INTERNATIONAL TRADE

Course 2 Yudy Yunardy S.E., M.M.

WHO AM I ?

Fifteen years of Banking experience, six years’ experience in Trade Finance Operations background with Unsecured Loan experience, equipped with another seven years’ experience in Management Information Analyst and Dashboard Reporting. Vastly experienced in Bank Indonesia reporting (LBU, SID, LBBU, BMPK etc.)

EMPLOYMENT SUMMARY

2014 Present Indonesia Banking School

2013 2014 Deutschebank AG

2011 2012 Misys Plc

2010 2011 DBS Indonesia

2010 2010 ANZ Bank

2005 2010 RBS Bank

2004 2005 Vendor at Bank Mandiri, BCA and Circle K

1999 2004 HSBC Bank

1998 1999 MetLife Insurance

1997 1998 Demographic Institution FEUI

1996 1997 Private Investment Manager

RULES

1.Disable your comm. device2.Presence 80% minimum3.Time alloc. 08.00 – 10.30

TEXTBOOK

Koch, Timothy (2015), Bank Management, The Dryden Press

GRADING EVALUATION

1. Participation 5%2. Quiz / exercise 10%3. Assignment 15%4. Midterm 35%5. Final 35%

PREVIOUSLY…

LAST WEEK’S ASSIGNMENT

Answer• E-commerce will be booming in 2015, because

of bigger mobile device trends, always connected to internet, the battle to win customer loyalty will force us to engage in B2B as well as B2C

• Social media makes it easy to become a seller in facebook, wordpress, tumblr or site that will focus solely on shopping

• Analytical engine will become more intrusive but also more accurate in predicting our needs and wants

LAST WEEK’S ASSIGNMENT

in billion do llars 2012 2013

A gricultural pro ducts 1,647.65 1,744.83

F uels and mining pro ducts 4,128.61 3,996.98

M anufactures 11,467.50 11,848.00

A gricultural pro ducts (A o A ) a 1,371.37 1,450.26

N o n-agricultural go o ds (N A M A ) 16,585.50 16,850.38

T o tal Wo rld M erchandise Expo rt 18,615.13 19,040.07

B 2C Sales wo rldwide 1,058.00 1,233.00

Percentage to to tal world merchandise export 5.68% 6.48%

Percentage to NAM A world export 6.38% 7.32%

Percentage to fuel and mining world export 25.63% 30.85%

Percentage to clo thing world export 252.38% 267.89%

Value

INTERNATIONAL PAYMENT

INTERNATIONAL PAYMENT

• CHIPS (Clearing House Interbank Payment System)

• SWIFT (Society for Worldwide Interbank Financial Transfer)

• IBAN (International Bank Account Number)

INTERNATIONAL PAYMENT MECHANISM

1. Applicant bank

2. Applicant’s correspondence bank

3. Beneficiary’s correspondence bank

4. Beneficiary bank

INTERNATIONAL TRADE PAYMENT

1. Open Account2. Advance Payment3. Documentary Credit (Letter

of Credit)4. Documentary Collection

INTERNATIONAL TRADE PAYMENT METHODS

OPEN ACCOUNT

OPEN ACCOUNT

Definition

An arrangement between the buyer and seller whereby the goods are manufactured and delivered before payment is made. This is the most advantageous to the buyer in cash flow and cost terms, but it posts the highest risk for the seller

OPEN ACCOUNT

Advantage to buyer

1. The buyer pays for the goods or services only when they are received and/or inspected

2. Unlike advance payment, the buyer’s working capital is not tied up

3. Payment is subject to political, legal or economic situations in the buyer’s country

OPEN ACCOUNT

Advantage to seller

1. It enhances the seller’s competitiveness in the global market

2. It helps to establish and maintain long-term trade relationship with the buyer

OPEN ACCOUNT

Key considerations

1. It is recommended to use to secure trading relationships in competitive markets

2. Seller must be confident that the buyer will accept shipment and pay on the agreed time

OPEN ACCOUNT

Key considerations

3. Seller need to assess the political, legal or economic conditions in the buyer’s country to avoid delay in payment

4. Seller may mitigate risk of non-payment by using various trade financing options such as accounts receivable financing, export credit insurance, factoring and forfaiting

ADVANCE PAYMENT

ADVANCE PAYMENT

Definition

An Advance Payment is the whole or part of a contractually due sum that is paid by the buyer in advance prior to shipment of goods or provision of services

OPEN ACCOUNT

Advantage to buyer

The buyer may be able to negotiate for a discount in prices in lieu of advance payment

