Terms of Payment

Payment in foreign trade may be made in cash and on credit. There are different methods of cash payment:

1. By cheque

2.By telegraphic or telex transfers or post (mail) remittance which is made from the Buyers' bank account to the Sellers' in accordance with the Buyers' letter of instruction. Actually this method of cash payment may sometimes take several months, which is naturally very disadvantageous to the Sellers.

3. By letter of credit (or just by credit) − L /C. In our commercial practice the following types of letters of credit are usually used: irrevocable, confirmed and revolving.

The Letter of Credit is the most frequently used method of cash payment because it is advantageous and secure both to the Exporter and to the Importer though it is more expensive than payment by transfer.

4. For collection There is a long period of time between the delivery of the goods and actual payment. But it is advantageous to the Importer because there is no need to withdraw from circulation big sums of money before actually receiving the goods.

Most modern business is done on a credit basis which may be:

1). By drafts (by Bills of Exchange − B/E) − the Exporter credits the Importer which is advantageous to the latter. A draft (a bill of exchange) is an order in writing from a Creditor to a Debtor to pay on demand or on a named date a certain sum of money to a company named on the Bill, or to their order. The draft, may be negotiable, i.e. it may be used by the Sellers to pay their own debts, in this case the Sellers are to endorse it by signing it on its back, then they can pass it on to the new holders.

There may be two main types of drafts: Sight Drafts, which are payable on presentation (at sight) or on acceptance and Term Drafts, which are drawn at various periods (terms) and are payable at a future date and not immediately they are accepted. Term drafts may pass through several hands before maturity and require endorsement by the Sellers.

2.)In advance (the Importer credits the Exporter, for example, the contract may stipulate a 10 or 15% advance payment, which is advantageous to the Sellers).

3.) On an open account. Open account terms are usually granted by the Sellers to the regular Buyers or customers in whom the Sellers have complete confidence, but sometimes they are granted when the Sellers want to attract new Buyers then they risk their money for that end.

Assignments

I. Memorise the following words and phrases:

telegraphic transfer	телеграфний переказ
remittance	грошовий переказ
Letter of Credit (L/C)	акредитив
irrevocable L/C	безвідзивний акредитив
confirmed L/C	підтверджений, засвідчений акредитив
revolving L/C	револьверний (автоматично поновлюваний) акредитив
draft/Bill of Exchange	тратта, перевідний вексель
Sight Draft	тратта на пред’явника
Term Draft	тратта з оплатою в кінці обумовленого терміну
negotiable	той, що може бути куплений (проданий, переуступлений)
to endorse	робити передавальний напис
maturity	термін боргового зобов’язання
payable	підлягає оплаті

II.Answer the.questions:

1.What methods of cash payment do you know?

2. Why is payment by cheque very infrequent in foreign trade?

3. What is the most frequently used method of cash payment? Why?

4. What types of letter of credit are used in commercial practice?

5. When are payments for collection used?

6. What are the advantages and disadvantages of each method of cash payment?

7. What are the methods of payment on credit?

8. What is a draft?

9. What does endorsement of the draft mean? When is it used?

10. What types of drafts do you know?

11. In what cases is advance payment used?

12. When is payment on an open account practical?