Receiving an export order is the first concrete step to the success of any export venture. Export order is an essential aspect of international trade that requires meticulous attention to detail and coordination. It involves a series of steps to ensure the efficient and accurate fulfillment of orders from international buyers. By following structured processes and best practices, businesses can ensure efficient, compliant, and timely fulfillment of export orders which significantly reduces time to delivery and contributes to the overall success of international operations.

Key Stages of Processing of an Export Order

References

content.dgft.gov.in

www.brahmin-solutions.com

Export Payment Terms

The successful and timely receipt of payment is the most crucial part of the international trade of goods and services. Export payment terms are the instrument by which the exporters and importers, based on their mutual agreement and negotiation, decide how the final payment is to be processed. Choosing the appropriate payment method is crucial for the exporters to minimize the payment risk while also accommodating the needs of the buyer. The exporters must exercise diligence and carefully select a method of payment for international transactions during or before contract negotiations and finalization. There are multiple ways to realize payments for international transactions as shown in Figure 1.

Open Account

Open account payment in International Trade, the buyer receives the goods shipped by the exporter and then makes the payment at the end of an agreed credit period - 30 days, 60 days, 90 days, etc. Open account payment term favors the importer. Exporters may sometimes choose this payment method to develop a strong relation with exporters in anticipation of high business volume in the future. Generally, the open account mode is chosen in case of a trusted relationship between the exporter and the importer and the risk involved is manageable.

Documentary Collection

Banks work as a bridge in this payment method in which both parties involve their respective banks to complete the payment. Theremitting bank represents the exporterwhile a collecting bank works on behalf of the buyer. Once the exporter ships the goods, they can submit the shipping documents and a collecting order to the remitting bank, who in turn will send these to the collecting bank along with the collection instructions. This is then passed on to the buyer, on whose payment the collecting bank transfers the amount to the remitting bank. Finally, the exporter receives the amount from the remitting bank. Documentary collection may be 'at sight' or after a time-lapse. There are 2 types of documentary collections:

a. Cash against Documents (CAD) / Document against Payment (DP)

CAD payment term / DP in export happens when the buyer needs to pay the amount due at sight. This payment is made before the documents are released by the buyer's bank. It is also known as sight draft or cash against documents.

b. Document against Acceptance (DA)

DA payment term in export, is an arrangement where the buyer is required to make the payment only after a specific duration. In this mode, the buyer accepts the time draft and makes a promise to pay. Once this acceptance is received, the bank can release the documents to the buyer.

Cash in Advance

This is by far the safest & the best mode of payment term in international trade for the exporter, in which they ship the goods to the buyer only after the receipt of payment from the buyer. Depending on the terms agreed upon, the payment may be full or partial. In this case, the buyer takes on the bulk of the risk associated with the transaction, however, most importers are unwilling to enter into cash in advice agreements.

Consignment

Consignment method of payment in international trade is a variation of open account in which payment is sent to the exporter after the goods have been sold by the importer to the end customer. The key to succeed in exporting on consignment is to partner with a reputable and trustworthy importer. Appropriate insurance should be in place to cover consigned goods in transit or in possession of an importer as well as to mitigate the risk of non-payment.

Letter of Credit (LC)

This is the safest and most common method of payment in international trade. The buyer's bank gives a written commitment to the exporter, called a Letter of Credit (LC). It is an assurance to the exporter that the buyer's payment will be settled as per the agreed timeline and will be subject to the agreed terms and conditions. The importer is the applicant of the LC, while the exporter is the beneficiary. In an LC, the issuing bank promises to pay the mentioned amount as per the agreed timeline and against specified documents.

Documents Required for an LC

• Shipping bill of lading
• Commercial invoice
• Certificate of origin
• Airway bill
• Insurance certificate
• Packing list
• Certificate of inspection

How does an LC Work ?

LC is an arrangement whereby the issuing bank can act on the request and instruction of the importer or on their own behalf. Under an LC arrangement, the issuing bank can make a payment to the exporter. Alternatively, the issuing bank can accept the bills of exchange or draft that are drawn by the exporter. The issuing bank can also authorize advising or nominated banks to pay or accept bills of exchange.

Fee and Charges Payable for an LC

There are various fees and reimbursements involved when it comes to LC. In most cases, the payment under the letter of credit is managed by both the exporter and the importer. The fees charged by banks may include opening charges, including the commitment fees, charged upfront and retirement charges at the end of the LC period.

How to Apply for an LC?

References