Payment Understanding of T/T C/C, D/P, and D/A

The transaction of international trade orders often starts with payment. Below we will briefly list several common payment methods and the problems that will be encountered.

 

Payments are differentiated from the receiving account

1. Public accounts: T/T, L/C, D/P, D/A, O/A

2. For private accounts: Western Union, Paypal, MoneyGram, T/T

 

T/T

T/T (Telegraphic Transfer) wire transfer refers to the sending bank, upon the request of the remitter, to send a telegram/telegram or SWIFT to a branch or correspondent bank in another country (i.e. the remittance bank) to instruct a certain amount to be paid to A remittance method for the recipient.

 

The T/T payment method is settled in foreign exchange cash. Your customer remits the money to the foreign exchange bank account designated by your company. T/T is a commercial credit. After the goods are ready, if the customer pays the full payment, You can send the documents directly to the customer without going through the bank.

 

T/T wire transfers are divided into two types, one is called former TT (former T/T), what is former TT (former T/T)? In the international trade industry, that is, before the shipper delivers the goods, Those who pay 100% of the purchase price are called Qian TT (former T/T). This payment method is the safest way of trade in international trade, relative to the seller, because the seller does not need to bear any risk, as long as the money is received, it will be shipped, and if the money is not received, it will not be shipped. The pre-TT (pre-T/T) can also be divided into many flexible ways, with a deposit of 20%~40% first, and then 80%~60% before shipment. The specific ratio depends on different situations and varies flexibly.

 

The second type: post-TT (post-T/T) payment method. The post-TT (post-T/T) payment method is defined in the bank as, after the goods are delivered, the buyer pays the balance. Then why does the buyer pay the balance? Generally, the post TT (post T/T) is based on the copy of the B/L (BL) bill of lading to pay the balance. The post-TT (post-T/T) model is also more flexible. Generally speaking, the international post-TT (post-T/T) payment method is basically popular. The customer first gives a 30% deposit, and the other 70% is the customer on the bill of lading ( BL,B/L) Copy the remaining balance. Of course, some have a 40% deposit and 60% on the bill of lading.

 

Frequently Asked Questions about T/T Payment

1. The wrong information of the payee leads to the account. Many customers are careless and will write the payee's name incorrectly. For example, if the name is too long, the remittance is limited by the space to fill in, etc., the remittance does reach the payee. However, due to incorrect information, there is no way to release the funds. Processing result: Generally speaking, if it is not resolved on the 15th (or according to the actual situation of each bank), it will be returned the same way. Solution: 1. Notify the customer to change the information (amendment), and clearly inform the customer that we will not be able to collect the payment if the change is not made, and the order will not be executed. 2. If the company name is too long for the second and subsequent cooperation, you can tell the customer to write the part of the name that cannot be written in the address bar, and the payment can be collected smoothly.

 

2. Later T/T customers are in arrears with the balance payment, and some customers are too late and fail to pay. First, when signing the contract, clearly indicate the payment time of the balance, for example, within 3-5 working days after seeing the copy of the bill of lading Pay in full and other terms to avoid the situation that the balance cannot be collected late. Of course, to avoid this situation, you need to analyze and study customers, and it is best to avoid risks beforehand.

 

L/C

Letter of Credit (L/C) refers to the bank (issuing bank) in accordance with (applicant's) requirements and instructions or on its own initiative, in accordance with the terms of the letter of credit, with prescribed documents to a third party ( Beneficiary) or its designated party to make a written document for payment. That is, a letter of credit is a written document issued by a bank with a conditional promise of payment.

 

In international trade activities, buyers and sellers may not trust each other. The buyer is worried that the seller will not deliver the goods in accordance with the contract requirements after the advance payment; the seller is also worried that the buyer will not pay after the goods are shipped or the shipping documents are submitted. Therefore, two banks are required to act as guarantors for both buyers and sellers, to collect payments and present documents on their behalf, and to replace commercial credit with bank credit (bank credit is higher than commercial credit). The tool used by the bank in this activity is the letter of credit.

 

It can be seen that the letter of credit is a certificate that banks conditionally guarantee payment and has become a common settlement method in international trade activities. In accordance with the general provisions of this settlement method, the buyer first deposits the payment in the bank, and the bank opens a letter of credit, and informs the seller in other places to open the bank to inform the seller. The seller delivers the goods in accordance with the terms of the contract and the letter of credit, and the bank pays on behalf of the buyer.

 

Three obvious characteristics of letter of credit

 

One is that the letter of credit is a self-sufficient instrument. The letter of credit is not attached to the sale and purchase contract, and the bank emphasizes the verification in written form that the letter of credit is separated from the basic trade when examining the documents;

 

The second is that the letter of credit is a pure documentary transaction (pure documentary transaction). A letter of credit is for payment against a document, not based on the goods. As long as the documents match, the issuing bank should pay unconditionally; (the documents match, the documents match)

 

Third, the issuing bank is responsible for primary liabilities for payment. Letter of credit is a kind of bank credit, it is a kind of guarantee document of the bank, and the issuing bank has the primary payment responsibility for payment.

