Manage foreign purchases and orders
Orders or contracts concluded after negotiations and correspondence are executed and executed when the payment of the transaction amount and delivery of goods are somehow guaranteed by the parties. The sellers choose different methods to pay the transaction amount according to their trust in the transaction (buyer) and also according to the economic stability of his country. Payment methods have advantages and disadvantages. We explain the five main payment methods in which the seller’s risk decreases, the buyer’s risk and duties increase, respectively.
Open account trading. In this method, the buyer and the seller agree that the buyer will deposit his debts to the seller in his account at a certain time in the future and the seller will send documents and goods to the buyer regardless of this date so that he can clear immediately. And deliver the goods; The buyer agrees to pay the desired amount to the existing account of the party through various issues (bank check, remittance, etc.) two months after each shipment. It is certain that in such a transaction, the seller has full confidence in the buyer and his government in terms of economic and currency regulations, he himself has sufficient liquidity and it is possible for him to lend. This method is considered by the buyer and is the best method; While it has the highest risk for the seller and he must have enough attention and trust in the operation process. It is important to note that more than 60% of transactions between European Common Market countries are conducted in this way.
Go simple. In this method, the seller and the buyer agree that the seller will send the goods to the buyer and send the shipping documents in his name directly to him and he will clear the goods through customs. Based on the shipping documents, the seller issues a simple bill to the buyer or sends it to the buyer’s bank through his bank (or directly) to be collected. The buyer’s bank immediately sends a notice to the buyer, and the buyer, after seeing you, accepts it and asks his bank to process and pay for it. In fact, it is a document according to which someone instructs another person to pay a certain amount in the name of the carrier or a third party or to refer him to a certain meeting or due date. According to this definition, the debtor issues a document (as opposed to a check issued by the debtor) and gives the debtor a deposit to pay a certain amount in a certain way. The document may be your carrier, or remittance, or a third party. The person who issues you is called a “killer”, the person who owes you money is called a “receiver”, and the act of accepting the debtor and responding positively to the creditor’s document is called “accepting you”.
There are two types of barat: external barat and internal barat. In foreign countries, the place of issuance and payment of the amount is in two countries; While in your country it is located in a country. However, in this payment method, the seller’s risk is still high, although it is better than the first method; Because it can follow the operation through the bank. In this method, the buyer is in a good situation and after receiving the goods, he will pay the transaction amount.
Receipt of documents. If it is issued and sent to you along with the shipping documents, this method is called the “document collection” method. In this method, the seller is more secure than the previous two methods; Because the documents are sent through the bank and can inform the bank how to release the documents only in return for payment as a condition. This method is not very favorable to the buyer; Because it can receive shipping documents if it at least declares its acceptance “for you”. Of course, this method is better than the fourth method; Because the transportation of goods has been ensured.
Credits . In this method, there is a maximum guarantee for the seller; Because he receives the price of the goods after submitting the shipping documents to a bank in his country and the risk of non-payment by the buyer is zero. In this method, the buyer has no control over the goods and in many cases, the goods may not have reached the buyer yet, the seller may receive the money from the bank by providing documents in accordance with the terms of credit. Because this method is currently accepted by sellers in dealing with Iranian companies. In this chapter, we will examine documentary credits with a more in-depth analysis; But before that, it is better to state the fifth method of payment as well as the expression of payment.
prepayment . In this method, the money is fully received from the buyer before the goods are sent. Naturally, the most desirable method for the seller is advance payment, which is the least desirable for the buyer. It should be noted that sometimes in commercial transactions, in order to finance the manufacturer or to provide security for the seller and the buyer, a combination of prepayment method and letter of credit is used, thus a percentage of the contract amount as an advance payment and The rest is paid when the goods are shipped. Using this method requires the buyer to receive valid guarantees from the seller, which depends on the status of the institution and the government.
These payment methods, which we have discussed in a very general and group way, require tools and equipment that are called payment instruments in the term of banking. Buyers make the payments they need to make when contacting foreign vendors through the following tools.
check . If the buyer has a foreign currency account, he can easily pay for the goods by issuing a check. This is just like domestic transactions, which pay money to each other in the form of a check, and the difference between them is at the place of issuance of the check, and the only difference is in the issuance of the check and the place of payment, which takes place in two different countries. The seller puts the check in his account in his country and the collection process is done by the bank.
Brat Bank. The buyer can issue a bank check in favor of the seller through his bank. In fact, the buyer bank issues a bank check to its broker in the seller’s country, which is in the seller’s favor. He then gives it to the buyer and he sends it by registered mail to the seller. After receiving the check, the seller collects it through his bank. In any case, a bank check or bank account is a safer means of payment for the seller, because the issuer is not the buyer, but the bank.
Written payment order. Another name for this type of payment is postal transfer, according to which the buyer asks the bank to transfer the desired amount to the beneficiary in writing and by registered mail. In this case, the buyer’s broker bank instructs its branch or broker in the seller’s country to pay the requested amount to the beneficiary in writing. The use of such payments is associated with postal problems; While the use of telegraphic remittances does not have such a problem.
