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The simplest and cheapest, but at the same time the most risky form of repayment of claims and obligations under foreign trade contracts is a bank transfer. Commercial banks can make transfers for their own purposes and at their own expense. If the bank acts on behalf of its client (payer), then it debits money from his account and transfers it to his correspondent account in the recipient's bank. The latter, on the basis of the received transfer instructions, credits this amount to the beneficiary's account. Bank transfers can be postal, telegraphic or carried out through the SWIFT system.
In foreign trade transactions, bank transfers are used primarily when paying off debt obligations on previously received loans, when issuing advances, when regulating the supply of goods, as well as for non-commercial settlements. The main stages of implementing a bank transfer in the international settlements system are shown in Fig. 3.1.
The positive aspects of settlements by bank transfers include: speed, simplicity and low cost of transactions. The disadvantage of settlements using a bank transfer is the lack of a guarantee and, therefore, the low reliability of this form of payment.
The economic content of a bank transfer depends on whether payment is made for goods and services before delivery (as with an advance payment) or after they are received by the importing buyer (as in a subsequent payment or settlement in the form of an open account).
An advance payment assumes that the exporter has already received full payment for the goods in advance prior to the shipment of the goods to the importer. According to international practice, payments in the form of an advance make up 15-30% of the contract amount, and the rest is paid for the actually delivered goods [Mezhdunarodnye settlements .., 1994, p. 28].
This form of settlement is safe for exporters, since there is no risk of the importer refusing to pay. However, for the importer, paying for the goods in advance does not eliminate the risk of the exporter's default on his obligations. In addition, if the importer pays for the goods in advance, he actually credits the exporter. Thus, the transfer of the advance payment before the start of the shipment of the goods is unprofitable for the importer, since it is a hidden form of crediting the exporter in the amount of the transferred advance.
To reduce the risk of losing money in case of non-delivery of the goods by the exporter, the importer can use a bank guarantee for the return of an advance or a documentary (conditional) transfer. In the first case, the contract includes a clause on the receipt of a guarantee from a first-class commercial bank for the return of the advance. A documentary (conditional) translation is a transfer of an advance with the condition that the exporter's (beneficiary's) bank will make the actual payment of the advance to his account only against the presentation of the transport (shipping) document. The terms of the contract also indicate the period during which the shipment must be made and the shipping document submitted.
The form of international settlements, the opposite of an advance payment, is payment for the goods after shipment. In this case, the buyer (importer) pays for the goods as soon as they are shipped. In turn, the exporter, after the shipment of the goods, sends a message to the buyer and expects to receive payment from the importer. Despite the fact that the risk of the importer's refusal to pay with this form of payment is higher than with an advance payment, the exporter has some protection. Until payment is received, all documents for the right to dispose of the goods are with the exporter.
Settlements for an open account or planned payments consist of periodic payments by the importer to the exporter as the goods are released or services are rendered, and not for each delivery separately. The sequence of actions of the exporter and importer is as follows:
An open account is used for settlements between trading partners in case of uniform, constant and sometimes mutual deliveries or in case of commission sale in the form of consignment (from Latin con $ 1§payo - written confirmation, document) or in case of multiple deliveries of similar goods, especially in small lots. Partners can be firms that are linked by traditional trade relations; firms and its foreign branches, subsidiaries for settlements with brokers and government organizations.
A distinctive feature of this form of payment is that the movement of goods is ahead of the movement of money. For the exporter, the calculations are associated with the risk of violation of the payment deadlines by the payers of planned payments, a slowdown in the turnover of working capital. Settlements on an open account are safer for the importer, since they allow him to avoid the risk of losses due to payment for goods not yet received, as well as to use an interest-free loan. The alternating participation of business entities as sellers and buyers in settlements on an open account strengthens payment discipline and contributes to the fulfillment of mutual obligations.
In foreign trade transactions, bank transfers are used primarily when paying off debt obligations on previously received loans, when issuing advances, when regulating the supply of goods, as well as for non-commercial settlements. The main stages of implementing a bank transfer in the international settlements system are shown in Fig. 3.1.
