Ways of remitting money when trading on open account terms

disadvantages
1) a)

b) '

2)

The foreign buyer can pay Ihe exporter by

HI

Test.Fill in the missing words:

As the cheque is most likely lo be payable in Ihe buyer's
country, the exporter will need to... il Ihrough Ihe bank­
ing system thus risking furlher ....... and possible default.

Sometimes the exporler may be able lo arrange for the

cheque lo be..... by his bank. Exchange Conlrol..... in Ihe

buyer's country may delay the..... of the cheque.

In mosl instances the buyer can arrange for a bank in his

country lo issue their..... on a bank in the UK in favour of

Ihe...... As Ihe draft is ...... in the UK there should be little

delay in..... paymenl. The foreign bank...... the draft will

have ensured that any..... control regulations obtaining in

the buyer's country will have been ......

When payment for exporls is lo be made by mail Iransfer,

the buyer's bank ..... a corresponded bank in the UK by

..... to pay funds lo the exporter or to the bank for

credit to his .......

173

Active Vocabulary:

deplete

allow credit with/without recourse

overdraft

overdrawing advance

face value of the bill clean bill

bill negotiation

cash against documents

charging interests collection fees

Accepting Houses Committee

bank bill . с

discount

174

-исчерпывать,
истощать

-предоставлять кредит

-с/без права обратного
требования

-овердрафт, превышение
кредитного лимита

-превышение

-1) аванс, авансирование 2) заем, ссуда

-номинал векселя

-недокументированный ве­
ксель

-передача векселя

-платеж наличными
против документов

-взимание процентов
сбор за инкассирование

-Комитет акцептных домов

(Великобритания)

-банкнота, банковский
билет

-1) дисконт, учет векселей
2) процент скидки; ставка
учета

_money market

sale proceeds acceptance commission

factoring

sales accounting collect debts

service charge standing of a company

— 1) денежный рынок

2) рынок краткосрочного капитала

— поступления от продажи

— акцептный комиссионный
сбор

— факторинг,
факторинговые операции

— торговая бухгалтерия

— получать деньги в
погашение долга;
инкассировать долг

— плата за услуги

— финансовое положение,
репутация компании

overseas buyer in the sales contract and then obtains finance to cover these terms from a UK bank. With buyer credit a UK bank provides finance direct to an overseas buy«r, or an approved borrower, so that an exporter can be paid immedi­ately on shipment of the goods. If the finance is with recourse, it means that an exporter is liable for any balance of funds the buyer does not repay to the lender. If the finance is with­out recourse, an exporter is not responsible to a lender for any default by a buyer.

Short-term finance.The first obvious method of financing export sales is through an exporting company's existing over­draft facility with its bank. It is clearly very simple and con­venient to finance all the elements of the export contract (pur­chasing, manufacturing, shipping and credit) by simply over­drawing within the facility and replenishing the account with payments received from an overseas buyer.

As business increases it is unlikely that an exporter can finance sales entirely from an overdraft, palricularly as bor­rowing in this way may be more expensive than other forms specifically designed for export credit.

Advance against bills.One form of short-term finance for the exporter is to obtain an advance of funds from a UK bank against the face value of a bill of exchange drawn by an ex­porter on an overseas buyer under the terms of the export t contract. The exporter sends the bill to the bank which ad- [ vances an agreed percentage of tfie value to the exporter immediately and undertakes to present it to the overseas buyer for collection. If the buyer does not pay the UK bank for the bill then the bank has recourse to the exporter for the loss.

An advance against a bill is made only when unaccompa­nied by arfy transport documents relating to the exported goods i.e. it is a clean bill collection. The bank charges inter­est for the credit period of the loan and fees for the collection operation.

176

Negotiation of bills.Obtaining an advance against bills is _useful only when a limited amount of extra finance is re­quired, the rest being covered by existing resources. If an exporter requires more finance in the short-term, an alter­native method is to establish a facility for bill negotiation. The exporter's bank agrees to purchase bills (usually ac­companied by the shipping documents) on presentation. The hank may even simply purchase the documents under a cash against documents collection. The bank then sends the bills for collection to the overseas buyer and reimburses itself when the buyer pays. If the buyer .defaults, the bank has recourse to the exporter, charging interest for the credit pe­riod any collection fees. A cheaper rate of interest is avail­able to exporters holding ECGD¹ insurance, and normally the exporter assigns the ECGD policy over to the bank as security.

Acceptance credits.There are various merchant banks, members of the Accepting Houses Committee, which accept a bill of exchange drawn by an exporter on any of its mem­bers. This bank bill, as it is called, can be discounted (i.e. sold for its face value less a discount charge) in the money market to one of the discount houses that specialise in this business.

The sale proceeds are credited to the exporter and when the bill matures, the bank pays it and debits the exporter's account for the amount plus an acceptance commission. Al­ternatively the exporter can draw another bill on the bank to be accepted and simply pay the difference between the face value of the maturing bill and the sale proceeds of the new one. A company can choose when to draw funds by gauging when there is the best discount rale in the money market, instead of being tied to overdraft rales of interest with a bank. Normally only the larger cxporler uses Ihis service.

