the credit, the beneficiary, the currency, the documents required and other special instructions. On arrival, the correspondent bank advises the seller of the receipt of the credit. Sometimes a seller requires a confirmed L/C. In this case, the correspondent bank usually adds its confirmation, and advises the seller of the same; the seller will then dispatch the goods accordingly. • As far as the seller’s benefit is concerned, L/C is better than D/P. D/P at sight is better than D/P after sight, whereas D/P is better than D/A.

  9. Part Two Terms of Payment & Specimen Letters • 2.1 Structural Parts of Letters about Terms of Payment • Analysis of Specimen Letter: Asking for Easier Payment Terms (See the table)

  10. Upon the above analysis, we may come to the impression and conclusion that: • Structural parts of letters about Terms of Payment consist of the following sections: • Section 1: Refer to the relative order or contract &state the current payment arrangements; • Section 2:Outline the financial problems affecting the company; • Section 3:Make the request for easier payment terms; • Section 4: Urge the acceptance of the proposal.

  11. 2.2 Samples of Letters about Terms of Payment • Sample 1 Ask for an Extension of Payment Terms • Dear Sir/Madam, • We are pleased to inform you that we are very satisfied with the quality of your products and the promptness of delivery and hope to expand our business with you. • While we appreciate your cooperation in the past years, we would ask for an extension of payment terms as sight D/P is rather inconvenient for us. Many of our suppliers are in fact supplying us on 60 days D/P, or even D/A basis. Your support in this respect will help a lot in developing future business between us. • We are waiting for your favorable reply. • Yours faithfully, • ……

  12. Sample 2 Urging Establishment of L/C • Dear Sirs, • Re: Our Sales Contract No.C234 • With reference to the 4,000 dozen shirts under our S/C No.C234, we wish to draw your attention to the fact that the date of delivery is approaching, but we still have not received your covering Letter of Credit to date. Please expedite the opening of the L/C, so that we may execute the order smoothly. • In order to avoid subsequent amendments, please see to it that the L/C stipulations are in exact accordance with the terms of the contract. • We hope to receive your favorable news soon. • Yours sincerely, • …… • Notes： • with reference to 关于 • expedite 迅速执行，发送

  13. Sample 3 a Letter Advising to Establish Letter of Credit Relations • Dear Sirs, • We have pleasure in advising that we have been successful in securing Three (3) Orders as per the particulars given in the separate air letter we are posting today. • We shall be obliged if you will kindly let us have a Sales Note as per the prices indicated by us in the Indents, and a further document showing the extra amount and commission due to us on each Indent, and as soon as we receive these we shall establish a letter of credit in your favor. Therefore please do not delay the matter, and let us have the Sales Note and the other documents per return air mail. • We are also interested in the following goods: Spoons, Safety Razors, Scissors (small and medium), Table Knives, and Novelty Watches. If you are in a position to supply these, please let us have the samples, together with your CIF & C prices. • If you have any other interesting items, please do not fail to furnish us with samples, together with your CIF & C prices, as there is every possibility on very good orders. • Yours faithfully, • …… • Note: •  Sales Note: Sales Confirmation

  14. Sample 4 a Letter to Inform the L/C Establishment • Dear Sirs, • We refer to our order for your electronic computers placed with you on November 11, and due for delivery by the end of this year. The order number was NG5866. • We have today instructed our bankers to open an irrevocable documentary letter of credit in your favor, for US $120,000—this will be confirmed by our bankers’ correspondents, the Chase Manhattan Bank, Inc., in New York who will accept your draft on them at 30 days for the amount of your invoice. • The credit is valid until January 15. Documents required are: • Bill of Lading (Full sets) • Commercial Invoice (4 copies) • Insurance Policy • The prices you quoted us being CIF Guangzhou, the amount of our credit will cover the amount of your invoice, and also the cost of freight and insurance. • Yours faithfully, • …… • Note: cover: be enough money for

