Problem-solving

Two years ago your company, which produces food products invested in new machinery. For health reasons, the product which was made on this machinery is now banned in your country. It is not yet banned in Third World countries.

Would you continue manufacturing this product and export it or would you write off this machinery? What might be the consequences of choosing either of these possibilities?

Answer the questions on the topic:

1.Name and characterise all the export-import documents.

2.What is the difference between two types of invoices: Commercial and Consular?

3.What are the duties of the Chamber of Commerce?

4.What does a freight forwarding agency do?

5.What can happen if one of the documents is not prepared or prepared wrongly?

Unit 5

Methods of Payment part 1 dialogue 1

Ann and Derek work in the Export Department of a large company. They are discussing two methods of securing payment from overseas customers — Banker's Transfer and Letter of Credit.

ann Something's come up, Derek, I've got to go to Madrid tonight. I’ll probably be away for the rest of the week. derek That's rather sudden.

ann Mm. It's about that deal we're negotiating with Senor Gonzalez. Our Managing Director seems to think I should be over in Spain to keep an eye on things. So, you'll be in charge here for a while.

DEREK That's OK. I can cope.

ann I'm sure you can. While I’m away, I'd like you to look after one or two matters for me.

DEREK Sure.

ann Do you remember writing to Heinz Zimmermann a week or so ago?

derek Of course. It was about the kitchen units he ordered. We advised him of shipment and asked to be paid by Banker's Transfer.

ann Exactly. It was to be a standard Bank Transfer of three thousand two hundred pounds (£3.200). Well, as far as I know, the money hasn't been credited to our account yet.

DEREK Are you sure?

ann Pretty sure. The bank always notify us promptly when transfers are made. We haven't heard a word from them.

DEREK You want me to check it out with them, I suppose.

ANN Yes. Could you call the bank? See if the transfer has been carried out? If not, telex Zimmermann and find out what's going on.

DEREK OK. I'll sort it all out while you're away.

ANNThere's something else I want you to look into, Derek. You recall making that deal with Francisco Lopez ...

DEREK Lopez? Oh, the Brazilian importer. He bought some refri­gerators and cookers from us. A big order. Thirty thousand pounds (£30.000) worth, wasn't it?

ANN Uh-huh. He agreed to pay by Irrevocable Letter of Credit. His bank got in touch with their correspondent bank over here - that's Lloyds International — and the credit was established in our name. Lloyds advised me of this two weeks ago.

DEREK What's the problem then?

ANN The L/C is only valid until April the eighth (April 8th).

DEREK Goodness! We'll have to get moving.

ANN Mm.

DEREK It expires in three days' time.

ANN Yes, if we want to get our money, we've got to present all the documents to Lloyds right away.

DEREK I'll get on to it immediately. Let's see, I’ll need a set of clean Bills of Lading, erm, five copies of the Commercial Invoice, a Consular Invoice, plus the Insurance Certificate.

ANN We also have to make out a Sight Draft, drawn on Lloyds for thirty thousand pounds (£30.000). The contract specified that.

DEREK Leave everything to me. I'll make sure all the documents are in order.

ANN Double check everything, would you? The documents must meet the terms of the Letter of Credit.

DEREK I know. If they aren't exactly as the LC requires, we don't get our money. Banks are very fussy about that sort of thing, aren't they?

Answer the questions:

1. What was the purpose of Ann’s visit to Madrid?

2. Why did the company write to Heinz Zimmerman?

3. What method of payment was proposed by the sellers?

4. What were the problems with the payment?

5. What should be done to get the money?

6. What deal was made with Francisco Lopes?

7. How did the customer agree to pay?

8. What was the problem with the L/C?

9. What documents should be presented to get the money?

10. Why must the documents meet the terms of the Letter of Credit?

PART 2

DIALOGUE 2

Ann and Robert, export executives in a large company, talk to their Managing Director about a Belgian customer.

M.D. I’d like your opinion about one of our customers, Mr. Laurier, from Brussels. How do you rate him, Ann?

ANN He's very reliable. We've been dealing with him for five years now. Our sales to his company have steadily increased. Last year, I think, they were worth about a hundred and fifty thousand (150,000). We've never had any trouble getting payment from him.

