PAYMENT TERMS

BBA 6E SUPPLY CHAIN MANAGEMENT

Cash against documents CAD letter of credit (L/C) Advance payment CIA Cash In Advance Cash on Delivery COD Telegraphic Transfer TT now Electronic Funds Transfer EFT

CAD
A payment arrangement in which an exporter instructs a bank to hand over shipping and title documents to the importer when the importer fully pays the accompanying bill of exchange or draft. Also called documents against payment.

letter of credit (L/C)

A written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank).

letter of credit (L/C)

An L/C guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe. These documents almost always include:
a clean bill of lading OR air waybill commercial invoice and certificate of origin.

letter of credit (L/C)

To establish an L/C in favor of the seller or exporter (called the beneficiary)
The buyer (called the applicant or account party) either pays the specified sum (plus service charges) up front to the issuing bank, or negotiates credit. Letters of credit are formal trade instruments. The international banking system acts as an intermediary between far flung exporters and importers. Banking system does not take on any responsibility for the quality of goods, genuineness of documents, or any other provision in the contract of sale.

letter of credit (L/C)

The International Chamber Of Commerce (ICC) has suggested specific terms (called Incoterms) that are now almost universally accepted and used. A letter of credit is a nonnegotiable instrument but may be transferable with the consent of the applicant. Although letters of credit come in numerous types, the two most basic ones are:
(1) Revocable-letter of credit and (2) Irrevocable-letter of credit, which comes in two versions (a) Confirmed irrevocable letter of credit and (b) Not-confirmed irrevocable letter of credit.

Incoterms
The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or Procurement processes.

Incoterms - For any mode of shipment

Ex Works (named place of delivery) FCA Free Carrier (named place of delivery) The seller delivers goods, cleared for export, to the buyer-designated carrier at a named and defined location. This is used for any mode of transport. The seller must load goods onto the buyer's carrier. CPT Carriage Paid To (named place of destination) The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier at place of shipment in the country of export. CIP Carriage and Insurance Paid to (named place of destination) Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. DAT Delivered at Terminal (named terminal at port or place of destination) The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the Buyer's disposal at a named terminal at the named port or place of destination. DAP Delivered at Place (named place of destination) Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. DDP Delivered Duty Paid (named place of destination) Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes.

Incoterms - For sea shipments

FAS Free Alongside Ship (named port of shipment)
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export.

FOB Free on Board (named port of shipment)

The seller must load the goods on board a vessel designated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for export. The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded.

CFR Cost and Freight (named port of destination)

Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is NOT included. This term is formerly known as CNF (C&F, or C+F).

CIF Cost, Insurance and Freight (named port of destination)

Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only. freight

Incoterm 2010

ExportCustoms declaration

Carriage Unloading of truck in to port port of of export export

Loading charges in port of export

Carriage (Sea Unloading Freight/Air charges in Insurance Freight) to port of port of import import

Loading on truck in port of import

Import Carriage to place of customs destination clearance

Import taxes

EXW
FCA FAS FOB CPT CFR

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller No No Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Seller Buyer Buyer Buyer Buyer Buyer Buyer

CIF
CIP DAT DAP DDP

Seller
Seller Seller Seller Seller

Seller
Seller Seller Seller Seller

Seller
Seller Seller Seller Seller

Seller
Seller Seller Seller Seller

Seller Buyer Seller Buyer Buyer Buyer Buyer

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Seller Buyer Buyer Seller Seller Seller Seller Buyer Buyer Buyer Buyer

Types of L/C
Revocable-letter of credit (no more applicable)
buyer and the bank which has established the LC, are able to manipulate the letter of credits or make any kinds of corrections without informing the seller. According to UCP 600, all LCs are Irrevocable, hence this type of LC used no mor

Types of L/C
Irrevocable-letter of credit, which comes in two versions Any changes (amendment) or cancellation of the LC (except it is expired) is done by the Applicant through the issuing Bank. It must be authenticated by the Beneficiary of the LC. Whether to accept or reject the changes, depends on the beneficiary.
(a) Confirmed irrevocable letter of credit (involvement of intermediary bank) (b) Not-confirmed irrevocable letter of credit

SAMPLE PURCHASE ORDER

SAMPLE L/C

Advance payment CIA Cash In Advance

An importer must pay the exporter in cash before a shipment is made. The logic behind the structure of such a transaction is that if an exporter ships a product to an importer and the importer does not pay for the item, the exporter has very little recourse.

This term can be used in a variety of businesses, but it is most common in the import/export business.

Cash on Delivery
A type of transaction in which payment for a good is made at the time of delivery. If the purchaser does not make payment when the good is delivered, then the good will be returned to the seller. Payment can be made by cash, certified check or money order, depending on what is stipulated in the shipping contract.

 An electronic method of transferring funds. Telegraphic Transfers are used primarily for overseas wire transactions. Visa card payment, drafts etc