  15. Sample 5 Amendments to Quality Terms in L/C • Dear Sirs, • Re: L/C No. TK 309 • We thank you for your Letter of Credit No. TK 309 covering your Order No. 9008 of the 16th December for 430 metric tons of the contracted goods. • We have noted that the credit calls for a material of 65%, which must be an error, and wish to invite your attention to our offer dated November 1, in which it was expressly mentioned that the material would be of 63.5% minimum. Would you please instruct your bankers to amend 65% to read 63.5%; otherwise we shall be unable to negotiate the shipping documents. • Besides, your credit requires the goods to be packed in l00 kg drums. As they are customarily packed in 160 kg drums, we have to ask you to make appropriate amendment to your credit in this regard. • Please see to it that your future credits are correct in every way. • As the shipment of this order is ready to go forward, your prompt attention to this matter will be much appreciated. • Yours faithfully, • …… • Note:  contracted goods: goods settled or arranged by contract or agreement

  16. Sample 6 a Letter to Grant Amendment to L/C • Dear Sirs, • Re. Amendment to L/C No. 5301 • We have for acknowledgement your letter dated June 3, and have to apologize to you for the mistake we’ve made in the above-mentioned L/C, which is completely due to carelessness. • We have already instructed our bank to amend the relevant L/C by cable without the least delay and we are sure the cable amendment will reach you in one or two days. As we are badly in need of the goods, we should be very grateful if you would kindly arrange prompt shipment. • Again, sorry for the mistake and thank you for your kind cooperation in this respect. • Yours faithfully, • …… • Note: acknowledgement: a letter saying that sth has been received, acceptance

  17. Sample 7 Buyer’s Informing the Seller ofOpening the L/C for Cars • Gentlemen: • Re: L/C for Cars • Thank you for your letter of March 18 and we are pleased to know that the shipment of the cars we booked can be made next month. • As requested, we have opened a Letter of Credit No.8488 in your favor with the Bangladesh Bank for Reconstruction & Development to the amount of US $150,000 to cover our order for 10 cars. • Upon receipt of the above-mentioned L/C, you are kindly requested to execute immediate shipment, as per agreement. As soon as the goods are dispatched, please cable us details of the shipment, thus enabling us to arrange for the insurance here. • We await with keen interest your shipping advice. • Yours respectfully, • ……

  18. Sample 8 Asking for D/A Payment • Dear Sirs, • Re: 2,000 dz PUMA shoes • Thank you for your letter of May 9 in which we have concluded a transaction of 2,000 dozen PUMA brand shoes. But to our regret, you still ask for payment by confirmed irrevocable L/C as a rule. • Payment by L/C is rather inconvenient to a customer like us who place medium-sized orders. It will add to our cost and undoubtedly tie up our liquid funds for three or four months. This may cause delay in execution of the contract. The question becomes gnawing under present circumstances. • In view of our long business relationship and the small amount involved in this transaction, we hope you will extend us an easier payment terms as an exception, i.e. payment by D/A. Your accommodation would be conducive to the future business and facilitate us promoting your products in our market. • We shall highly appreciate your kindness in consideration of the above request and giving us a favorable reply. • Yours faithfully, • …… • Notes: •  confirmed irrevocable L/C 保兑的不可撤消的信用证 • liquid funds 流动资金 • easier payment terms 宽松的付款方式

  19. Sample 9 Declining D/A payment • Dear Mr. Merton, • Thank you for your letter of 11 November 2005. • We have considered your request for a trial delivery of china on documents against acceptance terms, but regret to say that we cannot agree to your proposal. • As an exception, the best we can do for the trail is to offer you direct payment at sight terms. • If you accept our proposal you run very little risk, since our china is well known for its quality, attractive design and reasonable price. Our lines sell very well all over the world and have done so far for the last 50 years. We do not think you will have any difficulties in achieving a satisfactory volume of sales. • If you find our proposal acceptable, please let us know and we can then expedite the transaction. • Yours sincerely, • T. Brightwell • Sales Manager • Notes:  “to date” 相当于 “until now”, “到目前为止” •  “expedite” 相当于 “speed up”, “加快，催促”

  20. Sample 10 Asking for Direct Payment by the Buyer • Dear Mr. Smith, • We refer to your Contract No.623 covering lumber in the amount of ￡800 and Contract No.624 for iron pipe in the amount of ￡700. • Since both these contract are less than GB ￡1,000 in value, we would like you to ship the goods to us on a cash against documents (CAD) basis. • We trust that this arrangement will meet with your approval and look forward to your early reply. • Yours faithfully, • ……