M.D. Robert? Do you agree with that assessment?

ROBERT Up to a point, yes. But I’ve heard one or two things about Laurier lately — on the grapevine, mind you, nothing official.

M.D. Oh, what were these rumours, exactly?

ROBERT Well, he is said to be having financial problems at the moment. One of his biggest customers has gone bankrupt — right out of the blue. They owe Laurier's company a lot of money.

M.D. Are you suggesting Laurier may be having cash flow problems?

ROBERT It's certainly possible.

M.D. Mm ... remind me, Ann. How has Laurier been paying us in the past? By Letter of Credit?

ANN No. By Bill of Exchange — always. In the beginning it was documents against payment. We drew on him at sight. That meant we sent the draft and other shipping documents to Brussels. And the documents were handed over to Laurier as soon as he paid for the goods.

M.D. We changed the method later on, didn't we?

ANN Yes. Later we gave him more time to pay. We drew on him at sixty days. The drafts were sent with the other documents to his Belgian bank for collection. The bank accepted our bills on Laurier’s behalf.

M.D. The bills were always met then?

ANN Yes. He always paid on the nail.

M.D. Mm, interesting. You see, I got a call from Laurier early this morning. He asked if he could deal with us on an open account basis. He'd like a hundred and eighty (180) days credit.

ANN Ah, so he wants to settle with us every six months, does he?

M.D. Mm, he'd send us a Banker's Draft drawn on a London bank. What do you think? Should we offer him open account terms?

ANN Mm ... I would think so. He's never let us down before.

M.D. How do you feel about it, Robert?

ROBERT I don't like the idea. It’d be risky. If I were you, I'd put him off for a while.

M.D. I think I'll go along with you there, Robert. Perhaps we should be a little careful at this stage. When a company loses a major customer, it can get into financial difficulties. I’m not saying it'll happen with Laurier, but you never know.

Answer the questions:

1. What are Ann and Robert’s positions in the company?

2. How does Ann rate their Belgian customer, Mr. Laurier?

3. What rumours did Robert hear about Mr. Laurier?

4. What problems may Mr. Laurier be having at the moment?

5. How did Laurier use to pay?

6. Why was the method of payment changed later?

7. On what terms does Laurier want to deal with the sellers now?

8. How does he want to settle?

9. How do Ann and Robert feel about Mr. Laurie’s suggestion?

10. Why did the Managing Director agree to put Laurier off for a while?

ex.1.Insert the necessary prepositions.

1. Please, remember to advise us __ shipment __ advance.

2. The money has been credited __ our account __ time.

3. The Seller’s bank got__ touch __ the correspondent bank in London and the credit was established __ the Buyer’s name.

4. The contract specified that the Seller had to make __ a Sight Draft drawn __ Lloyds __ 10.000 $.

5. There is a delay __ shipment of the goods and the Seller should look __ the matter.

6. The Customs are very fussy __ the documents, if they aren’t filled __ properly they won’t release the goods.

7. At first we drew __ the company __ sight and now we draw __ them __sixty days.

8. All the necessary documents will be handed __ __ the company as soon as they pay for the goods.

9. Do you think it’s a good idea to offer him a hundred and eighty days credit? Up __ a point, because I’m not too sure ___ his reliability.

10. News of his financial problems finally reached us ___ the office grapevine.

11. I think we could offer the customer open account terms because he always pays us __ the nail.

12. I’ve heard he wants longer credit but I’ll put him __ for a while.

13. They were quite happy to go __ __ the Manager’s suggestion.

ex.2.Paraphrase the following sentences using your active vocabulary.

1. I’ve heard one or two things unofficially.

2. He always pays immediately.

3. I’ll wait for a while before agreeing to what he wants.

4. This bill of exchange is payable when it is presented to the debtor.

5. Do you agree with this judgement?

6. Give these documents to me, please.

7. You should check everything carefully, then check again.

8. What is your opinion of him?

9. The L/C is effective until April the eighth.

10. The customer must pay for the goods as soon as the Bill of Exchange is presented to him.

ex.3.Translate the following sentences into English.

