INTERNATIONAL TRADE PAYMENT AND FINANCE WITH SPECIAL REFERENCE TO BANGLADESH
In International trade payments, the most important participants are exporters and importers. Here exporters are sellers and importers are buyers. Importers and exporters are quite often confront with problems arising from the movements of goods from one country to another and are simultaneously subject to the different legislation, customs and practices of these countries. Importers and exporters have certain concerns such as: Exporters want to be certain that they are paid when their goods have been shipped or dispatched because the goods will be out of their control on the other side Importers want to be certain that they receive goods that conform to what has been ordered. There are a number of methods of trade payment. Before importers and exporters decide to do business with each other they need to understand and adopt a method suitable to meet their specific needs. The contract between buyer and seller will specify the way in which payment is to be made. Certain methods of payment are less risky than others. It is up to the buyer and seller to agree on a method that suits them both. The choice of payment method is affected by several factors like requirements of the seller and buyer, relationships between the trading partners, the operating environment and associated risks, object of transaction and market conditions etc. Once acceptable risks have been determined then the most appropriate payment method can be selected.
1. To discus theoretical aspects of Trade payment methods 2. To discus Trade payment methods in Bangladesh.
Trade payment methods are use to make or receive payments for international business. It basically means, receipt of payment against exports and making payment against imports. There are four primary methods of payment for international transactions. ❖ Cash in advance or repayment,
❖ Open Account,
❖ Documentary Collection and
❖ Documentary Credit.
The most secure method of trading for exporters and, consequently the least attractive for buyers. Payment is expected by the exporter, in full, prior to goods being shipped. With cash-in-advance payment terms, the exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. So if the exporter is not sure about the buyer's creditworthiness, a last resort is to ask for cash in advance. Wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters.
Some features of cash in advance are given bellow:
❖ Interest of exporters is protected
❖ Interest of importer is not protected
❖ There is no universally accepted regulation to guide this method of payment
❖ Purchase sell agreement or purchase sell contract is the guiding documents
❖ Involvement of bank is insignificant and that’s why it is not costly for the traders and
❖ It is the least popular methods of payments.
An open account transaction is a sale where the goods are shipped and delivered before payment is due. Open account is the reverse of cash in advance. Obviously, this option is the most advantageous option to the importer in terms of cash flow and cost, but it is consequently the most risky option for an exporter. Because of intense competition in export markets, foreign buyers often press exporters for open account terms since the extension of credit by the seller to the buyer is more common abroad. However, the exporter can offer competitive open account terms while substantially mitigating the risk of non-payment by using of one or more of the appropriate trade finance techniques, such as export credit insurance. Though the seller can avoid a lot of banking charges and other costs, but he has no security that he will be receiving payment in due course. For this...
References: • Bangladesh bank (2009), Guidelines for Foreign exchange Transactions, Volume 1 and 2, Bangladesh Bank, Dhaka, Bangladesh.
• Choudhury, Toufic A and Shah Md. Ahsan Habib (2006), ‘ Moving into the New UCP’ keynote paper presented in the seminar organized by ICC, Bangladesh on January 05,2006.
• Ministry of Commerce (2010) Export Policy 2009-12, Government of Bangladesh, Dhaka.
• Ministry of Commerce (2010) Import Policy Order 2009-12, Government of Bangladesh, Dhaka.
• Watson, Alasdair (1988) Finance of International Trade, The Chartered Institute of Bankers, United Kingdom.
• Pierron, A., Sankar, S. (2008) International Trade & Trade Finance. Celent.
• ICC (2007) Uniform Customs and Practice for Documentary Credit- UCP 600, ICC, Paris France.
• ICC (2007) International Standard Banking Practice for the Examination of Documents under Documentary Credits, Publication no-681, Paris, France.
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