Chapter 8 Payment of Goods Aims and Requirements

Chapter 8 Payment of Goods Aims and Requirements 8. 1 Credit Instruments Used in Settlement of Trade 8. 2 Methods of Settlement for International Trade 8. 3 Payment Clause in Sales Contract Case Study

Aims and Requirements Aims: To grasp credit instruments in settlement; To grasp methods of settlement in trade; To learn how to write payment clause. Key Points: Bill of Exchange, L/C, Collection, Payment Clause Teaching Methods: English Teaching, Discussion, Case Study, Project Learning Method, Team Study

8. 1 Credit Instruments Used in Settlement of Trade 8. 1. 1 Bill of Exchange, Draft 8. 1. 2 Promissory Note 8. 1. 3 Cheque, Check 8. 1. 4 Comparison of Three Instruments

B A Media

Nature of a Negotiable Instrument 流通性、无因性、要式性、提示性、返还性 An unconditional order or promise in writing to pay a sum certain in money; Addressed by one person to another; Payable to bearer or to order; Payable on demand or at a definite future time.

Functions of a Negotiable Instrument A means of payment A credit instrument A transferable instrument

8. 1. 1 Bill of Exchange, Draft A bill of exchange is defined as an unconditional order in writing. Addressed by one person (drawer) to another (drawee), signed by the person giving it, requiring the person to whom it is addressed (the drawee, who when he signs becomes the accepter) to pay on demand, or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer (payee).

Essentials of a Bill of Exchange ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ ⑨ The word “Exchange” An unconditional order in writing Name and address of the drawee Drawer’s signature(s) Date and place of issue Name and business entity of the payee Tenor Place of payment Amount of money.

Types of Bill of Exchange: ① Banker’s draft/ Commercial draft ② Sight draft, demand draft/ time draft, usance draft e. g. At sight at 30 days after sight; at 60 days after date; at 60 days after date of B/L; Fixed date. ③ Commercial acceptance draft/ banker’s acceptance draft ④ Clean draft/ documentary draft

Acts of a Bill of Exchange: ① To draw and sign a draft To deliver it to the payee Payee (收款人、抬头) “Pay to XX only/ not negotiable” “Pay to the order of XX” “Pay bearer”

② Presentation（sight）： Presented for acceptance: A time bill first presented to the payer for acceptance. Presented for payment: A sight bill payable at sight; A time bill payable at maturity. ③ Acceptance: The word ”accepted” must be written on the bill to be followed by the signature of the acceptor and the date of acceptance. The acceptor return the accepted draft back to the bearer （holder）. *There will be 3 days for the payer to consider if he accepts the draft or not.

④ Payment： For sight bill: Payable at sight For time bill: Payable at maturity after acceptance. ⑤ Endorsement: Blank endorsement Special endorsement Restrictive endorsement Conditional endorsement 前手 背书 后手

⑥ Dishonor and Recourse: Notice of Dishonor and Protest ⑦ Discounting: Sell a time bill already accepted by the drawee but not yet fallen due to a financial institution at a price less than its face value.

Flow Chart of Draft 1. Drawer 2. Endorse Bearer 1 i n 3. Present Payee/ Bearer Drawee/ Payer 4. ①. Sight payment 5. Recourse ②. Accept – Present 2’ -- Time/ Usance payment Or Discount ③. Dishonor 前手 后手

8. 1. 2 Promissory Note A promissory note is an unconditional promise in writing made by one person (the maker) to another (the payee or the holder) , signed by the maker engaging to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or bearer.

Essentials to a Promissory Note 1) 2) 3) 4) 5) 6) 7) 8) The words “promissory note” clearly indicated An unconditional promise to pay Name of the payee or his order Maker’s signature Date and place of issue Period of payment Place of payment A certain amount of money.

