International trade, payment, open account, advance payment, documentary collection, documentary credit

1. INTERNATIONAL TRADE
Course 2 Yudy Yunardy S.E., M.M.

2. WHO AM I ?
Fifteen years of Banking experience, six
years’ experience in Trade Finance
Operations background with Unsecured
Loan experience, equipped with another
seven years’ experience in Management
Information Analyst and Dashboard
Reporting. Vastly experienced in Bank
Indonesia reporting (LBU, SID, LBBU, BMPK
etc.)

3. EMPLOYMENT SUMMARY
2014 Present Indonesia Banking School
2013 2014 Deutschebank AG
2011 2012 Misys Plc
2010 2011 DBS Indonesia
2010 2010 ANZ Bank
2005 2010 RBS Bank
2004 2005 Vendor at Bank Mandiri, BCA and Circle K
1999 2004 HSBC Bank
1998 1999 MetLife Insurance
1997 1998 Demographic Institution FEUI
1996 1997 Private Investment Manager

4. RULES
1.Disable your comm. device
2.Presence 80% minimum
3.Time alloc. 08.00 – 10.30

5. TEXTBOOK
Koch, Timothy
(2015), Bank
Management,
The Dryden Press

6. GRADING EVALUATION
1. Participation 5%
2. Quiz / exercise 10%
3. Assignment 15%
4. Midterm 35%
5. Final 35%

7. PREVIOUSLY…

8. LAST WEEK’S ASSIGNMENT
Answer
• E-commerce will be booming in 2015, because
of bigger mobile device trends, always
connected to internet, the battle to win
customer loyalty will force us to engage in B2B
as well as B2C
• Social media makes it easy to become a seller in
facebook, wordpress, tumblr or site that will
focus solely on shopping
• Analytical engine will become more intrusive but
also more accurate in predicting our needs and
wants

9. LAST WEEK’S ASSIGNMENT
in billion dollars 2012 2013
A gricultural pro ducts 1,647.65 1,744.83
F uels and mining pro ducts 4,128.61 3,996.98
M anufactures 11,467.50 11,848.00
A gricultural pro ducts (A o A ) a 1,371.37 1,450.26
N o n-agricultural go o ds (N A M A ) 16,585.50 16,850.38
T o tal Wo rld M erchandise Expo rt 18,615.13 19,040.07
B 2C Sales wo rldwide 1,058.00 1,233.00
Percentage to total world merchandise export 5.68% 6.48%
Percentage to NAM A world export 6.38% 7.32%
Percentage to fuel and mining world export 25.63% 30.85%
Percentage to clothing world export 252.38% 267.89%
Value

10. INTERNATIONAL PAYMENT

11. INTERNATIONAL PAYMENT
• CHIPS (Clearing House Interbank
Payment System)
• SWIFT (Society for Worldwide Interbank
Financial Transfer)
• IBAN (International Bank Account
Number)

12. INTERNATIONAL PAYMENT
MECHANISM
1. Applicant bank
2. Applicant’s correspondence bank
3. Beneficiary’s correspondence bank
4. Beneficiary bank

13. INTERNATIONAL TRADE PAYMENT

14. 1. Open Account
2. Advance Payment
3. Documentary Credit (Letter
of Credit)
4. Documentary Collection
INTERNATIONAL TRADE PAYMENT
METHODS

15. OPEN ACCOUNT

16. OPEN ACCOUNT
Definition
An arrangement between the buyer and
seller whereby the goods are manufactured
and delivered before payment is made. This
is the most advantageous to the buyer in
cash flow and cost terms, but it posts the
highest risk for the seller

17. OPEN ACCOUNT
Advantage to buyer
1. The buyer pays for the goods or
services only when they are received
and/or inspected
2. Unlike advance payment, the buyer’s
working capital is not tied up
3. Payment is subject to political, legal or
economic situations in the buyer’s
country

18. OPEN ACCOUNT
Advantage to seller
1. It enhances the seller’s
competitiveness in the global market
2. It helps to establish and maintain long-
term trade relationship with the buyer

19. OPEN ACCOUNT
Key considerations
1. It is recommended to use to secure
trading relationships in competitive
markets
2. Seller must be confident that the buyer
will accept shipment and pay on the
agreed time

20. OPEN ACCOUNT
Key considerations
3. Seller need to assess the political, legal
or economic conditions in the buyer’s
country to avoid delay in payment
4. Seller may mitigate risk of non-
payment by using various trade
financing options such as accounts
receivable financing, export credit
insurance, factoring and forfaiting

21. ADVANCE PAYMENT

22. ADVANCE PAYMENT
Definition
An Advance Payment is the whole or part of
a contractually due sum that is paid by the
buyer in advance prior to shipment of
goods or provision of services

23. OPEN ACCOUNT
Advantage to buyer
The buyer may be able to negotiate for a
discount in prices in lieu of advance
payment

24. OPEN ACCOUNT
Advantage to seller
1. The seller can have immediate use of
funds
2. The risk of non-payment is eliminated

