This forum is now closed. During this session our trade expert Tekle Sebhatu responded to member's trade payment method and financing questions as they were posted.
Tekle has already answered your ten most common questions including:
Dear sir,
Do you think countertrade is too difficult for people just getting into the whole trade game?
Thanks
Countertrade particularly barter could be a good way to enter a market especially when the buyer doesn't have cash to pay or the government have currency restrictions. Barter and offset which are both forms of countertrade are becoming increasingly popular because the advances in technology. Multinationals are increasingly using countertrade to obtain much needed resources. You need to be concerned about pricing and quality of product received though to make it worthwhile.
Could you please explain the terms sight draft and ?authority to purchase? As a UK buyer what is my role, if any, with these items? ie should i ever really encounter them?
Sight draft (a draft is also called bill of exchange) is a draft that is payable on presentation to the drawee. It is a banking document and because it is issued by a bank the only time you will encounter it will be if and when the bank asks you to sign it.
Hello, there,
Can you please tell me the difference between irrevocable and revocable Letters of credit? Who can revoke and under what possible circumstances?
Thankyou
Irrevovcable L/C can be revoked when both parties (seller and buyer) agree to revoke the letter of credit, while the revocable can be revoked (cancelled) by either party without the consent to the other party. Say one of the parties can change his/her mind about the price agreed and cancel the letter of credit if it is revocable but can't if it is an irrevocable.
Could you please explain some of the main charges associated with L/C like "ammendment" fees etc. I am a US importer -how do these fees apply to me
Amendment fees are charged by banks when you as an importer want to amend (change) any term or condition in a letter of credit agreed by both parties. The fees vary between banks. For example, as an importer if you wish to change the date when the exporter will ship the goods to you, then you have to amend the letter of credit, because you are requesting the change the seller might ask you to pay the fee to amend the letter of credit. Fee paid for amending letter of credit is negotiable especially when both parties agree to change the terms and conditions of previously agreed letter of credit terms and conditions. Hope that helps.
Follow up to your answer other bank fees related to letter of credit to you might include letter of credit application fee and confirming, if the letter of credit is to be confirmed. Again, you can also negotiate these fee with your sell but most likely you will be responsible.
Can you tell me if there are any other escrow sites out there except escrow.com? also, what are, if any, the negatives of escrow? is time an issue?
I am sure there are other escrow companies that are reputable. You have to look for them. This is something that you need to find out yourself, you can't depend on a third party. One thing that you don't definitely want to do is getting advice about a specific company activity (especially escrow), particularly don't accept your sellers recommendation unless you know the seller very well. Recently, there have been lots of scams involving escrow companies, Watch out! Everything is an issue when it comes to your money. Conduct Yahoo or Goggle search evaluate about 10 companies and make a decision based on your own research.
My prospective chinese suppliers are demanding paymant up front - can this be real. Normal commercial terms around the world is 30 days...why should i make an entire payment to a country in wehich i have no legal recourse...confused
You wrote, "why should i make an entire payment to a country in which i have no legal recourse" right there you answered it. You should not! The reason the seller is asking for pre-payment is because of no existing relationship between you and him. If you are convinced that he is legitimate try partial payment and you will pay the rest after you receive the merchandise. That way you will both share the risk.
Hello Dr Sebhatu,
Good to see you online -enjoy reading your answers.. I have a pretty basic question, but I still require a little clarity.
can you tell me the difference between * and L/C? Or is it the same thing? Thankyou
Good to hear from you. * and LC are different. Documents Against Payment is a method of payment where banks (exporters and importers) are part of the transaction, but have very limited roles. Their role is limited to transferring the document and making payments only. In a letter of credit depending on how it is structured banks do play major roles. You pay very minimum fee for * but fees for LC for example confirming a letter of credit could be very high because of the banks active participation in the transaction
What would you suggest is the safest way to ship products and receive payments for a first-time exporter until we learn the tricks of the trade?
Thank you!
Of course it will all depend on the nature of the product and the value. My suggestion is to take "baby steps" if you will and build your way up. Start to do small transactions, don't think big at the beginning there will be time for it. Try to learn as much as you can at the same time take small action. Three are plenty of resources. The Basic Guide to Exporting which you can download by going to www.ita.doc.gov is an excellent resource. For importing you can go to www.customs.gov. you will have a better idea what you need to know about payments, insurance, documents etc. If your buyer agrees pre-payment will be the safest method for you. But again most buyers will not take that risk.
Thanks!