1. 中央银行本票 Central Banker’s Notes 中央银行本票Central Bank Notes，即纸 币，俗称钞票，会计称现金。它原来是 中央银行可兑换成金银铸币的不记名定 额本票，后来转变成为由国家立法强制 无限期流通的不兑换金银铸币（即现金） 的纸币，人们逐步称纸币为“现金”。

2、普通商业本票 示例 PROMISSORY NOTE ￡ 60, 000. 00 London, 15 th May, 2002 Three months after date we promise to pay John Tracy or order the sum of SIXTY THOUSAND POUNDS for value received. William Taylor

3、普通银行本票 示例 ASIAN INTERNATIONAL BANK, LTD 18 Queen’s Road, Hong Kong CASHIER’S ORDER Hong Kong, 8 th August 2002 Pay to the order of Dockfield & Co. the sum of Hong Kong Dollars Eighty Thousand Eight Hundred only. For Asia International Bank, Ltd. HK $80, 800. 00 Manager

Characteristics 1) It is an unconditional promise in writing; 2) Only two basic parties: the maker (the drawer) and the payee; 3) There is no need to accept the instrument if it is a time bill. 4) Only one original note, whereas a bill of exchange maybe either a sole bill or a bill in a set. 5) In all cases the maker is the primarily liable party.

8. 1. 3 Check (cheque) A check is an unconditional order in writing. Addressed by the customer (the drawer) to a bank (the drawee), signed by the customer authorizing the bank to pay on demand a sum certain in money to or to the order of a specified person, or to bearer (the payee).

Essentials to a Check 1) The words “check” clearly indicated 2) An unconditional order in writing 3) Name of the paying bank 4) Drawer’s signature 5) Date and place of issue 6) Address of the paying bank 7) Name of the payee 8) A certain amount of money.

Classifications of Checks 1) Crossed check (划线支票): Pay the fund into a bank account of the payee only. • General crossing • Special crossing: Only two parallel transverse lines in special crossing check. 1) Open check（非划线支票，敞口支票）: It can be paid cash to the payee or holder. # 我国票据法规定有现金支票和转账支票， 但没有划线和非划线支票的提法。

Characteristics 1) A check is actually a sight bill be drawn on a bank; 2) A sum certain in money must be written on a check and not exceed drawer’s deposit in the paying bank; 3) A check need not be accepted for it is payable only on demand the drawer is the party primarily liable. 4) A check is drawn only in form of a sole instrument, but not in a full set. 5) Once the paying bank stamps on the check with the word “guarantee for the payment” (保付), then the check becomes a certified check of high credit and easily negotiable. 6) 可以“止付”，付款行在支票上注明“奉命止付”字样并退票给 提示人。 7) 可以“拒付”，付款行由于签名不符、存款不足等原因拒付。

8. 1. 4 Comparison of Three Instruments Characteristics Basic Parties Tenor Acceptance Unconditional Order Drawee Payee Sight Time Accepted in Time bill Promissory Unconditional Promise Note Maker Payee Sight Time No acceptance Unconditional Order Drawer Bank Payee Sight No acceptance Bill of Exchange Check

8. 2 Methods of Settlement for International Trade 8. 2. 1 Remittance 8. 2. 2 Collection 8. 2. 3 Letter of Credit, L/C

8. 2. 1 Remittance means the cross-border direct transfer of funds by banks. The remitting bank pays a predetermined amount on the request of remitter (obligor/ importer) through the foreign correspondent bank or agent bank (paying bank) to payee/ beneficiary (obligee/ exporter). Basic four parties: the remitter, the beneficiary, the remitting bank and the paying bank.

Three basic ways: 1. Remittance by Cable/ Telex/ SWIFT – Telegraphic Transfer (T/T) --- more prompt, more expensive. It is often used when the remittance amount is large and the transfer of funds is subject to a time limit. Question: What is SWIFT? 2. Remittance by Airmail – Mail Transfer (M/ T) --- The cheapest method among all settlement styles. --- time consuming, possibly be delayed or lost in the post, thus causing difficulty for its payment.

Payee/ exporter (5) Advising (2) Application and fund (6) Signing a receipt (7) Paying bank Remitter/Importer (1) By remittance (3) Turning back the stub (4) Advice by Telecommunication(T/T) or by Mail Order (M/T) (8) Debit memo Remitting bank Flow Chart of T/T, M/T

3. Remittance by Banker’s Demand Draft (D/ D) 1) The settlement instrument is a bank draft; 2) The instrument is dispatched by the remitter instead of bank, that is, the enterprise mails or travels and hands the draft over to the payee; 3) This demand draft is negotiable so as to be easily endorsed to other parties but it is also possibly to be lost, stolen or destroyed.

