Archivo categoría International Trade law

What is a draft in international trade?

In an international trade law framework, a Draft of Bill of Exchange is a negotiable instrument that is payable to the seller and drawn on the issuing bank and/or the buyer. Drafts can be either “sight drafts” where the bank pays the full amount of the draft upon the seller’s presentation, or “time drafts” where the bank’s obligation at the time of presentation is merely to accept the draft for payment at a later date.

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When a confirmed letter of credit is used generally?

A confirmed letter of credit is a formal written undertaking issued by a bank in the buyer’s country (issuing bank) and guaranteed or confirmed by a bank in the seller’s country (confirming bank) in accord with which both banks agree to pay a seller (the letter of credit beneficiary) a specified amount on behalf of a buyer (the letter of credit applicant.account party), if the seller complies with the terms and conditions that are specified within the letter of credit.

A confirmed letter of credit is a desirable (albeit expensive) payment method for a company that is buying a product internationally and a desirable (albeit expensive) payment method for a company that is selling product internationally. The buyer who uses this payment method can feel comfortable that two banks are assessing the seller’s performance under the letter of credit which has been issued on behalf of the buyer. Likewise, the buyer can feel comfortable that the seller will not be paid if the seller does not perform exactly as the confirmed letter of credit requires. The seller, on the other hand, should also feel comfortable with a confirmed letter of credit transaction in that the seller knows that it will be paid in the U.S. by a U.S. bank if it performs in accordance with the terms and conditions that are specified by the letter of credit.

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Which is the most to the least secure international payment method?

From an importer’s perspective, the international payment methods rank in terms of the most secure to the least secure are: Open account, documents against acceptance, documents against payment advised letter of credit, confirmed letter of credit, and cash in advance.

From an exporter’s perspective, the most commonly used international payment methods rank in terms of the most secure to the least secure are: Cash in advance, confirmed letter of credit, advised letter of credit, documents against payment, documents against acceptance, and open account.

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Which method of payment an exporter should use?

These are the factors should an exporter consider when determining which payment method to use:
Credit standing of the buyer, political and economic conditions in the buyer’s country, exchange controls in the buyer’s country, the value of the export, customary payment practices in the exporter’s industry and payment methods offered by the exporter’s competitors.

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