General

Today, if you visit an "export-oriented enterprise" in the Mainland, the most talked about topic is the "assessment of foreign exchange receipts" and risk issues in foreign trade business. When many heads of international trade enterprises talk about the "risk of foreign exchange settlement in foreign trade", they are mostly worried, and they are deeply afraid that once they fall into the "quagmire", it may lead to an out of control situation. Here, we will discuss some common issues such as "foreign exchange settlement operations and risk aversion" in foreign trade practice.

As we all know, the current international trade is developing rapidly, and the quantity, variety, amount, etc. are constantly expanding. The traditional settlement method of "bank and goods" has long been unable to meet the needs of modern international trade. The transfer and transmission of settlement instruments are used to pay off international creditor's rights and debts, so as to realize the final completion of the transaction.

At present, the settlement methods of international trade mainly include the following, namely remittance, letter of credit, collection, letter of guarantee and factoring. So, what kind of international settlement type is the most favorable for the transaction? This mainly depends on factors such as the content of international economic and trade activities, financing needs, the degree of risk protection, and the scope of banking services. Here we only analyze some operational problems of various settlement methods for customers to tailor according to their own requirements.

Remittance and settlement method based on commercial credit

Remittance is an ancient settlement method, which is still widely used in foreign trade activities today. According to its nature, "remittance settlement" is divided into "before T/T" (PAYMENTINADVANCE) and "after T/T" (DEFFERREDPAYMENT).

The so-called "pre-T/T", that is, "prepaid payment", is a settlement method in which the seller has received the payment before delivery, and then, within the time specified in the contract, sends the goods to the buyer. "Post-T/T", also known as "cash on delivery", is a settlement method in which the seller delivers the goods first and the buyer pays after the buyer receives the goods after signing the contract.

Obviously, "prepayment" is a kind of settlement that is more favorable for exporters. Because the exporter has already received the payment before the shipment, it is actually equivalent to getting an interest-free loan from the importer, and the risk level of its export has been controlled. In other words, the exporter has accepted the "purchase guarantee" of the importer, thus taking the initiative to export.

It can also be said that "prepayment for goods" is a kind of settlement that is unfavorable to importers, because (1) the payment is made before the goods arrive, which is equivalent to providing an interest-free loan to the other party, resulting in interest losses; (2) importing The exporter actually bears the risks in the trade, that is, the exporter may not deliver the goods on time, according to the quantity and quality after receiving the payment, putting himself in a passive position.

And "post-T/T", that is, "cash on delivery", is just the opposite. It is a settlement method that is beneficial to importers and not conducive to exporters. Therefore, the transaction method of "remittance" is actually completely based on the mutual trust between buyers and sellers, so it is called "commercial credit".

At present, in the import and export trade, there is still a settlement method that uses "domestic trade" (the most widely used in Yiwu, Keqiao and other places in Zhejiang Province), that is, after the buyer and the seller sign the contract, the buyer pays first. 50%~60% deposit. The factory starts production first, waits until the goods are shipped, and then pays the remaining 40% to 50% of the payment based on the delivery of the bill of lading (ie, symbolic "delivery").

Generally speaking, in this trade settlement method, the amount of "deposit" paid depends on the level of trust between the buyer and the seller, and there is considerable room for flexibility. If both parties are "old customers", the deposit paid by the other party can also be between 30% and 40%. Many exporters even allow importers to pay the remaining payment after receiving and inspecting the goods.

Generally speaking, "partial shipments and batches of foreign exchange receipts" can reduce the risk of foreign exchange settlement. In practice, it is a foreign exchange settlement model that can consider "risk aversion".

Collection and settlement methods that banks are not responsible for

The procedure of "collection settlement" in international trade is relatively simple. This "convenience" is relative to the letter of credit settlement method, but the risks involved are self-evident.

The specific method of "documentary collection" (DOCUMENTARY COLLECTION) is that the exporter issues a documentary bill of exchange, and together with a complete set of shipping documents, hand it over to the bank at the exporting place, and the bank is entrusted to collect the payment from the importer through its foreign agent bank. a method of settlement.

According to its nature, collection can be divided into two types: "D/P at sight" and "D/A forward". "D/P at sight" means that the collecting bank of the exporting country receives the documents, and after verification, sends them to the collecting bank of the importing country, and the collecting bank informs the importer to pay for the redemption. Therefore, the procedure of "D/P at sight" is relatively simple, and the risk is relatively higher than that of "D/A forward". The specific method is that the collecting bank sends the documents to the other party's bank, and the importer comes to the bank to collect the documents. However, this time the importer does not need to pay, but only signs a "Collection Acceptance Letter" to the collecting bank to guarantee payment when due, and then the documents representing the goods can be taken away.

