In foreign trade business, due to changes in the international environment and the actual transaction situation, when choosing terms of payment, in addition to settlement, we can also choose a multiple settlement to reduce the foreign exchange risk or to facilitate transactions. Today, let’s see some combinations of the settlement:
This is the most common form of payment combination, which is common in Bangladesh customers. Due to the provisions of the national policy, the customer must use L/C+T/T even T/T+ L/C+T/T. Putting aside the Bangladesh national policy, the combination of this settlement is often used to allow the transaction of certain primary products, which have a certain extent of mobility in amount. If the cargo amount changes, the amount of payment can be changed too. But when using such combination, both sides must first confirm the kind of L/C, remittance and the amount proportion of L/C that should be paid.
The specific practices of this type usually are: L/C stipulates that the beneficiary (exporter) issues two drafts. Parts of payment for goods under this credit must be paid by clean bill and the balance will be collected in the way of D/P at sight or after sight, and the shipping documents attached in bill collection. For one thing, as to exporter, this collection is safer. For another, as to importer, it can reduce deposit which is conducive to turnover of capital in company. But L/C must specify the type of L / C, payment amount and the type of the collection, it also must specify the terms of “the full set of the shipping documents shall only be released after full payment of the invoice value”.
Standby letter of credit (SBLC), also known as the guarantee letter of credit, refers to the L/C that not with the intent to pay off the cost items of products transaction but to loan financing or guarantee debt repayment. The issuing bank guarantees that the beneficiary shall be paid by the issuing bank if issue a draft on the issuing bank according to SBLC and in a statement or certificate of the failure to perform the obligation when the applicant fails to perform its obligations under the standby letter of credit.
If use TT remittance, the buyer is most concerned about whether the seller is able to ship the goods in accordance with the contract. If the seller defaults, the buyer will suffer from the loss of products and money. And the seller is worried about if the buyer can pay after shipment. The combination of SBLC+LC can largely solve the problems of both.
Based on the collection of delivery first, and then collecting payment, the seller will bear the risk of not taking delivery of goods, especially in the case of D/P. Generally, the seller will not accept the high-risk terms of payment. But, in the transaction of buyers enjoying a decision status, if the seller can provide a favorable way of payment, it can greatly facilitate the order. The combination of SBLC+T/T can bring more collection guarantee for the seller.
In order to adapt to the changing environment of the international market, the international payment methods are constantly updated. Selecting the appropriate terms of payment, will be conducive to the business for more cooperation opportunities. But the premise is based on exchange security. Before choosing the payment terms, you must do all preparations well to avoid loss of exports due to negligence.