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UNIT 7UNIT 7

Terms of Payment

Procedure of L/C4

1 Reading2

Listen & Talk11

Parties to L/C3

Contents

Checklist5

Listen & Talk

Dialogue

Listening

Role Play

Smith: Well, Mr. Liu, we’ve settled the problems on price, quality and quantity. Now what about the terms of payment?Liu: We only accept payment by irrevocable letter of credit payable against shipping documents.Smith: I see. Could you make an exception and accept D/A or D/P?Liu: I am afraid not. We insist on a letter of credit.Smith: Frankly, Mr. Liu, a letter of credit would increase the cost of my import. When I open a letter of credit with a bank, I have to pay a deposit. That will tie up my money and add to my cost.Liu: Mr. Smith, I suggest you to consult your bank and see if they can reduce the required deposit to minimum.Smith: Still, there will be bank charges in connection with the credit. It will help me greatly if you could accept D/A or D/P. You can draw on me just as if there were a letter of credit. It makes no significant difference to you, but it does to me.Liu: Well, Mr. Smith, you must be aware that an irrevocable letter of credit gives the exporter the additional protection of the banker’s guarantee. We always require L/C for our exports. And vice versa, we pay by L/C for our imports.Smith: To meet you halfway, what do you say to 50% by L/C and the balance by D/P.

Listen & Talk

Dialogue 1

Dialogue

Liu: I’m sorry, I’m afraid I can’t promise you even that. And I’ve said we require payment by L/C. To get around your difficulty, I’d suggest that you reduce your order by half. You can send in an additional order later.Smith: Well, I’ll consider the possibility. By the way, when do I have to open the L/C if I want the goods to be delivered in June?Liu: A month before the time you want the goods to be shipped.Smith: Could you possibly effect shipment more promptly?Liu: Well, getting the goods ready, making out the documents and booking the shipping space, all these take time, you know. You cannot expect us to make delivery in less than a month, can you?Smith: Very well, Mr. Liu, I’ll not reduce my order. I’ll take the full quantity you offer, and I’ll arrange for the L/C to be opened in your favor as soon as I get home.Liu: When will that be?Smith: Early next month. In the meantime, I should be very pleased if you could get everything ready. I hope that the goods can be dispatched promptly after you get my L/C.Liu: You can be assured of that. We’ll book your order and inquire for the shipping space now so that shipment can be effected within two or three weeks on receipt of you L/C.Smith: That’ll be fine. I appreciate your cooperation.

Jack: Hello, Giles, Mr. Anderson told me that I am to work with you this week.Giles: Yes, welcome on board, Jack!Jack: What are you doing at the moment?Giles: We sold some small tools and equipments to Amsterdam. Here’s the contract. They opened an L/C and we’ve shipped by the Star of Patagonia. Now I have to prepare all the documents exactly in accordance with the terms of the credit, and present them through the Bank of Fortis. We’ve shipped a bit late, so I’m in a hurry to negotiate the documents before the credit expires. Usually we’d send a parcel like this on a container ship, but there wasn’t one sailing in time.Jack: Suppose there’s a mistake in the L/C? The wrong price, for example.Giles: Oh, I checked all these when we were notified of the credit a month ago.Jack: Just what are the documents called for?Giles: First of all, a clean, on-board bill of lading marked Freight paid. I’ve already checked it, it looks OK, it’s signed and dated, there are right numbers of packages and the description of the goods matches the credit.Jack: I see you’ve already had an invoice typed with five copies.Giles: Yes, but it’s got to be signed by Mr. Anderson. Maybe you can check it against the contract for me.

Listen & Talk

Dialogue 2

Listen & Talk

Dialogue 2

Jack: What’s this?Giles: It’s the consular invoice. That has to be signed at the Netherlands Consulate. Do you think you could go there this afternoon?Jack: I’ll be glad to, it’ll make a break from the office.Giles: Now I’ve got to make out the sight draft. That’s in several copies too. Jack: And here’s the insurance certificate, issued under our open cover policy, I suppose? Just a moment, the number of items in the certificate and the bill of lading doesn’t agree with the number in the contract!Giles: Oh, don’t worry about it. If you look at the contract again you’ll see it says partial shipments allowed. We are shipping in two lots, because the buyer wants to get them as soon as possible. We’ll probably have to get the credit extended for the second shipment. That reminds me, I must make out a credit for some time.Jack: What’s that for?Giles: It’s our agent’s commission. We remit it to him every three months; nothing to do with the L/C, of course.Jack: There are also debit notes, aren’t there?Giles: Yes, they’re for extra charges, over and above the contract price. For instance, freight and insurance, if we sell FOB but charge the buyer at actual.Jack: I see.

A commercial letter of credit (L/C) is a written _________ made by a bank

that it will make payment for the goods _________. To put it simply, the bank

promises to pay for the goods when it ________ a letter of credit. This

___________ is favorable to both of the seller and the buyer. The _________

likes it because payment for the export goods is _________ by the bank. The

___________ knows that no __________ will be made before the export goods

have been shipped. So a letter of credit is the _________ method of payment

used in ____________.

Listening

Passage

promise

shipped opens

arrangement exporter

guaranteed

importer payment

favored

foreign trade

Role Play

Mr. Wang and Mr. Milton are discussing the terms of payment. Mr. Wang insists on only accepting irrevocable L/C against sight draft; Mr. Milton is trying to persuade him to accept D/P.