Telegraphic payment instruction. When the amount of payments is high, the banks pay the relevant funds to the beneficiary by telex or telegram at the request of the buyer. In the method of payment by telegraph and telex, the password code between two banks is used to prevent fraud and maintain the accuracy of transactions; Because it is not possible to use the signature in telex and telegraph, because in this method of payment, the transfer speed is high, its application is more.
Swift (World Association between the Financial Telecommunication Bank). Swift is an international association established under Belgian law and registered there. The association has been established through 240 American and European banks and currently has about nine hundred member banks from forty countries. One of Swift’s goals is to facilitate and expedite interbank relationships through telephone lines; Communications such as international payments, bills, letters of credit and other matters related to international banking.
Using computer systems, Swift has been able to create networks whose members have received transfers, using computer networks to keep their customers’ accounts fully up to date. It costs less and the transfer speed is faster.
Of course, it must be acknowledged that in our country at present, due to the lack of proper use of computers, even within the banking networks have not been able to establish reliable and fast communications; Therefore, the tool that Swift has used to increase the power of its members can not yet be widely used in countries like Iran.
Credits . Letter of credit is a conditional obligation that the credit opening bank undertakes in response to the applicant’s request for a settlement of interest against certain documents and in compliance with the terms and conditions of credit for a specified period; The bank fulfills this obligation in two ways:. Payment to a third party (beneficiary) or remittance, or the beneficiary pays or accepts the bills issued. Allows two other banks to make the desired payment or pay the relevant bills, accept or trade.
Always keep in mind that letter of credit is a payment obligation for certain documents. Since 1933, when the International Chamber of Commerce adopted the custom and uniform method for letter of credit and its publication, these methods have been continuously revised and updated. Prior to 1962, when these methods were used, more attention was paid to protecting the interests of bankers against the negligence of the buyer or seller; But after the 1962 revision, when these methods were widely accepted, the buyer was required to state his wishes in the text of the credit. In 1674, there were changes in the preparation of documents and the use of new procedures of trade, transportation and payment, and finally in 1938, due to the future of trade and prioritizing the problems of buyers and sellers, the last revision was made. Representatives of traders, craftsmen, insurers, land, air, sea and bankers, as well as bankers took an active part in the appeal, and their work reports were submitted to the Chamber’s Banking Commission, which was finally reflected in Chamber No. 400 publication. In the system of 55 articles of custom and uniform method of documentary credits in general, the provisions are divided into six categories that professionals and technicians must study these regulations continuously and carefully. Here are the rules in general and for information only
General rules and definitions
This category consists of six items that contain the following items:
The inclusion of expressions indicating the application of the rules of custom and uniformity of the 1983 revised documentary credit in Journal No. 400 of the International Chamber of Commerce will give those credit within the framework of these rules. Letters of credit are not related to sales contracts and other contracts of the parties to the transaction. Such contracts do not create an obligation for the bank. Also, all parties involved in letters of credit deal with documents, not goods and services. Finally, any amendments or instructions for issuing credit must be fully specified and the banks are obliged to refuse to accept the amendments or ambiguous instructions.
Form and notification of credits. This category also has eight articles, the provisions of which describe the forms of documentary credit and how to communicate credit to the beneficiary. In this case, the credits are divided into two categories, refundable and non-refundable, and it is mentioned that if the credit does not clearly indicate which category it belongs to, the refundable credit will be considered refundable credit at any time without prior notice to the The interest on the part of the issuing bank can be modified or canceled. The notifier of credit to the customer has no obligation and only has the duty to be careful in implementing the credit. Sometimes, at the request of the applicant, the issuing bank asks the seller’s broker bank to confirm the irrevocable credit. If the mentioned bank confirms the credit, he will also have all the obligations of the issuing bank and will be obliged to accept payment (meeting or term).
Barwat and the transaction of each of which is stated in the text of the credit – is; For this reason, one of the articles in this category states that credit should clearly show the visual, term, acceptance and bank payments that are considered for each of these payments. Correction or cancellation of non-refundable credits is not possible without the consent of the parties, and if the applicant’s orders for issuance, approval and notification are incomplete or vague. Banks are obliged to avoid fulfilling obligations that are not explicit.
Obligations and responsibilities. This category also includes seven articles and expresses the obligations and responsibilities of the parties. It is stated in this article that banks should examine all documents with reasonable and acceptable accuracy and determine whether the documents are in accordance with the terms and conditions of credit in terms of appearance or not. However, if the issuing bank, upon receipt of the documents, determines that the appearance of the documents does not comply with the terms and conditions of the credit, it must within a reasonable time
Decide whether to accept the credit or refuse it, and if it rejects it, notify the paying bank of the discrepancies that have led to the non-acceptance, in which case it can claim and pay for the funds. Demand from the paying bank. Apart from that, banks have no obligation regarding the form, adequacy, accuracy, authenticity, fraud or legal effect of any of the documents and in general the general and special conditions stipulated in the documents and with specifications such as quantity, weight, quality and status of the package. They do not pay attention to the classification, they have no contact with carriers, insurers and other persons. The bank will no longer issue credit under any heading of its obligations to provide a repayment to the paying bank if it has been authorized to accept, pay and transact.
