What Are Payment Terms?

The payment clause is the specific stipulation in the L / C clause on the method of repaying the ticket in the international trade cash settlement. Generally includes: (1) Negotiating bank or paying bank. If there is no direct account relationship with the issuing bank, the third bank designated by the issuing bank, namely, the reimbursing bank, will claim. (2) The issuing bank has an account with the negotiating bank or the paying bank, and the negotiating bank or the paying bank will directly debit the issuing bank's relevant account after paying for the goods on behalf of it. (3) If the negotiating bank or paying bank has an account with the issuing bank, the issuing bank will credit the negotiating bank or the paying bank's account under the conditions that the order is matched. According to international practice, the negotiating bank or the paying bank must include a "clear statement" when making a claim against the issuing bank or reimbursing bank, that is, the claim letter clearly states that "the examination documents are consistent and the documents have been sent in accordance with the letter of credit." To the issuing bank or its designee. "Especially in the case of cable remittance, payment is generally made by cable first, and the documents arrive later. After payment, if the issuing bank receives the documents and finds that the documents do not match, it is based on the claim letter. "Clear statement" recourse to the negotiating bank or the paying bank, regardless of the reimbursing bank. Because the reimbursing bank only accepts the issuance bank's entrustment, and only relying on the claim letter or payment bank's claim letter to make the payment on behalf of the issuing bank instead of the document, the sole responsibility of the reimbursing bank is the amount and time it pays. Neither can exceed the provisions in the issuing bank's entrusted repayment notice. ^[1]

Payment Terms

Payment terms include the following:

(One)

The choice and use of various payment methods should be based on the premise of implementing China's foreign trade policies and policies, considering factors such as ensuring the safety of foreign exchange funds, accelerating capital turnover, and expanding trade transactions. In order to meet the needs of China's foreign trade development, it must be flexibly used on the basis of careful study of various conventional payment methods in the international market. In the export business, in general, the spot letter of credit is used to collect foreign exchange quickly and safely. If a forward letter of credit is required, the interest factor should be taken into account when calculating the price. In order to promote the export of certain commodities, according to the characteristics of some regions, for certain customers with better creditworthiness, payment documents (D / P) are used as a means of competition, but acceptance documents (D / A) should be used with caution Engage.

In practice, sometimes in order to facilitate the transaction, when the two parties fail to reach an agreement on a certain payment method, a combination of two or more methods can also be used. The common ones are:

1. Combination of L / C and remittance

Refers to the payment of part of the payment by letter of credit, the balance is settled by remittance. For example, for the transaction of primary products such as mineral sands, the two parties have agreed that the letter of credit stipulates that a certain percentage of the invoice amount should be paid in advance with the shipping documents, and the remainder will be calculated after the goods arrive at the place. The amount shall be paid by remittance.

2. Combination of Letter of Credit and Collection

Refers to the payment of part of the payment by letter of credit, the balance is settled by collection. The general practice is that the letter of credit requires the exporter to issue two bills of exchange, and the goods that are part of the letter of credit are paid by light draft, and the full set of documents is attached to the collection part of the bill of exchange and is collected by spot or forward payment. , But the letter of credit must stipulate "the invoice can only be paid in full before the clause" clause for security. The payment terms in their contracts are usually concluded as follows: "xx% of the purchase price shall be issued with an irrevocable sight letter of credit, and the remaining xx% shall be paid immediately after the receipt (or XX days after the receipt). The full set of documents is attached to the collection part , The invoice amount shall be paid in full before the due date. If the xx% collection amount is refused, the issuing bank shall have the documents and let the seller handle them. "

3. Combination of remittance, collection and letter of credit

In the transaction of complete sets of equipment, large-scale machinery production and transportation, because the transaction amount is large and the product production cycle is long, the payment is generally paid in several periods according to the progress of the project and delivery, that is, installment and deferred payment. The method is generally a combination of remittance, collection and letter of credit.

The buyer and seller stipulate in the contract that before the product is put into production, the buyer can use remittance to pay part of the payment as a deposit. Before the buyer pays the deposit, the seller should provide the buyer with a photocopy of the export license and a bank guarantee. Except for the deposit, the rest of the payment can be paid in installments at different stages. The buyer opens an irrevocable letter of credit and pays at sight. However, the last payment is usually paid when the delivery or the seller assumes the warranty period, and the ownership of the goods is transferred when the last payment is paid. Under the condition of installment payment, the payment of the goods shall be paid or paid in full upon delivery. Therefore, the contract signed according to installment terms is a kind of spot contract.

In the case of complete sets of equipment and large transactions, due to the large transaction value, it is difficult for the buyer to pay the full payment for a while, and the deferred payment method can be adopted. The practice is that after the buyer and the seller sign the contract, the buyer generally has to pay a small part of the payment in advance as a deposit. Some contracts also stipulate that part of the payment shall be paid in installments according to the progress of the project and the delivery, but most of the payment is amortized within a few years after delivery, that is, payment by forward credit. The part of the deferred payment is actually a kind of credit sales, which is equivalent to the commercial credit provided by the seller to the buyer, so the buyer should bear the interest on the deferred payment. In the case of deferred payment, ownership of the goods is generally transferred upon delivery.