Business transactions – Corporate angle CONFIDENTIAL © Mecklai Financial Services Limited 2008. No part of this document can be circulated or reproduced in any form without prior approval of Mecklai Financial Services Limited

Trade Account (CA/EEFC) Trade: Product Range Trade Account (CA/EEFC) Imports Letter of Credit Documentary Collections Advance/Direct Buyers’ Credit Suppliers’ Credit Exports Pre / Post Shipment LC Advising/ Confirmation/ Negotiations/ Transfer Guarantees Bid Bonds / Performance Bonds Financial Domestic Trade Documentary Collections (in/out) Bills Discounting

Documentary collections – Complete flow Acceptance or Proceeds (7) Presenting Bank Importer Documents (6) C o n t r a c t (1) Bills of Lading (8) Documents and Collection Order (5) Proceeds (9) Goods (2) Bills of Lading (3) Remitting Bank Proceeds (10) Exporter Bills of Exchange, Documents and Lodgement Form (4)

Documentary Collections Governed by Uniform Rules for Collection, ICC Publication No. 522 (URC 522), 1995 – most importantly UCP 600 (Reading material provided) Exporter ships the goods to the importer and presents the documents to his bank. Exporter’s bank sends documents to the importer’s bank for collection of payment As per payment terms of the collection instructions, the importer’s bank asks importer to either pay and get the documents (D/P) accept to pay on a future date and get the documents (D/A)

Importer Perspective – Doc. Coll. Advantages Cheaper and Convenient as compared to Letter of Credit Control over settlement Opportunity to inspect documents before settlement Disadvantages Delay in Goods clearance as documents are in Banking system

Exporter Perspective – Doc. Coll. Advantages Cheaper and Convenient as compared to Letter of Credit Control over documents via banking system Disadvantages No Guarantee of payment

Regulatory Environment Trade FEDAI/FEMA RBI ICC – UCP, URC & ISP Foreign Trade Policy

Working Capital Cycle Sourcing raw materials Internal Labour and Contractors Profit Distribution Trade Collections Letters of Credit Import/Export Financing Debts & Debt servicing Finished Goods Cash Duties & Taxes Corporate Operating Cycle Debtors

Accounting Impact Invoicing Date: Invoice is prepared based on the terms of PO/LC dated around BL date and imports are booked in accounts as on the invoice date. Invoicing Rate: As per corporate’s internal policy - (Frequency – Daily, weekly, fortnightly, etc.) - (Source: Lead bank, Reuters, Bloomberg, etc.) Revaluation (on month-end /quarter-end dates) – As per AS 11/AS 30 or Ind-AS. Final Settlement

Foreign Trade Transactions: Points to note Merchant Import guidelines to be followed strictly. The entire merchanting trade transactions should be completed within an overall period of nine months and there should not be any outlay of foreign exchange beyond four months Bill of entry submission to bank while making Import payment. One copy of Bill of entry reported by Custom to RBI. Form A1 for import of goods and Form A2 for import of services.  Form 15 CA/ CB certification for payment under Form A2 (services) No bank will accept import documents for transactions where it is routed to / with countries on which sanctions are in existence ( Iran, Cuba, N. Korea, Syria, Libya.. 7 countries) If any replacement to be sent free of cost then GR waiver to be taken from AD bank.

Foreign Trade Transactions: Points to note In case of Advance, FIRC to be taken, On shipment , Bill requires to be lodged with AD banks where advance received - Bank realization to be taken from AD bank; FIRC is valid only till 1 year from the date of remittance and should be nullified within that time, if it needs to be extended then approval from AD Category 1 bank should be taken with proper clarification. In case of Turnkey projects, Project export approval needs to be taken. (DPX 1/ DPX 3) As per RBI, export invoice to be realized in 12 months and beyond that it will be reported by AD bank to RBI. Reduction in invoice value of 10% allowed at AD category 1 bank level. However, CA certificate for last 3 calendar years of export proceeds is required.

Foreign Trade Transactions: Documentation LC issue - Documentation: Covering letter, Certificate of origin, Vendor approved PO copy, Fema Decl., Form A1/A2, Stamp paper, Insurance copy. Payment process - Documentation: Covering letter, Bill of entry, Fema Decl., Amount, rate and currency, Invoice copy, PO copy, Form A1/A2.  Insurance is required for 110% of cost as per UCP 600

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