Adam El Masmoudi Garcia
P2
MAIN TYPES OF FINANCE AVAILABLE
Consignment Purchase - the importer/distributor doesn´t make a payment for the product
until the product has been used. Pricing can be established in the purchase order or at the time
that the product is received. Consignment purchase terms can be the most advantageous to an
importer/distributor. It is also considered the most risky term for the overseas supplier.
Cash in advance/Prepayment – it occurs when a buyer sends payment in the agreed
currency and through agreed method to a seller before the product is manufactured and/or
shipped. Upon receipt of payment this seller then ships the goods and all the necessary
shipping and commercial documents directly to the buyer.
The Letter of Credit - document issued by a bank at the order of its client the buyer by
which the bank commits itself to paying the amount of money specified in the L/C to its
beneficiary (the exporter). In order for the seller to receive the due amount, it must prove
through documents that the merchandise has been delivered.
Sight Drafts - it is used when the exporter wishes to retain title to the shipment until it
reaches its destination and payment is made. Before the shipment can be released to the
buyer, the document that evidences title must be properly endorsed by the buyer and
surrendered to the carrier. It is important to note that air waybills of lading, on the other hand,
do not need to be presented in order for the buyer to claim the goods. Hence, risk increases
when a sight draft is being used with an air shipment.
Time Drafts - it is used when the exporter extends credit to the buyer. The draft states that
payment is due by a specific time after the buyer accepts the time draft and receives the
goods. By signing and writing "accepted" on the draft, the buyer is formally obligated to pay
within the stated time. When this is done the time draft is then called a trade acceptance. It
can be kept by the exporter until maturity or sold to a bank at a discount for immediate
payment.
Date Drafts - it specifies a date on which payment is due, rather than a time period after the
draft is accepted. When either a sight draft or time draft is used, a buyer can delay payment
by delaying acceptance of the draft. A date draft can prevent this delay in payment though it
still must be accepted.
When a bank accepts a draft, it becomes an obligation of the bank and thus, a negotiable
investment known as a banker's acceptance. A banker's acceptance can also be sold to a bank
at a discount for immediate payment.
P2
MAIN TYPES OF FINANCE AVAILABLE
Consignment Purchase - the importer/distributor doesn´t make a payment for the product
until the product has been used. Pricing can be established in the purchase order or at the time
that the product is received. Consignment purchase terms can be the most advantageous to an
importer/distributor. It is also considered the most risky term for the overseas supplier.
Cash in advance/Prepayment – it occurs when a buyer sends payment in the agreed
currency and through agreed method to a seller before the product is manufactured and/or
shipped. Upon receipt of payment this seller then ships the goods and all the necessary
shipping and commercial documents directly to the buyer.
The Letter of Credit - document issued by a bank at the order of its client the buyer by
which the bank commits itself to paying the amount of money specified in the L/C to its
beneficiary (the exporter). In order for the seller to receive the due amount, it must prove
through documents that the merchandise has been delivered.
Sight Drafts - it is used when the exporter wishes to retain title to the shipment until it
reaches its destination and payment is made. Before the shipment can be released to the
buyer, the document that evidences title must be properly endorsed by the buyer and
surrendered to the carrier. It is important to note that air waybills of lading, on the other hand,
do not need to be presented in order for the buyer to claim the goods. Hence, risk increases
when a sight draft is being used with an air shipment.
Time Drafts - it is used when the exporter extends credit to the buyer. The draft states that
payment is due by a specific time after the buyer accepts the time draft and receives the
goods. By signing and writing "accepted" on the draft, the buyer is formally obligated to pay
within the stated time. When this is done the time draft is then called a trade acceptance. It
can be kept by the exporter until maturity or sold to a bank at a discount for immediate
payment.
Date Drafts - it specifies a date on which payment is due, rather than a time period after the
draft is accepted. When either a sight draft or time draft is used, a buyer can delay payment
by delaying acceptance of the draft. A date draft can prevent this delay in payment though it
still must be accepted.
When a bank accepts a draft, it becomes an obligation of the bank and thus, a negotiable
investment known as a banker's acceptance. A banker's acceptance can also be sold to a bank
at a discount for immediate payment.