Therefore, the risk of "D/A forward" can be imagined. At this time, if the importer does not pay after taking the order, or delays the payment, or pays less or even does not pay, the exporter has nothing to do. Because of the collection and settlement method, whether or not the importer pays is entirely based on the importer's reputation to complete the payment.

This is what people usually call "commercial credit", and in theory, the bank is not responsible for it.

The advantages of "collection and settlement" in international trade are obvious, and the procedures are quick and simple. In a documentary collection, the exporter controls the goods with documents that control the "title". The collecting bank represents "delivery" by delivering a document representing "goods". The bank's "presentation" is based on the importer's "payment" or "acceptance" as a prerequisite.

However, the "collection settlement method" is more unfavorable for exporters. Because whether the seller can collect the payment on time depends entirely on the credit of the importer. If the importer refuses to "non-pay" or "non-acceptance" due to changes in business conditions, the buyer may be in danger of delaying or failing to receive payment. If this happens, the collecting bank and the collecting bank will not bear any responsibility for this, and the risk of the so-called "commercial credit" is here. Especially when the "delivery by air" method is adopted, the "collection and settlement method" should be handled with caution.

However, in a sense, choosing to do "D/P spot" is safer than choosing to do "D/A forward". Because of "D/P at sight", the general bank must wait for the buyer to pay the payment before handing over the "document" representing the goods, and the seller will not end up in a situation of "empty of goods and goods". In theory, as long as the buyer has not paid and the shipping documents are still in the bank, the title of the goods still belongs to the seller, and the seller can still resell the goods to others or ship them back.

Relatively speaking, the risk of "D/A forward" is relatively high, because the importer may not come to accept, or sign the acceptance letter, after taking the documents and picking up the goods, the importer will not come to pay on the due date, or With less payment, banks and sellers are helpless.

It can be seen that in the foreign exchange settlement, if the "remittance" or "collection" settlement method is used, it is the best choice to avoid risks by choosing "renewed export credit insurance" at the same time.

L/C settlement method secured by bank credit

Precisely because of the many drawbacks of "remittance" and "collection" settlement methods, in order to solve the problem of mutual distrust between buyers and sellers, the "letter of credit" settlement method came into being.

"Letter of credit settlement" is the most widely used foreign exchange settlement method in current international trade. Its main feature is that the responsibility of "payment by voucher" originally performed by the importer is transferred to the bank. That is, what is commonly referred to as "replacing commercial credit with bank credit". Because the bank's credit is more reliable and stable, and the bank's funds are also more abundant, which makes both buyers and sellers feel more secure, thus greatly promoting the development of international trade.

Because of the "payment commitment" made by the issuing bank, both importers and exporters may get financial financing from the bank at every link when dealing with their relevant banks. For example, after receiving the letter of credit, the exporter can make a "package loan"; This financial integration, to a certain extent, alleviates the difficulty of businessmen's capital turnover and is beneficial to their foreign trade expansion.

Some importing countries have "exchange controls", and all import and export business in that country must be reported to the authorities for approval. However, if they can issue a letter of credit, it means that the trade has been approved by the foreign exchange administration.

However, no settlement method can be perfect, and "letter of credit settlement" is no exception. Its main weaknesses are:

(1) Since the L/C settlement method is a pure "document sale" behavior, as long as the "documents match", the issuing bank must pay, and the importer must also "pay for the redemption". Therefore, it is possible for the importer to obtain documents that are in full compliance with the provisions of the letter of credit, but may not necessarily be able to obtain goods that are in full compliance with the terms of the documents;

(2) There may be fraud in the letter of credit business. Unscrupulous businessmen take advantage of the above characteristics of letters of credit to conduct illegal activities. For example, providing out-of-stock documents, counterfeit documents, etc.;

(3) When the exporter performs the terms of the letter of credit, due to various reasons, the "documents do not match", resulting in the issuing bank's refusal to pay;

(4) The issuing bank and the importer may refuse to pay or fail to pay;

(5) The issuing bank usually charges a certain amount of deposit from the importer when opening the L/C. Due to the long period of L/C settlement, the funds are occupied by the bank;

(6) The procedures for the letter of credit are too complicated and the fees are too high;

(7) The issuing bank may list some "soft terms" in the L/C, which makes the L/C lose its "guaranteed payment" function, etc. Although the L/C settlement has the above shortcomings, due to the L/C settlement method, "the bank assumes the primary payment responsibility", and in fact, it has become the most influential and widely used foreign exchange settlement method in modern international settlement.

Today, the economic and trade exchanges between countries are getting closer and closer. Therefore, we must not only "learn" these "rules of the game", but also apply "rules of the game" in the trade storm.