Classification of Letter of Credit

 

There are many classifications of letters of credit, which can be roughly classified into the following categories:

A According to the requirements of the letter of credit or the requirements of the letter of credit:

(1) According to whether the draft under the letter of credit is accompanied by shipping documents, it is divided into:

 

Documentary credit and clean letter of credit.

 

① Documentary Credit (Documentary Credit) is a letter of credit for payment by documentary draft or only with documents. The document here refers to the document that represents the ownership of the goods (such as ocean bill of lading, etc.), or the document that proves that the goods have been delivered (such as rail waybill, air waybill, postal parcel receipt). UCP600 Documentary Credit Convention

②Clean Credit is a letter of credit for payment against a Clean Draft without shipping documents. The bank pays with a clean letter of credit, or requires the beneficiary to attach some non-shipment documents, such as invoices, advance lists, etc.

In international trade payment settlement, documentary letters of credit are mostly used.

 

(2) Based on the responsibilities of the issuing bank, it can be divided into:

 

① Irrevocable L/C. It means that once a letter of credit is issued, within its validity period, without the consent of the beneficiary and related parties, the issuing bank cannot unilaterally modify or cancel it. As long as the documents provided by the beneficiary meet the requirements of the letter of credit, the issuing bank must perform its payment obligations.

②Revocable L/C. The issuing bank does not need to obtain the consent of the beneficiary or the parties concerned to have the right to cancel the letter of credit at any time, and should indicate the word "cancellable" on the letter of credit. However, "UCP500" stipulates that as long as the beneficiary has been guaranteed by negotiation, acceptance or deferred payment in accordance with the terms of the letter of credit, the letter of credit cannot be revoked or modified. It also stipulates that if the letter of credit does not indicate whether it is revocable, it should be regarded as an irrevocable letter of credit.

The latest "UCP600" stipulates that banks cannot issue revocable letters of credit! (Note: Irrevocable letters of credit are commonly used)

 

(3) Based on whether another bank guarantees the payment, it can be divided into:

 

①Confirmed L/C. Refers to a letter of credit issued by an issuing bank, and another bank guarantees that it will perform payment obligations for documents that meet the terms of the letter of credit. The bank that confirms the letter of credit is called the confirming bank.

②Unconfirmed L/C. The letter of credit issued by the issuing bank has not been confirmed by another bank.

 

(4) According to the different payment time, it can be divided into

 

① sight letter of credit (Sight L/C). Refers to a letter of credit that immediately fulfills the obligation of payment after the issuing bank or the paying bank receives a documentary draft or shipping document that meets the terms of the letter of credit.

② Forward Letter of Credit (Usance L/C). Refers to a letter of credit that is required to perform payment obligations within a specified period when the issuing bank or the paying bank receives the documents of the letter of credit.

③Usance Credit Payable at Sight. The letter of credit stipulates that the beneficiary issues a forward draft, the paying bank is responsible for discounting, and stipulates that all interest and expenses shall be borne by the issuer. For the beneficiary, this kind of letter of credit is actually still a sight collection, and there is a "usance L/C payable at sight" clause in the letter of credit.

 

(5) According to whether the right of the beneficiary to the letter of credit can be transferred, it can be divided into:

 

①Transferable L/C. Refers to the bank that the beneficiary of the letter of credit (the first beneficiary) can request to authorize payment, assume the responsibility for deferred payment, accept or negotiate (collectively referred to as the "transfer bank"), or when the letter of credit is freely negotiated, can request the letter of credit The transfer bank specifically authorized in the transfer of the letter of credit in whole or in part to one or more beneficiaries (second beneficiaries) to use the letter of credit. The issuing bank must clearly indicate "transferable" in the letter of credit, and it can only be transferred once.

② Non-transferable letter of credit. Refers to a letter of credit in which the beneficiary cannot transfer the rights of the letter of credit to others. Where "transferable" is not indicated in the letter of credit, it is a non-transferable letter of credit.

 

(6) Red clause letter of credit. This type of letter of credit allows the issuing bank to prepay part of the payment to the seller in advance after receiving the documents. This kind of letter of credit is often used in manufacturing.

 

B is divided according to the purpose of the letter of credit

 

(1) Revolving L/C

 

It means that after the letter of credit is used in whole or in part, its amount is restored to the original amount and can be used again until the specified number of times or the specified total amount is reached. It is usually used in the case of uniform delivery in batches. Under the condition of a revolving letter of credit, the specific methods for restoring the original amount are as follows:

①Automatic circulation. After a certain amount is used up in each period, it can be automatically restored to the original amount without waiting for the issuing bank's notice.

②Non-automatic circulation. After a certain amount is used up in each period, you must wait for the issuing bank's notice to arrive before the letter of credit can be restored to the original amount.

③Semi-automatic circulation. That is to say, within a few days after a certain amount of money is used up each time, if the issuing bank does not provide a notice to stop the circulation, the original amount will be automatically restored from the x day.