Credentials. Since letters of credit commit to payment in return for specific documents, the issue of the required documents is very important in the credit payment process and has been a controversial topic since the past, and those involved in letter of credit are constantly They have updated this part of the credits and paid special attention to it. Articles 22 to 43 of the Uniform Provisions for Letters of Credit specify the documents in question in the letter of credit. According to these materials, banks accept documents that have been prepared with duplicating machines, and computers or carbon, if they are certified as original copies, as original copies; Unless otherwise stated in the credit. In documentary credit, if documents other than shipping documents, insurance documents and business records are required, it should be specified and who issues such documents and what are its contents and phrases; Of course, if there are no such clarifications in the documents, banks will have to accept the documents as they are. As can be seen, from the point of view of banks and in the regulations of documentary credits, transportation document, insurance and commercial list have priority in terms of importance, and other documents must be explicit and how to issue and approve necessary in the text of credit must be specified. Banks’ statements are required to match the appearance of the documents, and the buyer’s and creditor’s rights are lost. It should also be noted that according to Article 24 of the Uniform Regulations, banks are allowed to accept documents whose date of issue is before the date of issue of credit, unless otherwise provided in the text of the credit. The documents that are highly regarded in documentary credits and are listed in Article 23 are as follows in terms of importance in terms of documentary credits:
A) Transport documents. In general, documents are said to indicate that they are loaded on a ship or sent or delivered by a transport company. Uniform regulations shall give precedence to the contents of the credit in this case and shall accept a valid shipping document through which the authenticity of the carrier has been certified; for example :
– The document must be issued by a specific carrier or his representative; In other words, if it is not authorized in the text of the credit, it rejects the documents issued by the transport operators, unless the freight bill (Fiata) is available and approved by the International Chamber of Commerce.
– The document must show the delivery or delivery of the goods or its loading on the ship.
– If the original copy has been issued in several copies, their collection must be in the name of the seller.
However, the transport document must be explicitly specified in the text of the contract in order to be able to match the documents well. In addition, the bank shall reject such documents if it is not provided in the text of the credit, if the shipping documents are subject to closed shipping contracts, or the propulsion of the ship is wind. It is considered that the transport document must be very accurate and have two main characteristics: first, it must be a real indication of the transport and the carrier or
His representative has issued it; Second, the credit text should clearly state who the carrier is and how it is transported. In some countries, however, the ULT imposes restrictions on carriers and carriers to assist foreign trade, and acts to safeguard the interests of importers and exporters, allowing multiple channels to be identified; But in general, the uniform regulations of documentary credits emphasize the explicitness of the word regarding transportation and observance of caution and transportation through reputable companies. Shipping documents usually state the name of the ship, the port of loading or the place of loading, and the port of unloading. Banks allow the transfer of goods from one vehicle to another if it is stated in the credit terms, provided that the goods are covered by the same transport document along the entire route. It is also a postal receipt or postal certificate as a shipping document accepted by banks; Of course, if it is mentioned in the validity of this article. Secondly, how to pay for freight should be explicitly stated in the text of the credit.
At the end of the topic of shipping documents, it is necessary to mention another point:
First, banks should include attack documents in which the suspicious and unforeseen statements are in the text of the credit; They do not accept and want a clean document;
Second, the bank accepts shipping documents in which the name of the sender of the goods is someone other than the beneficiary of the credit, unless otherwise stated in the credit.
Some documents that are considered a shipping document
These include: sea bill of lading, postal receipts, combined freight bill of lading, port-to-port bill of lading, combined freight, which we will explain in more detail in the subject of various bill of lading, which are in fact freight contracts.
B) Insurance documents. Article 35 of the Uniform Regulations on Letters of Credit states that insurance documents must be as specified in the letter of credit. And have been issued and signed by insurance companies and insurers or their representatives.
Temporary insurance policies issued by brokers will not be accepted unless they are expressly authorized. Also, insurance policies that are issued after shipment or loading (according to the shipping document), will not be accepted by the bank, unless this is mentioned in the insurance policy and sufficient time coverage is provided. The insurance document must be in the currency on which the credit is based and the amount of insurance coverage must be based on the case
The CIF or CIP basis is plus 10%, and if it is difficult for the bank to determine this amount, it will accept the same amount ordered or the invoice amount, unless otherwise stated in the order credit. The text of the credits should specify the type of insurance required and include vague terms such as possible normal risks. In the absence of explicit credit instructions, banks will accept insurance documents as they are presented and will not be liable for any potential risks.