  21. 2.3 Writing Skills for Letters about Terms of Payment • Through the above sample letters, we may come to the idea of some guidelines in writing letters about terms of payment. Those guidelines might be cited as follows: •  As to Letters Concerning Urging Establishment of L/C • Opening: referring to the goods, relative order or contract; • Body: • (1) Complaining about non-receipt of L/C; • (2) Asking for opening the L/C; • (3) Inviting attentions to the matter; • Closing: expecting receiving L/C in early time. • As to Replies to Letters Concerning Terms of Payment • The replies to these letters generally include two kinds: • 1. Agree to the requirements: • Opening: receiving the letter • Body: • (1) Accepting payment terms • (2) Stating the reason of acceptance • Closing: expecting a cooperation or favorable reply • 2. Disagree to the requirements: • Opening: receiving the letter • Body: • (1) Expressing refusal and stating reason • (2) Providing suggestions of new payment terms of insisting on previous terms • Closing: hoping to cooperate in the future

  22. Summary • The most frequently used methods of payment in the financing of international trade are Remittance, Collection and the Letter of Credit (abbreviated to L/C), of which the most generally used one is the letter of credit (abbreviated to L/C) which is a reliable and safe method of payment, facilitating trade with unknown buyers and giving protection to both sellers and buyers. • Remittance means that the payer (usually the buyer) remits a certain sum of money in accordance with the parties’ agreement to the payee (usually the seller) through a bank. Payer may remit the sum in three manners:Mail Transfer (M/T), Telegraphic Transfer (T/T) and Demand Draft (D/D). This way of payment is often used for down payment, payment of commission and for sample, settlement of claim, or as performance bond, etc. • When the mode of collection has been adopted, the importer/exporter requests payment to be made through banks under the terms of documents against payment (D/P) or documents against acceptance (D/A). D/P calls for actual payment against transfer of shipping documents. D/A calls for delivery of documents against acceptance of the draft drawn by the exporter.

  23. The most generally used method of payment in the financing of international trade is the letter of credit (abbreviated to L/C), which is a reliable and safe method of payment, facilitating trade with unknown buyers and giving protection to both sellers and buyers. • As far as the seller’s benefit is concerned, L/C is better than D/P. D/P at sight is better than D/P after sight, whereas D/P is better than D/A. • Enquiries about terms of payment and replies are routine work. Most traders know the various methods of payment available for settling international trade transactions. However, there are cases where the requests between the buyer and the seller cannot be met, and then a letter of explanation is required. • This kind of letter in some way implies persuasion. You-viewpoint presentation is one of the principles in handling persuasive messages. • Obviously, you-viewpoint presentation sounds better. With you-viewpoint presentation, the seller has taken into consideration the benefits or difficulties of the buyer and suggests a possible settlement, thus encouraging the buyer to cooperate more closely with the seller.

  24. Exercises • Exercise • 1. Translate the following terms into Chinese. • (1) Deferred payment • (2) Payment by remittance • (3) Sight Bill • (4) Time Bill • (5) Mail transfer (M/T) • (6) Demand Draft (D/D) • (7) Documents against Payment (D/P) • (8) Documents against Acceptance (D/A) • (9) Irrevocable Unconfirmed L/C • (10) Untransferable L/C

  25. Answer: • (1) 延期付款 • (2)汇拨支付 • (3) 即期汇票 • (4)远期汇票 • (5)信汇 • (6) 票汇 • (7)付款交单 • (8)承兑交单 • (9)不可撤消不保兑的信用证 • (10) 不可转让信用证

  26. 2. Translate the following sentences into Chinese. • (1) Please notify us of L/C number by telex immediately. • (2) We’ll agree to change the terms of payment from L/C at sight to D/P at sight. • (3) We accept D/P payment for future dealings. • (4) We can do the business on 60 days D/P basis. • (5) We agree to draw at 30 days D/P. • (6) We’ll draw D/P against your purchase. • (7) As a special sign of encouragement, we’ll consider accepting payment by D/P at this sales-purchasing stage. • (8) We regret we can’t accept “Cash against Documents” on arrival of goods at destination.

