Q.Discuss the process involved in securing payment for exports.

After shipment the exporter sends the importer the documents needed to claim the goods (certified invoice, bill of lading, packing list, insurance policy, certificate of origin and letter of credit) through its bank. These are released to the importer only after acceptance of the bill of exchange (negotiation of documents). The exporter can obtain immediate payment from its own bank by signing a letter of indemnity, and finally gets a bank certificate of payment. …

Step 1 — Inform the importer and send the documents

• After dispatching the goods, the exporter informs the importer about the shipment.
• The exporter sends the set of documents the importer needs to claim the goods from the carrier and clear them through customs — a certified invoice, bill of lading, packing list, insurance policy, certificate of origin and letter of credit — through its banker.

Step 2 — Negotiation of documents

• These documents are to be handed to the importer only after acceptance of the bill of exchange.
• Submitting the documents to the bank for realising payment is called the negotiation of the documents.

Step 3 — The bill of exchange

• A bill of exchange is an order asking the importer to pay a certain amount to a person or the bearer. It is of two types:
  • Sight draft (documents against payment) — the documents are handed over to the importer only against payment.
  • Usance draft (documents against acceptance) — the documents are handed over against the importer's acceptance of the bill, promising to pay at the end of a specified period (say three months).

Step 4 — Immediate payment through a letter of indemnity

• The exporter need not wait for the importer's remittance to arrive.
• By signing a letter of indemnity, the exporter can obtain immediate payment from its own bank, undertaking to indemnify (compensate) the bank should the importer fail to pay.

Step 5 — Bank certificate of payment …