25. OPEN ACCOUNT
Commonly used, if…
1. The buyer’s creditworthiness is doubtful
2. There is unstable political or economic
environment in the buyer’s country
3. There is a potential delay in receiving
funds from the buyer due to events
beyond the buyer’s control

26. DOCUMENTARY COLLECTION

27. DOCUMENTARY COLLECTION
Definition
An arrangement whereby goods are
shipped and the relevant bill of exchange
(draft) is drawn by the seller on the buyer,
and/or documents are sent to the seller’s
bank with clear instructions for collection of
payment through a bank located in the
domicile of the buyer

28. DOCUMENTARY COLLECTION
Advantage to buyer
1. Payment may be deferred until the arrival of
goods or even later if delayed payment
arrangements have been made between
the buyer and seller
2. Documentary collection is relatively
cheaper than documentary credit
3. The buyer may have the opportunity to
inspect the documents prior to making
payment

29. DOCUMENTARY COLLECTION
Advantage to seller
1. Documentary collection is generally
uncomplicated and inexpensive
compared to a documentary credit
2. The seller may arrange the title
documents to be released to the
buyer only upon his payment or
acceptance of draft

30. DOCUMENTARY COLLECTION
Advantage to seller
3. In the event of non-payment or non-
acceptance, the appointed Collecting
Bank, if properly authorized, may
arrange for releasing or warehousing of
goods, insurance or even reshipment to
the seller
4. It facilitates pre or post shipment
financing related to the documentary
collection

31. DOCUMENTARY COLLECTION
Key Considerations
1. Documentary collection is a good
trade-off if the seller is not prepared to
transact on open account basis and
does not want to go through the hassle
of settling a transaction using
documentary credit
2. Unlike documentary credit, banks do
not guarantee payment under a
documentary collection

32. DOCUMENTARY COLLECTION
Key Considerations
3. Documentary collection is suitable for
the seller if:
a) the buyer’s creditworthiness is not in
doubt;
b) the political and economic situation in
the buyer’s country is stable; and
c) there is no foreign exchange control
policy in the buyer’s country

33. DOCUMENTARY COLLECTION
Key Considerations
4. By releasing a copy of the original bill
of lading to the buyer made out to or
endorsed the latter’s order, the seller
will lose control over the titles of the
goods

34. DOCUMENTARY CREDIT

35. DOCUMENTARY CREDIT
Definition
Documentary Credit (or Letter of Credit) is
an undertaking issued by a bank for the
account of the buyer or for its own account,
to pay the seller provided that all the terms
and conditions of the credit are complied
with

36. DOCUMENTARY CREDIT
Advantage to buyer
1. The buyer’s creditworthiness is enhanced
with a bank willing to issue a documentary
credit for his account
2. Payment is only made by the bank upon the
seller’s fulfilment of the terms and conditions
of the credit.
3. It helps to facilitate downstream import
financing services

37. DOCUMENTARY CREDIT
Advantage to seller
1. The Bank acts as a trusted third party
to guarantee payment if the seller can
fulfil the terms and conditions of the
credit.
2. Title of the goods is retained by the
seller or bank until payment or
acceptance of documents by the
buyer

38. DOCUMENTARY CREDIT
Advantage to seller
3. Documentary credit operations are
guided by recognized international
rules and practices
4. It facilitates pre or post shipment
financing related to the documentary
credit

39. DOCUMENTARY CREDIT
Key Considerations
1. When the seller is preparing quotations
for prospective buyer, he has to be
mindful that banks pay only the amount
specified in the documentary credit,
even if additional costs such as shipping
or insurance charges are incurred and
documented

40. DOCUMENTARY CREDIT
Key Considerations
2. Payment under a documentary credit is
based on documents rather that the
terms of sale or the physical conditions
of the goods
3. When the seller receives a
documentary credit in his favor, he
should examine its terms and conditions
against the pre-agreed contractual
terms

41. DOCUMENTARY CREDIT
Key Considerations
4. Seller must be confident that he can
fulfil the terms and conditions of the
documentary credits in order to secure
payment. If in doubt, the seller should
approach the buyer to amend the
terms and conditions in the
documentary credit

42. DOCUMENTARY CREDIT
Key Considerations
5. The terms and conditions of a
documentary credit must not be
ambiguous so as to avoid future
disputes

43. ASSIGNMENT
PT Bogasari imported 100 tons of wheat from
their supplier in Australia using letter of credit
issued in ANZ bank in Indonesia, due to
continuous rain for days in Indonesia, the
wheat absorb the water from humidity and
makes them rotten and unusable after being
stored in destination warehouse for two days.
Normally the wheat is fine stored in the same
condition for 1-2 weeks.

44. ASSIGNMENT
Bogasari already paid their supplier through TT
when latter find the goods is rotten. Bogasari
sued ANZ bank as issuer of the LC, because
as trust agent the banks should check and
make sure the goods is in proper condition
because it will affect bank’s reputation.
Bogasari demand their money to be returned
immediately. ANZ bank rejected the request.
Who is the right party according to UCP600?

45. THANK YOU