1. Мы сообщили ему о поставке товара и попросили расплатиться банковским переводом.

2. Аккредитив действителен только до 5 марта.

3. Тратта была выставлена на банк-корреспондент.

4. Возможно, у нашего клиента проблемы с движением наличности.

5. Мы передадим ему отгрузочные документы, как только он заплатит за товары.

6. Они получили эту информацию из неофициальных источников.

7. Все документы должны отвечать условиям аккредитива.

8. Когда Вы собираетесь перевести деньги на наш счет?

9. На Вашем месте, я бы подождал принимать решение по этому вопросу.

10.Если покупатель акцептовал вексель, это значит, что он обязательно оплатит его.

ex.4. Read the following statements. Say whether they are true, if not correct them.

1. The methods of securing payment from overseas customers are Banker’s Transfer, Letter of Credit and Bill of Exchange.

2. In case of a standard Banker’s Transfer money isn’t credited to the account of the Seller.

3. In case of paying by Irrevocable Letter of Credit the correspondent bank establishes the credit in the name of the Buyer.

4. L/C doesn’t have a validity interval.

5. L/C is usually opened against shipping documents.

6. When a company loses a major customer it can get into financial difficulties.

7. In case of Sight Draft the shipping documents are handed to the Buyer as soon as he pays for the goods.

8. The bank can’t accept bills on the Buyer’s behalf.

9. When you draw on your customer at sixty days the drafts are sent to his bank for collection.

Read and translate the following texts:

A draft is an order to pay. It is made out by an exporter and presented to the importer, usually through a bank. It is also called а bill of exchange, and it may be payable immediately on presentation (a sight or demand draft), or so many days after presentation (a term draft). In the latter case the drawee writes "Accepted" across it and signs his name. When a B/E has been signed by the importer, the exporter usually has to wait about 90 (or sometimes 180) days before it can be exchanged for money. Because a B/E is negotiable, the exporter may discount (sell) the bill at his bank before the 90 days have passed. The exporter has the money to start another transaction immediately and the bank collects the money when the B/Е is paid. The bank may rediscount the bill to a discount house which specialises in this work.

There are other methods of payment such as TT (telegraphic transfer) or mail remittance. They are given to a buyer only when he is a trusted customer or agent. If they let you down you’ve shipped your goods without any assurance of getting payment. But with a letter of credit the payment is guaranteed, at least when it’s confirmed and irrevocable which is the only type of L/C we accept nowadays. That means the bank at our end guarantees payment in case the opener of the credit defaults and the credit can’t be cancelled before the expiry date.

Answer the questions.

1. How may a draft be payable?

2. How long does the exporter have to wait before he can get his money?

3. Is a B/E negotiable? What does it mean?

4. What other methods of payment do you know?

5. When are they given to a customer?

A Bill of Exchange is a sort of post-dated cheque. Look at this Bill of Exchange and answer the questions about it.

Exchange for 750 pounds London 14 July 2000 At 90 days pay this solo Bill of Exchange to the order of ourselves _____________ the sum of seven hundred and fifty pounds sterling -------------------------------------------------------------- Value goods_____________ To Dom KK Signed Sheila Baker 705 3-chome Yamaguchi for BOS Ltd. Osaka 13 Mill Street Japan Harlow Essex CM 20 2TR Accepted M Satsuma for DOM KK

1. Which company will receive the money?

2. How many copies of the Bill are there?

3. What date will the Bill be paid?

4. Which company will pay the Bill?

5. Is this transaction “documents against payment” or “documents against acceptance”?

ROLE PLAYS.

1.Discuss all pros and cons of different methods of payment used in foreign trade with your partner.

2.You have been trading with a rather reliable partner for some time. Now he is facing certain financial difficulties. Decide with your colleagues if you are going to change the method of payment or not.

Problem-solving:

The production process used in your factory is known, by your scientists, to produce pollution. At the moment it is not scientifically possible to test and prove this and so there is no legal obligation to change your process. There is an alternative process but it would make your product more expensive and therefore less competitive. What should you do?

Answer the questions on the topic:

1. Characterize all the methods of payment you know.

2. Explain when and why each one is used.

3. What problems can occur when you use them?

Unit 6