(1) By D/D Payee/ exporter Remitter/Importer (4) Mailing Bank Draft (7) Verifying and paying (2) Application and fund (6) Handing over draft Paying bank (3) Issuing banker’s demand draft (5) Mailing the stub (8) Debit memo Flow Chart of D/D Remitting bank

Practice of Remittance in Trade settlement --- Remittance is the most favorable term to exporter, but the risk of non- delivery rests upon the importer. 1. Payment in advance 2. Open account (O/ A) – Payment after arrival of goods

8. 2. 2 Collection Upon the delivery of the goods, the exporter draws a bill of exchange on the importer for the sum due, with or without relevant shipping documents attached, and authorizes his bank to effect the collection of the payment through his branch bank or correspondent bank in the country of the importer. Collection is a settlement type of reverse remittance on commercial credit basis.

Main parties of collection: 1) The principal (seller/ exporter/ drawer); 2) The remitting bank (principal’s/ seller’s/ exporter’s bank); 3) The collecting or presenting bank; 4) The drawee (buyer/ importer). 5) The agent of necessity (需要时代理)

Types of Collection Clean Collection Draft Documentary Hand over documents Collection D/P D/A D/P at sight D/P after sight

1. Specifying collection type in sales contract Exporter (Principal) 2. Loading goods on board Transport Co. 3. Obtaining B/L& other documents 10. Delivering goods Remitting bank 5. Forwarding instructions and full set of documents 11. Credit memo D/P at sight Flow Chart 8. Releasing documents 6. Present the documents 4. Collection instruction attached with full set of documents 7. Payment 12. Payment 9. Bill of Lading Importer (Drawee) Collecting bank

1. Specifying collection type in sales contract Exporter (Principal) 2. Loading goods on board Transport Co. 3. Obtaining B/L& other documents 11. Delivering goods 5. Forwarding instructions and full set of documents 12. Credit memo D/P after sight Flow Chart Collecting bank 9. Releasing documents Remitting bank 8. Payment at expiry date 6. Present the documents 4. Collection instruction attached with full set of documents 7. Acceptance 13. Payment 10. Bill of Lading Importer (Drawee)

1. Specifying collection type in sales contract Exporter (Principal) 2. Loading goods on board Transport Co. Remitting bank 5. Forwarding instructions and full set of documents 12. Credit memo D/A Flow Chart 8. Releasing documents 6. Present the documents 4. Collection instruction attached with full set of documents 7. Acceptance 13. Payment 10. Delivering goods Collecting bank 11. Payment at expiry date 3. Obtaining B/L& other documents 9. Bill of Lading Importer (Drawee)

Question: If the date of payment is later than the actually arrival date of the goods, what should the buyer do to take the goods in time? a. ) 提前付款赎单：at a price less than its face value, like discounting. b. ) D/P·T/R (Trust Receipt) : the buyer borrows the title documents to take the goods first. 信托收据, 是进口人借单时提供的一种书面信用担保文件, 用来表示愿意以代收行的委托人身份代为提货、报关、存 仓、保险或出售，并承认货物所有权仍属银行。

Attention: A collection with commercial documents other than a title document (such as invoice and so on) is also a clean collection. D/P after sight is safer to exporter than D/A. D/P·T/R (Trust Receipt, 信托收据) D/A offers less security (even with risk) to the exporter. Uniform Rules for Collection, ICC Publication No. 522 (URC 522)

Advantages and Risks in Collection 1. Comparatively more risky to the exporter. 2. The settlement expense is relatively low (only a little more than remittance). 3. Non- acceptance of Draft. 4. Nonpayment after D/A.

8. 2. 3 Letter of Credit It is a written promise of a bank, undertaken on behalf of a buyer, to pay a seller the amount specified in the credit provided the seller complies with the terms and conditions set forth in the credit. L/C is a commitment of conditional payment of a bank to exporters.

Characteristics of a L/C 1) L/C is bank’s credit, the issuing bank takes primarily liabilities for payment; 2) L/C serves as self-sufficient instrument; 3) L/C follows pure documents principle.