Documentary acceptance credits.With a confirmed irre­vocable letler of credit an exporter can receive finance im-

ECGD — Export Credit Guarantee Department.

177

mediately on presenting to the UK confirming bank a bill of exchange and the documents required under the terms of the credit. The bank can accept a term bill for extended pe­riods which the exporter can then discount with any bank for cash. Any cost is charged to the exporter unless it has been arranged for the overseas buyer to bear costs.

Factoring.If export turnover is sufficiently large, an ex­porter may find it easier to shift the problems of collecting the payment for completed orders over to organisations that specialise in the task of debt collection and trade finance.

An exporter can sell trade debts to a factoring company, usually a subsidiary of a major clearing bank. In return the exporter receives up to 80 per cent of the face value of the debts. The factoring company handles the sales accounting and carries out the task of collecting the debts from overseas buyers. The factoring company regularly monitors sales led­gers for the exporter. When the factoring company receives payment it credits the exporter with the 20 percent balance, deducting an amount for service charges. If the overseas buyer defaults on a debt, there is no recourse to the exporter. The factoring company still pays the remaining 20 per cent, less charges, on the due date. Because of this a factoring company makes an agreement with an exporting company only after examining closely the standing of the company and the reliability of an overseas buyer, and indeed of the buyer's country.

A factoring company may be prepared to buy the goods destined for an overseas buyer for cash. The exporter then acts as the factor's agent, delivering the goods and collecting the proceeds. If the buyer does not know that the exporter has raised finance through a factoring house to export the goods, fit is called undisclosed factoring. The exporter still deals directly with the buyer for payment of debts.

Comprehension.Answer the following questions: 1 Why does the exporter have to arrange special finance for his exports?

2. List two types of export credit.

3. What is the difference between the supplier credit and
the buyer credit?

4. What does finance with recourse mean?

5. What is the simplest method of financing export sales?

6. What are the disadvantages of financing export sales by
an overdraft?

7. What must the exporter do to obtain an advance on funds

for his exports from his bank?

8. What does the bank do if the buyer does not pay a bill?

9. On what type/kind of bills is an advance granted?

10. What can the exporter do if he needs more finance than
just an advance against bills?

11. What does the bank do with the purchased bill?

12. Why is it a good thing for the British exporter to be a
holder of EGGD insurance? i , •

13. What does it mean to discount the bill?

14. In what case can the exporter receive finance on his ex­
port sales from the bank?

15. Who bears the costs of discounting bills?

16. Which organization in the UK specializes in collecting
payment for completed orders?

17. What is the job of a factoring company?

18. Does the factoring company have recourse to the exporter
if the buyer defaults?

19. How does the factoring company secure its interests?

20. When does the exporter act as the factor's agent?

21. What is undisclosed factoring?

179

II

Comprehension. Complete the following on the basis of the text:

1. Supplier credit is a facility set up to enable.....

2. Until a bill is accepted by the buyer, the bank advance is
on ......

3. An overdraft facility is often used by.. to.......

4. To obtain advance of funds from the bank, the exporter
has to...... for........

5. Fees are...... by...... for.......

6. Interest is...... for..... of........

7. When the bank undertakes to negotiate the bill on behall

of the exporter, it ..... with recourse to the exporter in

case ......

8. If exports are covered by a ECGD guarantee.....

9. To avoid being out of funds while awaiting settlement al
maturity, the exporter can ..... to ......

10. Factoring is a service used by the exporter who passes
the task of..... to.......

11. Before the start of the factoring operation, the factor will

I

IV

You are given below a list of financial one-word-terms, list all terms-phrases you can associate with them: 1. Credit 2. Interest 3. Rate 4. Bond 5. Purchase 6. Leasing 8. Payment 9. Overdraft 10. Forfeit 11. Discount 12. Collec­tion

Make sentences with these terms.

Test. Fill in the missing words: .

A conventional overdraft facility is often used by exporters

to....... transactions where credit terms extend over a.......

period and is commonly used during... and for the period

prior to...... of the goods.

It is sometimes possible for advances of an agreed percent­
age to be made against the ..... value of a bill of exchange

..... by an exporter on an overseas buyer entrusted to the

bank for.......

In approved cases banks will negotiate foreign ....... on

behalf of their customers for amounts up to pre-agreed lim­
its. The bank in effect.... the bill for the face amount with

recourse to the..... in the event of non-payment. When the

bill is paid the resultant proceeds are used to repay the....

made when the bill was purchased, the exporter paying..

fees and..... for the credit period.

Factoring is a service being used more and more by.....

who need, through the growing level of competition in...

trade, to extend open credit..... to foreign customers with

resulting problems such as: How much.. should be given ?

On what ...... ? What are the .... risks? How should the

exporter go about.... payment given the differences in lan­
guages, law and ..... practice?

181

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