 

(2) Facing Letter of Credit (Reciprocal L/C)

 

Refers to a letter of credit opened by two letter of credit applicants with each other as the beneficiary. The amounts of the two letters of credit are equal or roughly equal, and they can be opened at the same time or one after the other. It is mostly used in barter trade or processing with supplied materials and compensation trade business.

 

(3) Back to Back L/C

 

Also known as re-issuing a letter of credit, it means that the beneficiary requires the advising bank or other bank of the original letter to open a new letter of credit with similar content on the basis of the original letter. Certificate to be issued. The issuance of a back-to-back letter of credit is usually when the middleman resells the goods of others, or when the two countries cannot directly handle the import and export trade, the third party uses this method to communicate the trade. The amount (unit price) of the original letter of credit should be higher than the amount (unit price) of the back-to-back letter of credit, and the shipping date of the back-to-back letter of credit should be earlier than the original letter of credit.

 

(4) Anticipatory credit/Packing credit

 

It means that the issuing bank authorizes the payment bank (advising bank) to prepay all or part of the amount of the letter of credit to the beneficiary. The opposite is true for forward letters of credit. The advance letter of credit is paid against the exporter's clear ticket, and it also requires the beneficiary to attach an instruction sheet responsible for replenishing the required documents of the letter of credit. When the shipping documents are delivered, the paying bank will deduct the interest on the advance payment when the remaining payment is paid. .

 

(5) Standby credit

 

Also known as commercial paper credit (Commercial paper credit), guaranteed letter of credit. Refers to the certificate that the issuing bank undertakes certain obligations to the beneficiary based on the request of the issuing applicant. That is to say, the issuing bank guarantees that when the issuing bank fails to perform its obligations, the beneficiary can obtain reimbursement from the issuing bank as long as the beneficiary presents the provisions of the standby letter of credit and submits the issuer's proof of breach of contract. It is bank credit, and for the beneficiary, it is a way for the beneficiary to obtain compensation when the issuer breaches the contract.

 

Explanation of common terms in letter of credit

Issuer: The person who applies to the bank for the issuance of a letter of credit, also known as the issuer in the letter of credit. Obligations: issue a certificate according to the contract; pay a proportional deposit to the bank; pay the redemption bill in time. Rights: inspection and return orders; inspection and return (all based on the letter of credit)

 

Note: The issuance application has two parts, namely the issuance application to the issuing bank and the declaration and guarantee to the issuing bank (declaring that the ownership of the goods belongs to the bank before the redemption payment is made; the issuing bank and its agent only bear whether the documents are on the surface Qualified responsibility; the issuing bank is not responsible for errors in the delivery of documents; not responsible for "force majeure"; guarantees payment at due date; guarantees payment of various expenses; the issuing bank has the right to add deposits at any time; the right to decide on the goods agency The cost of insurance and increasing the insurance level shall be borne by the applicant for the issuance of the license.

 

Beneficiary: Refers to the person designated on the letter of credit who has the right to use the card, that is, the exporter or the actual supplier. Obligation: After receiving the letter of credit, check with the contract in time. If it is not in conformity, request the issuing bank to modify or refuse to accept or require the issuing bank to instruct the issuing bank to modify the letter of credit; if accepted, deliver the goods and notify the consignee, and prepare All the documents shall be submitted to the negotiating bank for negotiation within the prescribed time; they shall be responsible for the correctness of the documents. In case of discrepancies, the issuing bank shall implement the instructions to modify the documents and still submit the documents within the time limit specified in the credit. Rights: The right to unilaterally cancel the contract and reject the letter of credit after notifying the other party if the amendment is refused or if the amendment is still inconsistent; if the issuing bank fails or unreasonably refuses to pay, you can directly request the issuing applicant to pay; if before receiving the payment If the issuing bank becomes bankrupt, the shipment of goods can be stopped and handled by itself; if the issuing bank fails, the letter of credit has not been used yet, the applicant can be required to open another.

 

Issuing bank: refers to the bank that accepts the issuance of a letter of credit entrusted by the applicant, and it bears the responsibility of guaranteeing payment. Obligations: correct and timely issuance of certificates; assume the first payment responsibility. Rights: charge handling fees and deposits; reject the beneficiary or negotiating bank's inconsistent documents; after payment, if the issuing applicant is unable to pay for the redemption order, the order and goods can be processed; if the goods are insufficient, the balance can be recovered from the issuing applicant.

 

Advising bank: refers to the bank that is entrusted by the issuing bank to transfer the letter of credit to the exporter. It only proves the authenticity of the letter of credit and does not undertake other obligations. It is the bank where the exporter is located. It is necessary to prove the authenticity of the letter of credit; the forwarding bank is only responsible for the transfer.

 

Negotiating bank: refers to the bank that is willing to buy the documentary draft submitted by the beneficiary. According to the payment guarantee of the issuing bank of the letter of credit and the request of the beneficiary, advance or discount the documentary draft delivered by the beneficiary in accordance with the provisions of the letter of credit, and claim against the bank (also known as the purchase bank, The billing bank and the paste are present; generally it is