The basic parties of L/C 1) 2) 3) 4) 5) 6) 7) 8) 9) Applicant or Opener Opening Bank or Issuing Bank Beneficiary Advising Bank or Notifying Bank Negotiating bank Paying bank Reimbursement Bank Confirming Bank Transferring Bank

The Chief Contents of L/C The chief contents of the L/C can be seen as a combination of the chief contents of the sales contract, the required documents and the bank assurance. (1) Forms of L/C Standard form set by ICC, SWIFT form, usual letter form (2) Elements of L/C

1. Contract payment by L/C Applicant (Importer) Transport Co. 13. B/L 11. Payment advice 4. Transmit L/C 2. Apply to issue L/C Issuing Bank/ Paying Bank 3. Issue L/C (SWIFT or Letter form) 9. Transmit documents and reimbursement 10. Check documents & pay Typical L/C Flow Chart 8. Check documents & pay/negotiate 6. Loading & Assembling documents 7. Present documents 12. Redeem documents 14. Delivery 5. Check L/C& dispatch goods Beneficiary (Exporter) Advising Bank/Negotiati ng Bank

Types of terms in L/C 1. According to the documents attached Documents Documentary credit Include shipping 跟单信用证 documents Clean credit Not include shipping documents 光票信用证

2. According to the confirmation Issuing Bank Confirmed L/C bears a primary obligation of payment too and without recourse bears a primary obligation of payment independently No obligation 保兑信用证 Unconfirmed L/C 无保兑信用证

3. Irrevocable L/C (不可撤销信用证) UCP 600: “A credit is irrevocable even if there is no indication to that effect. ” 4. Sight L/C (Sight payment credit) It is not usually accompanied by a draft. At a full amount – It does not deduct interest, only banking charges.

5. Usance L/C (Time L/C) Draft Acceptance L/C With a time draft 承兑信用证 Payable time Payable at maturity Usance L/C With a time draft Payable at sight payable at sight 假远期信用证 Deferred payment credit 延期付款信用证 Without a draft Payable at a predetermined date

6. Transferable L/C （可转让信用证） The first beneficiary may request the transferring bank to make the credit available partially (or wholly) to the second beneficiary (ies); Unless the issuing bank expressly designates as “transferable”, a credit can’t be transferable; Transferable credit can be transferred vertically once, but many times horizontally.

7. Loading & Assembling documents Second Beneficiary (Supplier) First beneficiary (Middle man/Exporter) 1. Contract 13. Transmit documents and reimbursement 16. Payment and get documents 3. Issue L/C 15. Present the documents 2. Apply to issue L/C 4. Transmit L/C 5. Apply to transfer L/C 10. Notice to change the documents 11. Change the documents 12. Pay the margin 6. Transfer the L/C 8. Present Documents 9. Check documents& pay/negotiate Transferring Bank/Advising Bank/Negotiating Bank Applicant (Importer) 1. Contract Issuing Bank/ Paying Bank 14. Check documents & pay

7. Back to Back L/C （背对背信用证） The back to back L/C is very much like transferable credit; The intermediary company, being the beneficiary of the original L/C, may apply to another domestic bank to issue new credit for the second beneficiary (ies); There will be two credits in back to back L/C.

8. 发货 Second Beneficiary (Supplier) 1. 合同 First beneficiary (Middle man/Exporter) Applicant (Importer) 1. 合同 19. 付款赎单 18. 提示单据 2. 申请开证 4. 通知原证 5. 申请开立新证 13. 通知换单 14. 替换单据 15. 付差额 7. 通知新证 9. 交单议付 10. 垫付货款 6. 开立新证 Issuing Bank (New Advising Bank/Negotiating 11. 寄单索偿 L/C)/Advising Bank( new L/C ) 12. 偿付 (original L/C) 3. 开立原证 16. 寄单索偿 17. 偿付 Issuing Bank/ Paying Bank

Other Special Types of L/C 8. Revolving L/C （循环信用证） 9. Reciprocal L/C （对开信用证） 10. Anticipatory L/C （预支信用证） 11. Negotiation L/C （议付信用证）

International Convention of L/C Uniform Customs and Practice for Documentary Credits, ICC Publication No. 600 。 《跟单信用证统一惯例》 国际商会第 600号出版物。

L/G: Banker’s Letter of Guarantee (1) Tender guarantee (投标保函) (2) Performance guarantee (履约保函) (3) Repayment guarantee (还款保函) Standby L/C Factoring Export credit insurance

8. 3 Payment Clause in Sales Contract 8. 3. 1 Payment Clause by Remittance 8. 3. 2 Payment Clause by Collection 8. 3. 3 Payment Clause by L/C

8. 3. 1 Payment Clause by Remittance The buyers shall pay 100% of the sales proceeds in advance by Demand Draft to reach the sellers not later than June 25. The buyers shall pay 30% of the sales proceeds by T/T. The remaining part will be paid to the sellers within 5 days after receipt of the fax concerning original B/L by the buyers.

