MKT 310 Chapter 14

Letter of Credit (LC)

-Contract between the banks of the buyer and the seller that ensures payment from the buyer to the seller upon receiving an export shipment. -LC guarantees payment to a supplier if the supplier presents appropriate export documents to a bank in its country. -LC offers complete protection to the supplier. -Shipment of goods are guaranteed for the buyer. -LC provides advantages to both the exporter and the importers, which explains its wide use.

consignment sales

-It allows the importer to defer payment until the goods are actually sold. -This approach places all the burden on the exporter (seller). Therefore, it is the most favorable term to the importer (buyer). -If the exporter wants entry into a specific market, consignment may be the only method of gaining acceptance. -However, due to its burdensome characteristics, it is not widely used. In case the goods are not sold, returning them will be costly and time consuming.

Drafts

-Similar to a check, the draft is a financial instrument that instructs a bank to pay a specific amount of a specific currency to the bearer on demand or at a future date. -For both letters of credit and drafts, the buyer must make payment upon presentation of documents that convey title to the purchased goods. -Letters of credit and drafts can be paid immediately or at a later date.

Methods of Payment: Open Account

-The exporter simply bills the buyer, who is expected to pay under agreed terms at some future time. -The buyer pays the exporter at some future time following receipt of the goods. -Open accounts are risky to exporters. exporters use this approach only with buyers of long standing or with excellent creditworthiness.

Cash in Advance

-The most favorable term to the exporter (seller) because it relieves the exporter of all risk and allows for immediate use of the money. -From the buyer's standpoint, cash in advance is risky and may cause cash flow problems. -The buyer may hesitate to pay cash in advance for fear the exporter will not follow through with shipment, particularly if the buyer does not know the exporter well. -This method is not widely used except for smaller, first-time transactions or situations in which the exporter has reason to doubt the importer's ability to pay. -Cash in advance is unpopular

The shipper's export declaration (sometimes called "ex-dec") lists

-the contact information of the exporter and the buyer (or importer) -The full description, declared value, and destination of the products being shipped.

specify how the buyer and the seller share the cost of freight and insurance, and at which point the buyer takes title to the goods.

Incoterms

Cannot be changed without the permission of both seller and buyer.

Irrevocable letter of credit

what does the bill of landing serve as?

It also serves as the importer's receipt and proof of title for purchase of the goods.

what does the bill of landing authorize?

It authorizes a shipping company to transport the goods to the buyer's destination.

Can be amended or canceled at any time by the opening bank at the request of the buyer or account party.

Revocable letter of credit

who are the biggest importers of foreign products in the US

Wal-Mart, Target and Home Depot

a commercial invoice includes what

a description of the goods, the exporter's address, delivery address, and payment terms.

the basic contract between exporter (Foreign supplier) and shipper (shipping company).

bill of landing

Agreement to accept a percentage of a plant's output as payment for contract to build a plant.

buyback

the "birth certificate" of the goods being shipped and indicates the country where the product originates.

certificate of origin

the actual demand for payment issued by the exporter when a sale is concluded.

commercial invoice

A reciprocal buying agreement.

counter purchase

refers to the official forms and other paperwork that are required for export sales to transport goods and clear customs.

documentation

Export specialist that acts as an export marketing department for client firms.

export management company (EMC)

Refers to the buying of products and services from foreign sources and bringing them into the home market.

importing

Exporters usually purchase an ________ _______ to protect the exported goods against damage, loss, pilferage (theft) and, in some cases, delay

insurance certificate

Agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from any firm in the country.

offset

itemizes the material in each individual package and indicates the type of package, such as a box, crate, drum, or carton.

packing list

The foreign exporter initially issues a _______ or a ______ _______ ______ upon request by potential buyers.

quotation pro forma invoice

Drafts that are paid upon presentation

sight drafts

Japanese trading companies; a key part of the keiretsu, the large Japanese industrial groups.

sogo shosha

Use of a specialized third-party trading house in a countertrade arrangement.

switch trading

The quotation is structured as a standard form (hence pro "forma" invoice), and informs the potential buyer about

the price and description of the foreign exporter's product or service.

Clear Bill of Lading means that

the shipment is fine

Foul Bill of Lading means that

the shipment was damaged, or inaccurate.

Drafts that are to be paid at a later date, often after the buyer receives the goods

time drafts or date drafts