  27. (1) 请立即电传通知我方信用证号码。 • (2) 我们同意将即期信用证付款方式改为即期付款交单。 • (3) 以后的交易我们以付款交单方式支付。 • (4) 我们可以按60天付款交单的方式进行交易。 • (5) 我们同意开立30天期的付款交单汇票。 • (6) 我们按付款交单方式收你方这批货款。 • (7) 在此推销阶段，我们将考虑接受付款交单方式以资鼓励。 • (8) 很抱歉，我们不能同意“货抵目的地付款交单”方式付款。

  28. 3. Translate the following short passages into English. • (1) 我们的付款方式，一般是以保兑的，不可撤销的，以我公司为收益人的，按发票金额见票即付的信用证支付。该信用证应通过我们认可的银行开出。 • (2) 为了你方在你市场推销我方产品铺平道路，我方将接受即期付款交单方式付款，以示特别照顾， • (3) 第268号合约项下的800辆自行车备妥待运已久，但至今我们尚未收到你们的有关信用证。请速开来，以便装运。 • (4) 现通知，你方通过利物浦麦加利银行开出的有关我方第187号售货确认书的信用证第H-15号刚刚收到。经审阅其中条款，我们遗憾地发现某些地方与合同规定的条款不符，其不符之处如下： • a）佣金应是3％，不是6％ • b）货物应于10月11月之间装运，不是10月30日或30日之前装运 • c）货物按发票价值的110％投保保险，不是150％。 • (5) 收到你方789号信用证，谢谢。经核对条款，我们遗憾地发现你方信用证要求2000年10月装运，但我方合约规定11月份装运。因此，务请把装运期和议付期分别展至2000年11月30日和12月15日。请即办理展证事宜，并尽早电复。

  29. (1) Our usual mode of payment is by confirmed, irrevocable letter of credit, available by draft at sight for the full amount of the invoice value to be established in our favour through a bank acceptable to us. • (2) In order to pave the way for your pushing the sale of our products in your market, we will accept the payment by D/P at sight as a special accommodation. • (3) The 800 bicycles under Contract 268 have been ready for shipment for quite some time, but we have not yet received your covering L/C to date. Please open the L/C as soon as possible so that we may effect shipment. • (4) We are pleased to inform you that L/C No. H-15 issued by the Chartered Bank of Liverpool for our S/C No. 187 has just been received. However, on examining the clauses contained therein, we regretfully find that certain points are not in conformity with the terms stipulated in the contract. The discrepancies are as follows： • a) Commission is 3%, not 6%. • b) Shipment is to be made during Oct. /Nov. instead of “on or before 30th October”. • c) Goods should be insured for 110% of the invoice value, not 150% • (5) We thank you for your L/C No.789, but on checking its clauses we find with regret that your L/C calls for shipment in October,2000, whereas our contract stipulate for November shipment. Therefore, it is imperative for you to extend the shipment date to November 30, and negotiation date to December 15, 2000 respectively. Please act promptly and let us have your cable reply the soonest possible.

  30. 4. Multiple Choices • (1) Payments should be made ________ sight draft. • A. at B. upon C. by D. after • (2) Payment by L/C is our method of ________ trade in chemicals. • A. negotiating B. setting C. financing D. assisting • (3) Mr. Yin could agree ________ D/P terms. • A. with B. to C. in D. ever • (4) 90% of the credit amount must be paid ________ the presentation of documents. • A. at B. by C. against D. when • (5) You don’t say whether you wish the transaction to be ________ cash or ________ credit. • A. at B. by C. against D. when • (6) We shall be glad if you agree to ship the goods to us as before ________ Cash against Documents basis. • A. with B. during C. in D. on • (7) We have opened an L/C in your favour ________ the amount of RMB ￥20000. • A. on B. in C. by D. at • (8) If the amount exceeds that figure, payment _________ L/C will be required. • A. at B. by C. for D. in • (9) From the enclosed copy of invoice you will see that price of $1,800 is well _________ the maximum figure you stated. • A. in B. within C. between D. at • (10) We enclose a cheque for US $20,000 ________ payment of all commissions due ________ you up to date. • A. to B. by C. on D. for

  31. 5. Letter Composing • Write a letter with the hints: decline the proposal to pay on D/P terms. First express thanks for his letter and his proposal. Tell him you have studied it and found it hard to accommodate. The reasons are listed as below: • It is too late. According to terms and conditions stipulated in the S/C, you have got the goods ready for shipment and are awaiting the L/C. • The order is large, involving $10,000 nearly. You would agree if it were less than $6,000. Tell him you have no choice but to adhere to customary practice, i.e. payment by L/C.

  32. Answer: • Letter Composing (略)

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