Payment 2 payment methods

Every transaction involving international movement of goods, services or capital also leads to international transfer of funds. As trade, industry and services become increasingly internationalised, the volume of foreign payments increases constantly. The customers are offered a variety of instruments for settling international payments, whereby a distinction is drawn between so-called «clean payment» and documentary payment.

Clean payment is used for transactions relating to goods, services and capital and provides for such methods as International Giro, International Money (payment) Orders, Cheques, International Banker’s Drafts, Bank Transfers, whereas documentary payments relate mainly to transactions involving goods and provide for such methods as Documentary Credit, Bills of Exchange, Promissory Notes, Documentary Collection.

International Giro

This is the postal cheque system. Payments can be made whether the buyer has an account or not, and to a supplier whether he has an account or not. The International Giro form is obtained from any Post Office, filled out, then handed to the Post Office which forwards the order to the Giro centre which will send the amount to a Post Office in the beneficiary’s country where a supplier will receive a postal cheque.

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In foreign trade accounts are most frequently paid by means of:

1. International Money Orders;

2. Bank Transfer/Banker’s Transfer;

3. Bill of exchange;

4. Letter of Credit.

1. INTERNATIONAL MONEY ORDERS (IMO)

The bank fills out the order for the customer, then for a small charge, hands the IMO over, and the buyer sends it to the beneficiary, i.e. the person receiving the money. IMOs can be cashed or credited to the recipient’s account.

2. BANK TRANSFER

Payment can be made by ordering a home bank to transfer money to an overseas account. If telegraphed, the transfer is known as a telegraphic transfer (TT), and if mailed it is known as a mail transfer (MT). SWIFT (The Society for Worldwide Interbank Financial Communications) offers facilities for a 24-hour transfer of money to a beneficiary on its computer system.

International Banker’s Draft

This is a banker’s cheque which the bank draws on itself and sells to the customer, who then sends it to his supplier as he would send an ordinary inland cheque.

HUDSON PARTNERS LTD.

Clayfield, Burney GG10 TQ

Our ref. Your ref.

June 13, 20__

HITEC

Russia Briansk

Polyarnaya str., 31A

Dear Mr Peskov,

New Terms of Payment –

Amendment to Contract DFT/4

Further to our telephone conversation of June 8, we would like to confirm that the new terms of payment, immediately applicable, are as follows:

1. For urgent airfreight orders

Shipping and duties shall be by Airfreight Collect.

The cost of the goods shall be settled by IMO against shipping documents.

2. For container shipments, sea freight:

Payment shall be by bank transfer within 30 days of receipt of the commercial invoice. A discount of 2% shall apply automatically if payment is effected within the stipulated 30 days and a Credit Note will be issued.

We will issue the corresponding amendment to our Contract and will forward it to you for signature.

Yours sincerely,

Lola Brown

Lola Brown

Commercial Manager

BILLS OF EXCHANGE and Promissory Notes

These are particularly suitable as a means of executing and securing payments as well as financing in foreign trade. A drawn bill of exchange is an unconditional order in writing in the form of a document (negotiable instrument) addressed by the drawer of the bill to the drawee, requiring a certain sum of money on a fixed date at a specified place either to the drawer or to a third party.

The bill is drawn by the creditor on the debtor, who is to pay or accept it. A bill of exchange must be met before or on the due date, i.e. honoured at maturity. A dishonoured bill is one that is not paid on the due date. In this case the drawer will protest the bill and prosecute the drawee, i.e. take legal actions to recover the debt.

The deposition of a bill by a drawee with a bank for payment when due is called domiciliation.

Bills can be negotiable if the drawer endorses the bill.

An advantage for the exporter of payment by bill is that the draft can be discounted, i.e. sold to a bank at a percentage less than its value, thus releasing the money for the exporter immediately. The advantage for the importer is that he is given a credit, provided the bill is not a sight draft.

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If the documents are to be surrendered only against payment – payment at sight, the documentary bill is known as a D/P bill or a sight bill/draft. If the instructions are to release the documents against acceptance of the bill – payment at some days after sight, the documentary bill is called a D/A bill. A sight bill (or draft) is paid immediately, «after sight» or «after date» bill is paid within the number of days.

A promissory note (IOU – I owe you) is a promise made by the drawer to pay a certain sum of money to or to the order of the payee of the bill on a specified date. The legal difference between the IOU and the bill of exchange (or draft) is that the former does not refer to a drawee, and that it contains an unconditional promise to pay rather than a requirement to pay.