MEANS OF PAYMENT

INSTRUMENTS Cash Cheque Payment order (bank transfer) Draft (Bill of Exchange) Promissory note

Payment order Payment order corresponds to the domestic bank transfer Cheap to use since the banks do not transmit documents of delivery Cheque Cheque can be mailed straight to the seller

Bill of Exchange Bill of Exchange is a written, dated and signed unconditional order from the drawer that directs the drawee to pay a definite sum of money to the payee It is to be paid on demand => sight bill at a specified future date => time bill

Legislation on Bills of Exchange Britain: Bills of Exchange Act (BEA), 1882 USA: Uniform Negotiable Instruments Law, 1896 => UCC, 1950 Standard laws in most European countries: Geneva Conventions on the Unification of the Law Relating to Bills of Exchange (ULB), 1930

Drawer Creates the Bill of Exchange or orders another party to pay to a third party => a seller, a creditor Drawee Is ordered to pay => a bank (check), a buyer (trade acceptance), a borrower (note) Payee The order or the bearer Receives the payment => the seller himself (= trade acceptance) or a bank

Bill of Exchange Issuing date To: Drawee On: __date of maturity____ PAY TO THE ORDER OF ___ Payee ______________ ____Sum of money______________________________________________________ Accepted at __Drawee’s place ___________ on ___________Date of acceptance__ Payable at __Bank___________________ Drawer’s signature ___Drawer_________ Drawee’s signature __Drawee_____________ Bill of Exchange

Bill of Exchange: Trade Acceptance 105 Elm Street Winnipeg Canada 31 November 2005 To: Tresbien SA______ On: __April 30, 2006____PAY TO THE ORDER OF___Hulabaloo Inc.______________ ____Two Hundred Thousand and oo/100___ CANADIAN DOLLARS ___200,000.oo__ The obligations of the drawee/acceptor of this bill arise out of the purchase of goods from the drawer. The drawee/acceptor may accept this bill payable at any bank or trust company in Canada which the drawee/acceptor may designate. Accepted at __Paris, France___________ on ___________November 31, 2005_____ Payable at __Canadian Central Bank __ _Jack H. Baloo_______ __Main Street 357_____________ Hulabaloo Inc __Montreal _____ Buyer’s signature _Tresbien SA__ By Agent or Officer ___________________ by ________________________________ Bill of Exchange: Trade Acceptance

Endorsement of Bills of Exchange: Blank endorsement: Special endorsement:   For and on behalf of Hulabaloo Inc JackHBaloo Jack H. Baloo (Director) Pay to the order of Canadian Central Bank Ltd For and on behalf of Hulabaloo Inc JackHBaloo Jack H. Baloo (Director)

Dishonouring a Bill of Exchange by non- acceptance: The drawee rejects the draft by not accepting (not signing) it Dishonouring by non-payment: The drawee refuses to pay the Bill of Exchange => The drawer may protest the Bill of Exchange in 2 (USA 3) business days from its maturity => By a notary public's certificate he may apply for execution at court The protest also guarantees him recourse against the preceding endorsers.

TERMS OF PAYMENT High risk High cost RISK TO SELLER Low risk Open Account Clean Collection Documentary collection Letter of Credit Cash in Advance Low cost High cost COST TO BUYER

INTERNATIONAL TRADE THE GOODS SELLER BUYER € € €

According to the ICC uniform rules for collection 1978, the procedure of Documentary Collection is as follows:

DOCUMENTARY COLLECTION ARRANGEMENT THE GOODS SELLER BUYER € € € BILL OF LADING The seller ships the goods The carrier checks for outward compliance of the goods => gives the seller a bill of lading

DOCUMENTARY COLLECTION ARRANGEMENT THE GOODS SELLER BUYER € € € REMITTING BANK BILL OF LADING etc. The seller asks his bank, the remitting bank, to arrange for the collection of the price The seller forwards the shipping documents to the bank

DOCUMENTARY COLLECTION ARRANGEMENT THE GOODS SELLER BUYER € € € REMITTING BANK COLLECTING BANK BILL OF LADING etc. The remitting bank sends the shipping documents to the collecting bank, for the collection of the price

DOCUMENTARY COLLECTION ARRANGEMENT THE GOODS BUYER SELLER BILL OF LADING etc. € € € REMITTING BANK COLLECTING BANK In the case of the D/A term, the buyer/importer does not have to pay immediately. The importer only does so after a certain period of time as originally agreed with the seller. When the documents are presented, the importer has to accept the tenor bill of exchange to signify his formal commitment to pay on the due date. Thus, on the due date, which may be 60 days, 90 days later, as originally agreed with the seller, the accepted tenor bill of exchange is presented to the buyer for acceptance. Buyer pays the collecting bank The collecting bank gives the documents to the buyer in accordance with the collection instructions

DOCUMENTARY COLLECTION ARRANGEMENT THE GOODS BUYER SELLER BILL OF LADING € € € REMITTING BANK COLLECTING BANK Buyer proves his title by showing the bill of lading to the carrier Carrier hands over the goods to the buyer The collecting bank forwards the money to the remitting bank

The remitting bank pays the seller DOCUMENTARY COLLECTION ARRANGEMENT SELLER THE GOODS BUYER € € € REMITTING BANK COLLECTING BANK The remitting bank pays the seller

LETTER OF CREDIT Principle of autonomy Principle of strict compliance Irrevocable or revocable

ICC Uniform Custom and Practice for Letter of Credit is as follows: Opening a Letter of Credit: 1. The seller and the buyer sign a sales contract 2. The buyer asks a local bank (issuing bank) to open a Letter of Credit 3. The issuing bank asks a bank in the seller’s country (advising bank) to advice the seller that the Letter of Credit has been opened 4. The advising bank informs the seller   Presenting the Letter of Credit: 1. The seller ships the goods and gets the shipping documents 2. The seller presents the shipping documents to the advising bank 3. The advising bank checks the documents and if appropriate pays the seller 4. The advising bank notifies the issuing bank that the credit has been presented and forwards the shipping documents 5. The issuing bank transfers the money to the advising bank

Source: Ray August: International Business Law

Example: BILL OF EXCHANGE IN DOCUMENTARY CREDIT Exporter’s demand for payment: In documentary Credit operations, the exporter draws a bill of exchange on the Issuing Bank The bill should usually also show details of the Credit under which it is drawn The exporter should sign the bill on its reverse, “endorse” it to the Advising Bank The Buyer's bank, as the Issuing Bank for the documentary credit signifies that acceptance of the bill by signing it on the front or the back.

Endorsement of Bills of Exchange: Example: Endorsement of Bills of Exchange: Blank endorsement: Special endorsement:   For and on behalf of Export Company Ltd James Smith James Smith (Director) Pay to the order of UK Export Bank Ltd For and on behalf of Export Company Ltd James Smith James Smith (Director)

Example:

PROMISSORY NOTE IN DOCUMENTARY CREDIT A promissory note is the buyer's promise to pay