PURPOSE VIS-�-VIS PROCESS

I have seen discussions and debates on differences between LC and TT, TT and **/DA bills etc. This article is to put the subject in its proper context.

We must note the distinction between the PROCESS (of moving money) in contrast to the PURPOSE (that generates or causes the movement). The first is answered bythe question "WHY"?, The second by the next question "HOW"? One very often fails to distinguish between the two. This is an area that happens to be confusing to many. Consequently, questions like "What is the difference between a TT and a D/P bill", or "While negotiating with my party, should I opt for TT payment or pay by LC?" keep cropping up during discussions at various forums or workshops. It is imperative that the basic concepts are clarified.

Cause and effect
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The purpose or the transaction prompting the transfer of money (WHY transfer?) can be any of the reasons conceivable. Some examples: purchase or sale of goods, payment towards services, expenditure on capital goods, fixed or movable assets, expenditure on travel, gift or charity, deposit of cash or transfer to an account for savings or investment. There could be a million plus one reason giving rise to the transfer of money.

The next stage comes where we see money actually being transferred from one place to another, from one account to another, or from one bank to another. A physical movement takes place where the one who has the money (the remitter) foregoes possession in favour of another (the beneficiary) who then gains possession of it. How this physical movement takes place determines the process of transfer.

The remitter or the beneficiary may decide how exactly the physical action of movement of funds is to take place. The factors that guide such decision include the urgency, available technology, settlement procedure, cost of remittance, associated risks and mutual convenience.

We are familiar with several of these processes of fund transfer. These include electronic transfer viz., telegraphic transfer (TT), S.W.I.F.T., ECS, RTGS etc., or transfer using a physical mode viz., mail transfer (MT), cheque, draft, cash, banker's cheque, pay order and so on. These are HOW money is transferred. We often discuss purchase and sale, export and import - where one party parts with goods or services in exchange for money from the other. We also discuss about some of the terms of settlement between the buyer and the seller. One should remember that bills and LCs are only documents that represent a transaction. They are neither purposes nor processes.

Advance payment, for example, is a purpose ("WHY?"); the advance payment being effected ("HOW?") by means of a TT or a bank draft is the process that translates a purpose - to bring the former to a conclusion. The cause has nothing to do with the choice of the process (or the method, how?) that one may use to consummate that cause. Conversely, the cause (the purpose or reason for transfer of funds) may be only one, but the processes that one may select, or the options to choose from (to effect the transfer)  could be several.

The important thing to remember is to distinguish between the purpose of a transaction against the process to conclude the same.
Ask yourself "WHY"? and then send the remittance by answering "HOW"?