COTPrepared by Leng kimhok1 Chapter 12: Methods of Payment Principle payment methods are: Invoice Payment with order Documentary collection Documentary letters of credit 1- Invoice The seller sends an invoice with the goods requesting payment within a certain period of time. 2. Payment with order The buyer sends their payment with their order for shipment of certain goods by the seller. 3. Documentary Collection Each party nominates a bank to handle important documents that have stated in the K. The seller sends the goods to the buyer in accordance with the terms of the K. So, if the buyer does not make the payment for the goods, the documents would be returned by the buyer’s bank to the seller.

COTPrepared by Leng kimhok2 Goods arrive after unloading Buyer’s Bank Goods loaded Master issues doc. 5. Documents Payment Doc. given to buyer Payment Shipment Doc. transferred Doc. used to claim goods Seller’s Bank Buyer Seller Documentary collection - the process 1.Contract

COTPrepared by Leng kimhok3 4- Documentary letters of credit L/C is a document issued by a bank on behalf of the bank’s customer (the buyer) guaranteeing payment of an amount due under a K by the bank on behalf of the buyer to the seller. There are three main types of documentary L/C.  Irrevocable confirmed L/C  Irrevocable unconfirmed L/C  Revocable L/C a- Irrevocable confirmed letter of credit The seller ’ s bank (confirming bank), undertakes to pay the seller on presentation of the correct documents (as stipulated in the L/C) to the confirming bank. b- Irrevocable unconfirmed L/C The issuing bank promises to pay the seller on presentation of the correct documents.

COTPrepared by Leng kimhok4 c- Revocable letter of credit The buyer retains the right to instruct the bank (either the issuing or the confirming bank) to cancel the L/C before the seller ’ s documents are presented to the bank, or before payment is made to the seller. Under the system of payment by documentary L/C there are at least 5 separate contracts.  K1 : the sales K between the buyer & the seller.  K2 : between the buyer & issuing bank  K3 : between the issuing bank & the seller.  K4 : between the issuing bank & the confirming bank  K5 : between the confirming bank & the buyer. The documents are required under a L/C:  An invoice, Transport documents, Insurance documents, Inspection Certificates, and other documents such as export licenses or customs clearance documents.

COTPrepared by Leng kimhok5 Goods arrive after unloading Buyer’s Bank Instruction to open L/C Goods loaded Master issues clean B/L 5. B/L presented Payment B/L given to buyer Payment Shipment arrives B/L transferred B/L used to claim goods Seller’s Bank Buyer Instruction to corresponding bank Seller IRREVOCABLE CONFIRMED LETTER OF CREDIT - the process