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IMD Presentation Export Payments D/A, D/P & FIBC

Submitted By Pranav Malhotra C - 39

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Export Payments
These days India is exporting in a large scale and growing with a good successful percentage as well.
But till date there are many exporters who are unknown from all kinds of export payment terms. Most of them are unknown which mode of payment is secure and why.

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Mode of Payments in Exports

Most sellers are very familiar with Open Account (O/A) and Letter of Credit (L/C) transactions. In the international arena, open account sales are regarded as having the most risk; letter of credit transactions as having the least. Between these two poles, however, are two lesser-known transaction types : Documents Against Payment (D/P) and Documents Against Acceptance (D/A). These represent risk levels lower than an O/A, but greater than an L/C. Both rely on an instrument widely used in international trade called a bill of exchange or draft.

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Bill of Exchange / Draft

A bill of exchange, or draft, is a negotiable instrument that is both drawn upby and made payable to the exporter/seller. Although written by the seller, it has the equivalent effect of a check written by the buyer. It is generally a three-party instrument consisting of a: 1. Drawer the party issuing the bill of exchange; usually the exporter/seller. 2. Drawee the recipient of the bill of exchange for payment or acceptance; usually the buyer. 3. Payee the party to whom the bill is payable; usually the sellers bank.

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Characteristics
Applicability - Recommended for use in established trade
relationships and in stable export markets.

Risk - Exporter is exposed to more risk as these terms are

more convenient and cheaper than others to the importer.

Pros - Bank assistance in obtaining payment , the process is

simple, fast, and less costly than LCs.

Cons - Banks role is limited and they do not guarantee

payment , banks do not verify the accuracy of the documents.

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D/P -- Documents Against Payment

Under a D/P collection, the exporter ships the goods, and then gives the documents to his bank, which will forward them to the importers collecting bank, along with instructions on how to collect the money from the importer. In this arrangement, the collecting bank releases the documents to the importer only on payment for the goods. Upon receipt of payment, the collecting bank transmits the funds to the remitting bank for payment to the exporter. 1. Time of Payment: After shipment, but before documents are released 2. Transfer of Goods: After payment is made on sight 3. Exporter Risk: If draft is unpaid, goods may need to be disposed

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Documents Against Acceptance (D/A)

Under a D/A collection, the exporter extends credit to the importer by using a time draft. In this case, the documents are released to the importer to receive the goods upon acceptance of the time draft. By accepting the draft, the importer becomes legally obligated to pay at a future date. At maturity, the collecting bank contacts the importer for payment. Upon receipt of payment, the collecting bank transmits the funds to the remitting bank for payment to the export. 1. Time of Payment: On maturity of draft at a specified future date. 2. Transfer of Goods: : Before payment, but upon acceptance of draft. 3. Exporter Risk: Has no control of goods and may not get paid at due date.

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When to Use
The exporter and importer have a well-established relationship.
The exporter is confident that the importing country is stable politically and economically. An open account sale is considered too risky, but an LC is also too expensive for the importer.

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Real-Life Case Study

The Parties
Exporter: China Fireworks Co., China Importer: U.S. Fireworks Co., USA Clearing/Importer's Bank: First Commercial Bank, New York USA Terms of Sale: D/P (Documents Against Payment)

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Flexible Intermediate Bulk Container (FIBC)

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FIBC is a standardized container in large dimensions for

storing and transporting dry, flow able products, for example sand, fertilisers etc. FIBCs are most often made of thick woven polyethylene or polypropylene, either coated or uncoated, and normally measure around 110 cm or 45-48 inches in diameter and varies in height from 100 cm up to 200 cm or 35 to 80 inches. Its capacity is normally around 1000 kg or 2000 lbs, but the larger units can store even more. The average bulk bag made to ship one metric ton can weigh between 5-7 lbs.

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Transporting and loading is done on either pallets or by lifting it from the loops. Bags are made with either one, two or four lifting loops. The single loop bag is suitable for one man operation as there is no need for a second man to put the loops on the loader hook. Emptying is made easy by a special opening in the bottom such as a discharge spout, of which there are several options, or by simply cutting it open.

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Classification of FIBCs
Construction U-Panel construction Circular/Tubular construction Round construction
Lifting options Four loops Two loops Sling loops

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Electrostatic properties Type - A - no special electrostatic safety features Type - B - Made from plain (non-antistatic) polypropylene. Type B bags are not capable of generating propagating brush discharges. The wall of this FIBC exhibits a breakdown voltage of 4 kilovolts or less. Type - C - Conductive FIBC. Constructed from electrically conductive fabric, designed to control electrostatic charges by grounding. A standard fabric used contains conductive threads or tape. Type - D - Anti-static FIBCs, essentially refers to those bags which have anti-static or static dissipative properties without the requirement of grounding.

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Industries Served
Chemicals Fertilizers Fiberglass Food Products Grains Mining (Used to hold concrete) Rubber Additives Seed Peanuts

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Flood Barrier Use

Thailand utilized big bags to erect temporary walls to protect areas during the 2011 Thailand floods. Walls built using big bags instead of smaller traditionally used sand bags were termed the big bag wall, or big bag barrier.

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