OPEN ACCOUNT

Advantage to seller

1. The seller can have immediate use of funds

2. The risk of non-payment is eliminated

OPEN ACCOUNT

Commonly used, if…

1. The buyer’s creditworthiness is doubtful

2. There is unstable political or economic environment in the buyer’s country

3. There is a potential delay in receiving funds from the buyer due to events beyond the buyer’s control

DOCUMENTARY COLLECTION

DOCUMENTARY COLLECTION

Definition

An arrangement whereby goods are shipped and the relevant bill of exchange (draft) is drawn by the seller on the buyer, and/or documents are sent to the seller’s bank with clear instructions for collection of payment through a bank located in the domicile of the buyer

DOCUMENTARY COLLECTION

Advantage to buyer

1. Payment may be deferred until the arrival of goods or even later if delayed payment arrangements have been made between the buyer and seller

2. Documentary collection is relatively cheaper than documentary credit

3. The buyer may have the opportunity to inspect the documents prior to making payment

DOCUMENTARY COLLECTION

Advantage to seller

1. Documentary collection is generally uncomplicated and inexpensive compared to a documentary credit

2. The seller may arrange the title documents to be released to the buyer only upon his payment or acceptance of draft

DOCUMENTARY COLLECTION

Advantage to seller

3. In the event of non-payment or non-acceptance, the appointed Collecting Bank, if properly authorized, may arrange for releasing or warehousing of goods, insurance or even reshipment to the seller

4. It facilitates pre or post shipment financing related to the documentary collection

DOCUMENTARY COLLECTION

Key Considerations

1. Documentary collection is a good trade-off if the seller is not prepared to transact on open account basis and does not want to go through the hassle of settling a transaction using documentary credit

2. Unlike documentary credit, banks do not guarantee payment under a documentary collection

DOCUMENTARY COLLECTION

Key Considerations

3. Documentary collection is suitable for the seller if:

a) the buyer’s creditworthiness is not in doubt;

b) the political and economic situation in the buyer’s country is stable; and

c) there is no foreign exchange control policy in the buyer’s country

DOCUMENTARY COLLECTION

Key Considerations

4. By releasing a copy of the original bill of lading to the buyer made out to or endorsed the latter’s order, the seller will lose control over the titles of the goods

DOCUMENTARY CREDIT

DOCUMENTARY CREDIT

Definition

Documentary Credit (or Letter of Credit) is an undertaking issued by a bank for the account of the buyer or for its own account, to pay the seller provided that all the terms and conditions of the credit are complied with

DOCUMENTARY CREDIT

Advantage to buyer

1. The buyer’s creditworthiness is enhanced with a bank willing to issue a documentary credit for his account

2. Payment is only made by the bank upon the seller’s fulfilment of the terms and conditions of the credit.

3. It helps to facilitate downstream import financing services

DOCUMENTARY CREDIT

Advantage to seller

1. The Bank acts as a trusted third party to guarantee payment if the seller can fulfil the terms and conditions of the credit.

2. Title of the goods is retained by the seller or bank until payment or acceptance of documents by the buyer

DOCUMENTARY CREDIT

Advantage to seller

3. Documentary credit operations are guided by recognized international rules and practices

4. It facilitates pre or post shipment financing related to the documentary credit

DOCUMENTARY CREDIT

Key Considerations

1. When the seller is preparing quotations for prospective buyer, he has to be mindful that banks pay only the amount specified in the documentary credit, even if additional costs such as shipping or insurance charges are incurred and documented

DOCUMENTARY CREDIT

Key Considerations

2. Payment under a documentary credit is based on documents rather that the terms of sale or the physical conditions of the goods

3. When the seller receives a documentary credit in his favor, he should examine its terms and conditions against the pre-agreed contractual terms

DOCUMENTARY CREDIT

Key Considerations

4. Seller must be confident that he can fulfil the terms and conditions of the documentary credits in order to secure payment. If in doubt, the seller should approach the buyer to amend the terms and conditions in the documentary credit

DOCUMENTARY CREDIT

Key Considerations

5. The terms and conditions of a documentary credit must not be ambiguous so as to avoid future disputes

ASSIGNMENT

PT Bogasari imported 100 tons of wheat from their supplier in Australia using letter of credit issued in ANZ bank in Indonesia, due to continuous rain for days in Indonesia, the wheat absorb the water from humidity and makes them rotten and unusable after being stored in destination warehouse for two days. Normally the wheat is fine stored in the same condition for 1-2 weeks.

ASSIGNMENT

Bogasari already paid their supplier through TT when latter find the goods is rotten. Bogasarisued ANZ bank as issuer of the LC, because as trust agent the banks should check and make sure the goods is in proper condition because it will affect bank’s reputation. Bogasari demand their money to be returned immediately. ANZ bank rejected the request.

Who is the right party according to UCP600?

THANK YOU