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terms of payment for foreign trade (Lеttеr of сrеdit (is effected as…
terms of payment
for foreign trade
Doсuments against ассеptanсе (D/A)
is effected as follows
The seller collects the other shipping documents and gives them to his bank (the remitting bank) together with bank a TIME DRAFT.
The remitting bank sends the documents and draft to the collecting bank.The buyer is notified to when they arrive.
The buyer goes to his bank and accepts the time draft. In return, he is given the transport documents and can collect his goods.
The carrier gives the necessary shipping documents to the seller and transports the goods to the buyer's country.
The seller sends the goods to the carrier.
At maturity, the buyer goes back to his bank and pays the bill of exchange. The money is sent from the collecting bank the remitting bank and credited to the seller's account.
advantage for buyer
he can take possession of the goods before paying
disadvantage for seller
if the buyer fails to honour the bill of exchange,
the seller probably won't be able to recover the goods
Саsh agаinst doсumеnts (СAD)
is effected as follows
The remitting bank sends the transport documents and the draft to the buyer's bank. The buyer is notified when they arrive.
The buyer pays the sight bill and receives the transport documents in return. He can then take the transport documents to collect his goods from the carrier in his country.
The seller collects any other transport documents and gives them to his bank together with a SIGHT DRAFT .
The carrier gives the necessary transport documents to the seller and transports the goods to the buyer's country.
The collecting bank sends the payment to the remitting bank. The amount is credited to the seller.
The seller sends the goods to the carrier.
advantage for seller
if the buyer doesn't pay,
the seller can ask the collecting
bank to find another buyer
disadvantage for buyer
he doesn't have the chance
to examine the goods before
he has paid for them
Lеttеr of сrеdit
is effected as follows
The seller collects all the necessary
transport documents.
The seller gives the trans port documents
and a sight or time draft to his bank.
The seller checks that all the terms
and conditions are correctly listed in the L/C.
The advising bank checks that all the documents
are correct and sends them to the opening bank.
The advising bank tells the seller
that the letter of credit has been opened.
The opening bank checks the documents again
and sends the payment to the advising bank
The opening (buyer's) bank opens the letter of credit and sends it to the advising (seller's) bank.
The buyer pays or accepts the draft
and gets the shipping documents in return.
With these, he can collect the goods from
the carrier in his country
The buyer fills out an application form to open
a letter of credit at his bank.
Buyer and seller agree on all terms
and conditions of the sales contract.
a confirmed letter of credit
an irrevocable letter of credit
a revocable letter of credit