Exercises

Translate the following sentences into English

1) 单据到达对方，我们承兑汇票。 2) 我们保持了经营的灵活性，一直控

制着销售、广告和促销。 3) 我们希望与你们建立合资企业。 4) 回国后，我们马上开立以你方为抬

头的信用证。 5) 如果我想六月要货，我应该在什么

时候开立信用证？ 6) 我们的协商非常愉快且富有成效。 7) 你不能期望我们在一个月内就运货，

不是吗？ 8) 我们要求用信用证付款。

1) The documents come to us, and we accept the draft.

2) We maintain continuous controls over sales, advertising, promotion, and branch administrative practices.

3) We hope to participate in joint ventures with you.

4) I’ll arrange for the L/C to be opened in your favor as soon as I get home.

5) When do I have to open the L/C if I want the goods to be delivered in June?

6) Our discussion has been very pleasant and fruitful.

7) You cannot expect us to make delivery in less than a month, can you?

8) We require payment by L/C.

Translate the following letter into English

Exercises

敬启者：

事由：你方第 456 号订单

我们已接到你方 4 月 15 日来信， 要求我们对第 456 号订单接受“付款交单”方式支付。

正如在谈判时我们已经说过的，货款必须以保兑的、不可撤消的、凭即期汇票支付的信用证付款。我们很难接受你们这一要求。但鉴于你我双方之间的友好关系， 我们例外地同意接受 60 天期的汇票的信用证。我们相信这一特别照顾定能使你为我们带来更多的订单。

等候你们的信用证，收到后我们将立即安排装运不误。

谨启

Dear Sirs,

Re: Your Order No.456

We have received your letter of 15 April, asking us to accept D/P payment terms for your order No.456.

In reply, we regret our being unable to grant your request, as we stated during our negotiations that payment should be made by a confirmed, irrevocable L/C payable by draft at sight. In view of our friendly relations, we, however, exceptionally agree to accept L/C payable by draft at 60 days’ sight. We hope this accommodation will result in procuring large orders for us.

We are awaiting your L/C, upon receipt of which we shall arrange shipment without delay.

Yours faithfully,

Parties to the credit

The beneficiary Since a credit generally

benefits the exporter,the party in whose favor the credit is opened is called the beneficiary. Beneficiary is, in fact, the exporter,or the seller.

The applicant It is up to the importer to find

a commercial bank that is willing to open a letter of credit on his behalf. The applicant for the L/C is also called the opener, the buyer, the importer.

The opening bank The bank that opens the credit on

behalf of the importer is called the opening bank, or issuing bank. By issuing the credit , the bank assumes full responsibility for payment after the proper documents have been presented.

The advising (notifying )bank The issuing bank sends the credit to its correspondent , usually in the seller’s country. This bank is now called the advising bank or notifying bank , because its duty is to advise the beneficiary of the arrival of the L/C.

Parties to the credit

The negotiating bank After the exporter has completed

shipment, he will present a full set of shipping documents to the advising bank for negotiation of payment. This bank is now called the negotiating bank , which will check the draft to ensure that it is properly drawn and will see that each document has been submitted. Then it will send one set of shipping documents to the issuing bank.

The paying bank The bank which pays for the shipment

is called the paying bank, which may be the issuing bank or the negotiating bank. The issuing bank, upon receipt of the full set of shipping documents, will arrange to pay the exporter for the shipment through the negotiating bank.

The confirming bank An advising bank may be requested t

o add its own commitment to the L/C. It is then called a confirming bank. A confirmed L/C is very safe since the confirming bank undertakes to pay the exporter if the issuing bank fails to honour its commitment.

Procedure of L/C

Importer 1 Exporter

2 4

Opening Bank 3 Advising Bank

The procedure of L/C

1 The buyer and the seller conclude a sales contract providing for payment by documentary credit.

2 The buyer instructs his bank to issue an L/C in favor of the seller for the amount of purchase.

3 the issuing bank sends the L/C to its correspondent bank in the seller’s country, giving instructions about the amount of the credit, the beneficiary, the currency, the documents required and other instructions.

4 On arrival of it, the advising bank advises the seller of the receipt of the credit.

Procedure of L/C

Importer Exporter

9 10 11 5 8

6

Opening Bank 7 Advising Bank

(Paying) (Negotiating)

The procedure of L/C

5 The seller will then dispatch the goods accordingly and present the draft drawn on the issuing bank accompanied by all the shipping documents for payment.

6 the negotiating bank will thoroughly examine all the documents. If everything is in order, the bank will send the documents to the opening bank .

7,8 The opening bank pays for the shipment by remitting the money to the exporter, care of the negotiating bank.

9,10,11 The opening bank releases the documents to the buyer who will present them to the shipping company to receive his goods.

Procedure of L/C

Importer 1 Exporter

2 9 10 11 4 5 8 3

Opening Bank 6 Advising Bank

(Paying) 7 (Negotiating)

Check list

Is it confirmed? Preferable,but not essential. Are the seller’s and the customer’s name and address correct? Are the validity and expiry dates ok? (check if adequate time is

allowed for shipment and documentation) Is it irrevocable? It should be. Is the value adequate for all charges? (cost, profit plus all charges) Is the description of goods correct? Are the quantities correct? Is partial shipment or transshipment allowed? Is the port of shipment acceptable? Is the port of destination as agreed? Is an export license required by the exporter? Is an import license number given?( If required, it must be.) Can specified documents be obtained in time? Are there special insurance risks specified? If so, can they be

covered? Are the exporter’s conditions of sale still intact?

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