Export Order:

Export order is a document communicating decision of the foreign buyer to purchase

certain items from the exporter.

Export Agreement:

The exchange of order by the exporter and its expectance by the buyer represents
conclusion of an agreement between the exporter and importer. It is defined as exchange of
promises by the practices to the agreement i.e. every promises consideration for each other.

Export Contract:

Defined as an agreement enforceable by law. An agreement would be treated as a

contract; it is made by the free concert of the parties competent to contract, for a lawful
consideration and with a lawful object and or not expressly declared to be void.

Basic elements of the Export Contract:

• Contract period.

• Payment, terms and modes.

• Specification and the quantity.

• Delivery date.

• Dispute solving procedure.

• Packaging and labeling conditions.

• Rates based on INCO terms.

Terms of Payment in International Trade:

1) Advance Payment:

• When the buyer’s credit is doubtful.

 • The political or economic environment in the buyers country is unstable.

• This method is advantageous to the seller/ exporter and disadvantages to

buyer/importer because he is blocking his capital prior to receipt of goods.

• Exporters is allowed to receive any amount towards part/hundred % advance

payment for future exports in forms of cheque, DD, telegraphic transfer foreign
currency notes, travelers cheques from buyer while on visit to India through credit
cards, etc.

2) Open Account:

• It is an arrangement between the buyer and the seller. Goods will be delivered to
the buyer directly or to his order and the buyer will pay at the end of the agreed
period. This type of payment trading requires high degree of trust between seller
and buyer.

3) Bills of collection basis:

• It is an arrangement by which the seller after shipping the goods submits the
document to his bank as agent for collection.

• Documents are presented to the buyer through the corresponding bank to seller’s
bank, which will be released upon the buyer payment of amount specified.

Documents against payment basis (D/P) also known as cash against

document (CAD).

• Exporter ship goods for foreign buyer.

• But the documents giving the title to the goods to be handed over to the buyer
through the bank only on payment.

• Until & unless the buyer makes the payment ownership of goods remains with the
seller.

Documents on acceptance (D/A) under the D/A method.

 • The documents and title to the goods are handed over to the buyer when he
accepts the bill of exchange by signing it.

• The usage of bill of exchange may be 30, 60, 90 and 180 days etc., subject to
limitations exchange control regulations.

• The exporter thus extends credit to such period.

• Under D/A exporter relies on honesty and credit worthiness of the buyer and
therefore, thus facility is normally extended only to parties who have proven
business integrity and financial standings.

• Banks may extend finance to exporter by purchasing the D/A bills with resource.

4) Documentary Credit: ( letter of credit)

• Documentary credits, also called letter of credit, are one of the principle
instruments for financing trade worldwide, the rules for which were first
developed by ICC (International chamber of commerce) more then 60 years ago.

• The documentary credit is the written promise of a bank.

• Undertaken on behalf of a buyer.

• To pay a seller the amount specified in the credit.

• Provided the seller complies with the terms and conditions set forth in the credit.

• It is one of the most convenient methods of settling payment in international

trade.

• It provides complete financial security to the seller of goods.

• Buyer also gets the advantage of his bankers assistance in closely scrutinizing the
documents and only after receiving the relevant documentary evidence from the
seller by the banker nominated in the credit releases the payment.

Parties to the letter of credit:

The four parties are:

1) The buyer (Applicant buyer)

2) The issuing bank ( buyers bank)

3) The advising bank

4) The seller (exporter/importer)

Buyer: The buyer initiates the documentary credit process by applying

Types of letters of credit:

1) Revocable: A revocable letter of credit is one which can be amended (or) cancelled by
the applicant/ the issuing bank, at any time without prior notice, discussion or agreement
with the bebeficians. A revocable letter of credit offers no protection to the beneficiary.
However the letter of credit cannot be cancelled after the shipment is made.

2) Irrevocable: It cannot be amended or revoked without the agreement of all the parties to
the letter of credit. So it provides the assurance that providing the beneficiary complies
with the terms, he/she will be paid for the goods (or) services. A letter of credit is deemed
irrevocable unless other was started.

3) Confirmed: A confirmed irrevocable letter of credit is one, to which another bank has
added its confirmation or guarantee and takeover the obligation/ liabilities of the issuing
in honoring the payment under the letter of credit. Thus there is double guarantee in such
credit and it is more favorable to beneficiary.

4) Unconfirmed: Unconfirmed is irrevocable letter of credit will have only guarantee of the
issuer. Incase of any political instability failure of the issuing bank, bankruptcy etc., may
come on the way of meeting the commitment and beneficiary may not get the payment
under such L/C.

5) Transferable credit: the transferrable letter of credit is one which can be transferred by
the original beneficiary in favor of a secondary beneficiary. Such credit can be transferred
only if it is specifically stated as “transferable” in the credit.
6) Deferred payment of credit: Where full of part payment after a specified future period
as per the agreed terms is known as deferred payment credit. This type of credit is
generally used in that trade where a position of the value of the goods is paid on.
Presentation of document and the balance amount will be paid over the years on
quarterly, half yearly (or) yearly basis along with agreed rate of interest for such extended
period of payment.

7) Revolving letter of credit: revolving letter of credit was a tool created to allow
companies conducting regular business to issue a letter of credit that could “roll-over”
without the company having to reapply, thus enabling business flow to continue without
interrupting as long as the terms and conditions, qualities and other transactions details
did not change.