- 1. Conclusion of a contract for the supply of goods, works, services.
- 1a. Delivery of goods, works, services.
- 2. The client-translator draws up an application for money transfer in triplicate.
- 3. The bank of the originator debits the money from the account of the importer.
- 4. The bank prepares a payment order to a foreign correspondent bank.
- 5. The importer's bank through the correspondent bank transfers funds to the exporter's bank.
- 6. The exporter's bank credits the funds to the current account of the supplier (exporter).
- 7. Transfer to the exporter by the bank of an extract from the current account on crediting funds for the delivered values and services.
The positive aspects of settlements by bank transfers include: speed, simplicity and low cost of transactions. The disadvantage of settlements using a bank transfer is the lack of a guarantee and, therefore, the low reliability of this form of payment.
The economic content of a bank transfer depends on whether payment is made for goods and services before delivery (as with an advance payment) or after they are received by the importing buyer (as in a subsequent payment or settlement in the form of an open account).
An advance payment assumes that the exporter has already received full payment for the goods in advance prior to the shipment of the goods to the importer. According to international practice, payments in the form of an advance make up 15-30% of the contract amount, and the rest is paid for the actually delivered goods [Mezhdunarodnye settlements .., 1994, p. 28].
This form of settlement is safe for exporters, since there is no risk of the importer refusing to pay. However, for the importer, paying for the goods in advance does not eliminate the risk of the exporter's default on his obligations. In addition, if the importer pays for the goods in advance, he actually credits the exporter. Thus, the transfer of the advance payment before the start of the shipment of the goods is unprofitable for the importer, since it is a hidden form of crediting the exporter in the amount of the transferred advance.
To reduce the risk of losing money in case of non-delivery of the goods by the exporter, the importer can use a bank guarantee for the return of an advance or a documentary (conditional) transfer. In the first case, the contract includes a clause on the receipt of a guarantee from a first-class commercial bank for the return of the advance. A documentary (conditional) translation is a transfer of an advance with the condition that the exporter's (beneficiary's) bank will make the actual payment of the advance to his account only against the presentation of the transport (shipping) document. The terms of the contract also indicate the period during which the shipment must be made and the shipping document submitted.
The form of international settlements, the opposite of an advance payment, is payment for the goods after shipment. In this case, the buyer (importer) pays for the goods as soon as they are shipped. In turn, the exporter, after the shipment of the goods, sends a message to the buyer and expects to receive payment from the importer. Despite the fact that the risk of the importer's refusal to pay with this form of payment is higher than with an advance payment, the exporter has some protection. Until payment is received, all documents for the right to dispose of the goods are with the exporter.
Settlements for an open account or planned payments consist of periodic payments by the importer to the exporter as the goods are released or services are rendered, and not for each delivery separately. The sequence of actions of the exporter and importer is as follows:
- 1. The exporter ships the goods to the importer and submits to him the documents of title, bypassing the bank.
- 2. The exporter shall charge the amount owed by the importer to the debit of the account opened by him in the name of the buyer.
- 3. The importer credits the amount of payment due to the exporter to the open account within the terms established by the preliminary agreement of the parties, paying off his debt on the open account.
An open account is used for settlements between trading partners in case of uniform, constant and sometimes mutual deliveries or in case of commission sale in the form of consignment (from Latin con $ 1§payo - written confirmation, document) or in case of multiple deliveries of similar goods, especially in small lots. Partners can be firms that are linked by traditional trade relations; firms and its foreign branches, subsidiaries for settlements with brokers and government organizations.
A distinctive feature of this form of payment is that the movement of goods is ahead of the movement of money. For the exporter, the calculations are associated with the risk of violation of the payment deadlines by the payers of planned payments, a slowdown in the turnover of working capital. Settlements on an open account are safer for the importer, since they allow him to avoid the risk of losses due to payment for goods not yet received, as well as to use an interest-free loan. The alternating participation of business entities as sellers and buyers in settlements on an open account strengthens payment discipline and contributes to the fulfillment of mutual obligations.
