1. Business transactions – Corporate angle
CONFIDENTIAL
© Mecklai Financial Services Limited 2008.
No part of this document can be circulated or reproduced in any form without prior approval of Mecklai Financial Services Limited

2. Trade Account (CA/EEFC)
Trade: Product Range
Trade Account
(CA/EEFC)
Imports
Letter of Credit
Documentary Collections
Advance/Direct
Buyers’ Credit
Suppliers’ Credit
Exports
Pre / Post Shipment
LC Advising/ Confirmation/ Negotiations/ Transfer
Guarantees
Bid Bonds / Performance Bonds
Financial
Domestic Trade
Documentary Collections (in/out)
Bills Discounting

3. Documentary collections – Complete flow
Acceptance or Proceeds (7)
Presenting Bank
Importer
Documents (6) C o n t r a c
t (1)
Bills of Lading (8)
Documents and
Collection Order (5)
Proceeds
(9)
Goods
(2)
Bills of Lading (3)
Remitting Bank
Proceeds (10)
Exporter
Bills of Exchange, Documents and Lodgement Form (4)

4. Documentary Collections
Governed by Uniform Rules for Collection, ICC Publication No (URC 522), 1995 – most importantly UCP 600 (Reading material provided)
Exporter ships the goods to the importer and presents the documents to his bank. Exporter’s bank sends documents to the importer’s bank for collection of payment
As per payment terms of the collection instructions, the importer’s bank asks importer to either
pay and get the documents (D/P)
accept to pay on a future date and get the documents (D/A)

5. Importer Perspective – Doc. Coll.
Advantages
Cheaper and Convenient as compared to Letter of Credit
Control over settlement
Opportunity to inspect documents before settlement
Disadvantages
Delay in Goods clearance as documents are in Banking system

6. Exporter Perspective – Doc. Coll.
Advantages
Cheaper and Convenient as compared to Letter of Credit
Control over documents via banking system
Disadvantages
No Guarantee of payment

7. Regulatory Environment
Trade
FEDAI/FEMA
RBI
ICC – UCP, URC & ISP
Foreign Trade Policy

8. Working Capital Cycle Sourcing raw materials
Internal Labour and Contractors
Profit Distribution
Trade
Collections
Letters of Credit
Import/Export Financing
Debts & Debt servicing
Finished Goods
Cash
Duties & Taxes
Corporate Operating Cycle
Debtors

9. Accounting Impact
Invoicing Date: Invoice is prepared based on the terms of PO/LC dated around BL date and imports are booked in accounts as on the invoice date.
Invoicing Rate: As per corporate’s internal policy
- (Frequency – Daily, weekly, fortnightly, etc.)
- (Source: Lead bank, Reuters, Bloomberg, etc.)
Revaluation (on month-end /quarter-end dates) – As per AS 11/AS 30 or Ind-AS.
Final Settlement

10. Foreign Trade Transactions: Points to note
Merchant Import guidelines to be followed strictly. The entire merchanting trade transactions should be completed within an overall period of nine months and there should not be any outlay of foreign exchange beyond four months
Bill of entry submission to bank while making Import payment. One copy of Bill of entry reported by Custom to RBI.
Form A1 for import of goods and Form A2 for import of services.  Form 15 CA/ CB certification for payment under Form A2 (services)
No bank will accept import documents for transactions where it is routed to / with countries on which sanctions are in existence ( Iran, Cuba, N. Korea, Syria, Libya.. 7 countries)
If any replacement to be sent free of cost then GR waiver to be taken from AD bank.

11. Foreign Trade Transactions: Points to note
In case of Advance, FIRC to be taken, On shipment , Bill requires to be lodged with AD banks where advance received - Bank realization to be taken from AD bank; FIRC is valid only till 1 year from the date of remittance and should be nullified within that time, if it needs to be extended then approval from AD Category 1 bank should be taken with proper clarification.
In case of Turnkey projects, Project export approval needs to be taken. (DPX 1/ DPX 3)
As per RBI, export invoice to be realized in 12 months and beyond that it will be reported by AD bank to RBI.
Reduction in invoice value of 10% allowed at AD category 1 bank level. However, CA certificate for last 3 calendar years of export proceeds is required.

12. Foreign Trade Transactions: Documentation
LC issue
- Documentation: Covering letter, Certificate of origin, Vendor approved PO copy, Fema Decl., Form A1/A2, Stamp paper, Insurance copy.
Payment process
- Documentation: Covering letter, Bill of entry, Fema Decl., Amount, rate and currency, Invoice copy, PO copy, Form A1/A2.
 Insurance is required for 110% of cost as per UCP 600

13. Thank You