8. 3. 2 Payment Clause by Collection Upon first presentation the buyers shall pay against documentary draft drawn by the sellers at sight. The shipping documents are to be delivered against payment only. The buyers shall duly accept the documentary draft drawn by the seller at 90 days’ sight upon first presentation and make payment on it’s maturity. The shipping documents are to be delivered against acceptance.

8. 3. 3 Payment Clause by L/C By confirmed irrevocable L/C for 100% invoice value available by sight draft, the L/C is to reach sellers not later than May, 20.

Case Study 1 我某外贸公司向日本商人以 D /P 见票 即付方式推销某商品，对方答复如我方 接受 D /P 见票后 90 天付款条件，并 通过他指定的 A 银行代收货款则可接受。 请分析日方提出此项要求的出发点。

Case Study 2 天津 M 出口公司出售一批货物给香港 G 商，价格条件 为CIF 香港，付款条件为 D /P 见票 30 天付款，M 出 口公司同意 G商指定香港汇丰银行为代收行。 M 出口 公司在合同规定的装船期限内将货物装船，取得清洁提 单，随即出具汇票，连同提单和商业发票等委托中行通 过香港汇丰银行向 G 商收取货款。5 天后所装货物安 全运抵香港，因当时该商品的行市看好，G 商凭信托收 据向汇丰银行借取提单，提取货物并将部分货物出售。 不料因到货过于集中，货物价格迅速下跌，G 商以缺少 保险单为由在汇票到期时拒绝付款。你认为 M 公司应 如何处理此事？说明理由。

Case Study 3 我某公司与往来多年的非洲一客户签订某畅销商品合同一笔，交货条 件为 12 月至次年 6 月，每月等量装运，凭不可撤销信用证自提单日 后 60天付款。 该客户按时开出不可撤销信用证。信用证规定的总金额和总数量与合 同相符，最迟装运期为 6月 30日，并有 “分数批装运”条款 （to be shipped in several shipments）。 公司除在 12 月按照原定的数量装运外，因见来证未列明“每月等量 装运”条款，为了 “早出口，早收汇”，便于 1月底将一季度应交数 量一并装出，我中国银行凭单议付； 2 月底又将二季度应交数量一并 装运，中国银行再凭单议付，并先后向开证行索汇，开证行审单后认 为单、证无误。 当客户接到装船通知后，发现第二批和第三批货物装出的时间和数量 与合同规定条件不符，随即提出异议，开证行根据客户申请致电中国 银行： “开证申请人要求缓付第二批和第三批货款待买卖双方达成协 议后，再告受益人确认。”以致我方未能按时收到第二、三批货款。

Case Study 4 我一公司接到客户发来的订单上规定交货期为 2001年 8月，不久收到客户开来的信用证，该 信用证规定： “Shipment must be effected on or before September，2001. ”我方乃于 9月 10日装船并顺利结汇。约过了一个月，客 户却来函要求因迟装船的索赔，称索赔费应按 国际惯例每逾期一天，罚款千分之一，因迟装 船 10天，所以应赔款百分之一。问：①我方 为什么能顺利结汇？②客户的这种索赔有无道 理？我公司是否应赔偿？

Case Study 5 某木制品贸易公司向国外客户出口一批精美木制 艺 品，信用证中规定的装运期为 4 月份，交单期为 5 月 10 日前，信用证的有效期为 5 月 25 日。该木制 品公司收到对方开来的信用证后，及时向 厂下订单， 准备出口货物。但由于产品制作过程需要的时间较长， 该公司的货物于 4月 27日才全部赶制出来，经与轮船 公司联系装运后，该公司取得 4 月 29 日签发的提单。 我方制作好单据于 5 月 9 日交单时，恰逢 5 月 9 日、 10 日为银行非营业日。问：该公司可否按 《UCP 600 》的规定，凭 4 月 29 日签发的提单连同其他单据从 银行取回货款？为什么？

Case Study 6 我凭即期不可撤销信用证出口马达一批， 合同规定的装运期为 2001年 8月份。签 约后，对方及时开来信用证，我方则根据 信用证的要求及时将货物装运出口。但在 制作单据时，制单员将商业发票上的商品 名称依信用证的规定缮制为 “MACHINERY AND MILL WORKS，MOTORS”，而海运提单 上仅填该商品的统称 “MOTORS”。问： 付款行可否以此为由拒付货款？为什么？