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C2—Export-Import Payment Terms, Collections, Letters of Credit

Subscriber price: $281.00, Non-subscriber price: $360.00
Estimated total study time: 24 hours 18 minutes [Enroll now]

This course covers the full range of payment terms and methods typically used by exporters and importers. Letters of credit (L/Cs) and documentary draft collections are covered in detail. This course is particularly suitable for exporters and importers responsible for negotiating payment terms with foreign trading partners, specifying L/C terms, and determining the acceptability of an L/C once issued, including the feasibility of shipping and documentation requirements. It is also suitable for those, including freight forwarders, who are responsible for submitting documents to bank(s) for collection under L/C and documentary drafts.

Important: Students should have access to the ICC Publication ICC Uniform Customs and Practice for Documentary Credits (UCP600) available directly from the on-line ICC Bookstore (the leaflet version will do). The ICC publication ICC Uniform Rules for Collections, URC 522 is recommended but not necessary to course study.

Basic Concepts

Here we address very basic concepts which underlie all payment terms, such as the need in an international transaction to convert currencies, the time value of money and the added risks to one party or the other created when payment does not coincide with the delivery/receipt of the goods. We also discuss the relationship (or non-relationship) between payment terms and trade terms (also known as delivery terms).

(Estimated study time: 1 hour 4 minutes)

The Spectrum of Payment Alternatives

In this lesson we introduce, on a relative risk scale to each party, all of the typical payment terms used in international trade, and how some governments control or influence payment terms covering imports. We also discuss sources of information a seller may access to help in determine payment risk with respect to a particular foreign buyer, and ways in which a freight forwarder may be of assistance with payment issues.

(Estimated study time: 57 minutes)

Common Export/Import Payment Terms & Options

This lesson explains in further detail each of the payment options previously listed in order of relative risk to seller vs. buyer.

(Estimated study time: 1 hour 20 minutes)

Documentary Draft Collections; Electronic Collection Options

This lesson introduces documentary draft collection as an means of collecting the purchase price of goods via a bank, and assuring customer makes payment, or an unconditional commitment to pay, before release of shipment. We also briefly address the use of electronic systems to perform the equivalent collection function.

(Estimated study time: 2 hours 1 minute)

Completing Drafts, Collection Instructions, Document Transmittal

As the name implies, collection of funds under a "documentary draft" means that shipping documents must be submitted with the draft to the originating bank. This lesson covers the process of instructing the bank as to collection requirements, what documents to send with a draft, and transmittal of documents to the collecting bank.

(Estimated study time: 1 hour 39 minutes)

More on Documentary Draft Collections

This lesson covers additional concerns when using documentary draft collections, what the collecting bank does when it receives a documentary draft, what happens if the drawee fails to pay or accept a draft, and how long a draft collection typically takes.

(Estimated study time: 2 hours 2 minutes)

Letters of Credit—Rules, Benefits and Risks

In this lesson we cover letter of credit basics -- what it is, how it works, L/C rules ( the UCP), and benefits L/Cs can offer to both seller and buyer. We also address letters of credit ricks and concerns a seller should have when relying on an L/C to assure payment.

(Estimated study time: 1 hour 25 minutes)

Letter of Credit Characteristics, cont.

This lesson covers additional important characteristics of an L/C, including time for payment (tenor), currency, critical dates, and special types of L/Cs.

(Estimated study time: 1 hour 19 minutes)

L/C Application Procedures

In this lesson we examine the letter of credit application and issuance process, together with issues faced when applying for an L/C.

(Estimated study time: 1 hour 8 minutes)

L/C Scrutiny by Beneficiary; Amendment Procedures

In this lesson we address what a beneficiary should do immediately upon receipt of a letter of credit, together with the process of L/C amendment, should this be needed.

(Estimated study time: 1 hour 17 minutes)

L/C Document Presentation, Discrepancies and Getting Paid

This lesson covers the process of obtaining payment under a letter of credit, inclusive of document presentation to the negotiating bank, dealing with document discrepancies, and specifying the payment method. Also discussed is proper distribution or shipping documents outside the L/C process.

(Estimated study time: 1 hour 32 minutes)

Typical L/C Problems at Time of Shipment

(Estimated study time: 52 minutes)

Preparation of Typical Documents Required Under an L/C

In this lesson we address the practical aspects of preparing and conforming shipping documents to letter of credit requirements---how to help make sure your documents will be accepted by the negotiating bank the firsttime they are presented.

(Estimated study time: 57 minutes)

Documents Required Under an L/C, cont.; Document Presentation

In this lesson we address:

  1. conformity of insurance documents and destination country customs documents with an L/C specifying such documents,
  2. proper preparation of the draft (bill of exchange) for collection of proceeds under most L/C's,
  3. bank transmittal letter, and,
  4. method of document transmittal and presentation.

(Estimated study time: 1 hour 23 minutes)

Avoiding Document Rejection by L/C Negotiating Bank; Negotiation and Payment

In this lesson we look at the most common types of errors a negotiating bank is looking for when examining documents under a letter of credit. Knowing these will help to avoid having your documents rejected and/or payment delayed while you correct errors and omissions. We conclude our coverage of L/Cs with a look at the actions of the negotiating bank following presentation of documents.

(Estimated study time: 2 hours 20 minutes)

Special Payment Situations; Reduction in Risk for Open Account Sales

Much trade today is based on open account credit, for which we address the basics. Next comes a brief discussion of special situations, and finally, how letters of credit may be used in connection with, or as a means of, trade financing.

(Estimated study time: 40 minutes)

A Freight Forwarder's Role in Foreign Collections

Whenever collection of the purchase price of goods is linked to the shipment, the forwarder arranging the shipment becomes involved in the collection process. This lesson addresses this involvement from the forwarder's perspective.

(Estimated study time: 43 minutes)

A Forwarder's Key Letter of Credit Concerns

This lesson addresses a number of operational issues a freight forwarder may face when processing a shipment subject to a letter of credit.

(Estimated study time: 37 minutes)

Processing Other Types of Collections; Document Transmittal & Follow-Up

This final lesson covers issues which arise in processing collections via carriers (COD, Carrier Collect), shipping document distribution for each method of collection, and when a forwarder should become in payment follow-up. These issues are important to whoever becomes involved in choosing among payment options.

(Estimated study time: 1 hour 2 minutes)