CHAPTER 5: International Payment Mechanisms. Feedback: Pre-session task:

Transcription

1 CHAPTER 5: International Payment Mechanisms Feedback: Pre-session task: Read the text below (source: Šopovová, Šimek Introduction to English for International Trade Law, MU Brno 2005, pp ) about four types of payment mechanisms (open account, documentary credit, bills for collection and advance payment) and answer the following: 1. List the types according to the security for exporters: (the most secure) advance payment letters of credit bills for collection (the least secure) advance payments 2. In which situation does the exporter choose open account? if they trust the buyer, What must the exporter pay attention to when using a letter of credit? to conform to the conditions 4. What is the difference between documentary and clean collections? document are / aren t attached 5. Translate into English: akreditiv, inkaso, směnka, splatnost. letter of credit / documentary credit, collection, bill of exchange, maturity /due date

2 Seminar Session: 1. Read the text and complete the gaps with suitable words (the first letters and the number of letters are given in the brackets): To succeed in the global marketplace and to (wi-) sales (aga----) foreign competitors, exporters must offer attractive sales terms supported by appropriate payment methods. The most important condition is to be paid in (fu--) and on (ti--) is the ultimate goal for each export sale. A method of payment needs to be chosen to (mini----) the payment risk while also (accom ) the needs of the buyer. For exporters any sale is a (gi--) until payment is received. For importers any payment is a (dona----) until the goods are received. Based on: KEY: to win sales against competitors in full and on time minimize - accommodating gift

3 donation 2. Study the following payment risk ladder and explain its meaning. - in class 3. DOCUMENTARY COLLECTION Describe the mechanism of payment with documentary collection (bill of exchange). How many parties are involved? What are their roles? - the info from the pre-session, draw on the board

4 3.2 Use an appropriate form of the words in the list below to complete the sentences which describe the procedure for documentary collection. draw, accept, dishonour, release, remit, forward, dispatch, present 1 The first step the exporter takes is to ask his bank to a bill of exchange on the overseas buyer. draw 2 The exporter s bank.. the bill of exchange, together with the commercial documents, to the importer s bank. forwards 3 At the same time, the exporter.. the goods. dispatches 4 The exporter must take care to.. the correct documents to the bank. present 5 When the importer.. the bill of exchange, the bank will. the documents of title to the goods. accepts, release 6 If the importer.. the bill, the exporter may have to find an alternative buyer or ship the goods back again. dishonours 7 In some parts of the world, banks may be slow to.. payment to the exporter s bank. remit Source: Šopovová, Šimek Introduction to English for International Trade Law, MU Brno LETTERS OF CREDIT 4.1 Read the following two quotes and discuss the benefits and drawbacks of letters of credit. A letter of credit is a bank's written promise that it will make a customer's (the holder) payment to a vendor (called the beneficiary) if the customer does not. Although letters of credit can be useful, it s often best to avoid using one for a transaction. They can sometimes result in expensive delays, bureaucracy and unexpected costs Watch the video and describe the procedure when paying with the letter of credit. How many parties are involved? What are their names and roles? - video: - chart on the board 4.3 The steps in the following description of how a letter of credit works have been mixed up. Put them in the right order. - SLIPS OF PAPER, then numbers into Handout Before presenting the documents to the bank, the seller should check them for discrepancies against the letter of credit, and correct the documents where necessary.

5 The issuing bank will issue a letter of credit. This will be sent to the advising bank by airmail, telex or SWIFT The issuing bank will also check the documents. If they are in order the issuing bank will reimburse the seller's bank immediately. The documents are presented to a bank, often the advising bank. The buyer applies to the bank for a letter of credit to be issued. The seller ships the goods and gathers together all the documents asked for in the letter of credit such as the invoice, transport document... The bank will then evaluate the buyer's credit rating, and may require a cash cover and/or reduction of other lending limits. The advising bank may confirm the letter of credit, i.e. add its own payment undertaking If there is anything that may cause a problem, an amendment should be requested. The seller should check that the letter of credit matches the commercial agreement, and that the terms and conditions can be satisfied in good time. The buyer and seller agree terms, including means of transport, period of credit offered, latest date of shipment and the relevant Incoterm to be used. The advising bank checks the documents against the letter of credit. If the documents are compliant, the bank pays the seller and forwards the documents to the issuing bank. The advising bank will establish authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary). The issuing bank debits the buyer and releases the documents (including transport document), so that the buyer can claim the goods from the carrier. Notes: 1. The letter of credit refers to documents representing the goods - not the goods themselves. 2. Banks are not in the business of examining goods on behalf of their customers. 3. Typically the documents requested will include a commercial invoice, a transport document such as a bill of lading or airway bill, an insurance document; and many others. KEY:

6 VOCABULARY. Find a word or phrase in the article that has a similar meaning. a) promise or guarantee given to or by bank undertaking b) load of goods sent to a customer consignment c) person or company that acts as a middleman in a transaction intermediary d) date when a bill of exchange is due for payment maturity Source: Šopovová, Šimek Introduction to English for International Trade Law, MU Brno WRITING. LANGUAGE FOR LETTERS AND S 1. Features of formal correspondence - ppt 2. Writing in class - in groups of three, phrases to help, T monitoring and helping 6.1 Phrases for the most common language functions: explaining why you are writing I am writing to... referring to something With regard/respect to... confirming the instructions: During our meeting you told me that. You instructed me as follows... referring to the previous /letter Thank you for your /letter of 9 September about/concerning I write with reference to your letter of 9 SEptember about/concerning... acknowledging letter and promising to write later I/We acknowledge receipt of your letter of 9 September to which I/we will provide a substantive response shortly. referring to theme of a message received You informed me that I note the points you raise with regard to... expressing doubt I have certain reservations about I remain unconvinced by your argument that... asking for clarification I have a number of queries about I should be grateful if you could clarify/provide further information about... expressing certainty Clearly/Obviously/Undoubtedly... giving advice My advice on this matter is as follows. Source: Rupert Haigh, Legal English, CUP, London and New York Tips for formal letters: 1. as short as possible but to the point 2. clearly written 3. clearly set out 4. well structured paragraphs

7 5. appropriate in tone and style Created by the team of authors. 6.3 Letter of advice examples of an introduction: I am writing to ask/ tell//inform you that... I am writing to ask/inquire... I am writing with regard to... I am writing with reference to... I am writing in connection with... I am writing in response to... In reply to your letter, I am writing to Created by the team of authors. 6.4 Letter of advice Write down answer for the following letter: Dear Mr Smith Payment mechanism I would like to start importing a special brand, high quality coffee from Brazil. We have entered into negotiations with an exporter. I have no experience in international trade, the exporters insist on advanced payment. Could you please advice me on what methods of payment should be acceptable for us? I look forward to hearing from you. Yours sincerely Jan Novák Created by the team of authors.