Free Online Course in International BusinessDocumentary CollectionsWhen selling under a documentary collection, the shipping documents and all other documents related to the transaction are transmitted through banking channels after the goods are shipped. The documents required to clear the shipment are released to a buyer only when a seller’s demand for payment has been honored. Therefore, the seller ships the goods, and the shipping documents and drafts demanding payment are sent through the banks which are acting on behalf of the seller. Then the bank releases the documents to the buyer when the buyer meets the payment terms, which may be documents against acceptance (D/A) or documents against payment (D/P).Advantages • reduced risk for the seller that payment will be received before the goods are cleared • less expensive and less paperwork than a letter of credit • allows buyer increased cash flow Disadvantages • no guarantee that payment will be made • goods could be forfeited at the docks; thus the seller will be responsible for freight, storage and/or destruction costs • more paperwork and bank costs than open account Letter of CreditAfter agreement to the transaction a buyer will apply to a bank for a letter of credit, which is forwarded to a seller through his bank. A seller will ship the goods per the directions of the letter of credit and forward the commercial and shipping documents to the appropriate bank. Once reviewed, the documents will be transferred to the buyer’s bank; and if the documents comply with the letter of credit, the seller will be paid and the buyer will receive the documents in order to clear customs and receive the goods. Therefore, the seller ships the goods and forwards the shipping and commercial documents through the appropriate banks. Payment is sent to the seller, and the buyer receives the documents if the exporter has complied with the directions of the letter of credit.• Advantages • seller is assured payment if shipment complies with the buyer’s requests • buyer will receive exactly what is ordered and on time • Disadvantages • increased paperwork for the buyer and seller • increased banking fees for the buyer and seller • may put a strain on cash flow of buyer since collateral or cash must be available before the letter of credit is issued Cash in Advance A seller requires payment either by credit card, wired funds, or company or bank check to be received from a buyer before manufacturing and/or shipping the goods. Therefore the seller ships the goods when payment is received. The shipping and commercial documents are then sent directly to the buyer. Advantages • seller has money in hand before shipping goods/services Disadvantages • buyer has no assurance that the goods will be shipped according to the agreement or at all • may put a strain on cash flow of buyer Applying your Knowledge of the Advantages and DisadvantagesAn international manager will normally influence or make the company’s decision as to the most appropriate mode of entry for a particular market. The decision will be based on evaluation of the country risk, both political and economic, and the commercial risk of the customer. Each must be weighed against the available methods of payment. Once an acceptable risk level has been reached, the final negotiations can be conducted, contracts signed and transactions begun. The advantages and disadvantages of the entry point normally include application of contract law which many consider as the most importance source of guidance on international law. A contract serves as the private law between the contracting parties related to a specific transaction and is drafted and interpreted in light of various essential elements related to it, including the following:• the law pertinent to the parties based on their respective jurisdictions • the place of execution of the contract and the locale of performance of the contract • the remedies provided for in the event of disputes arising out of the contract • the defined choice of law related to the contract Relevant law under these circumstances may be the law of a specific country, the law of a political subdivision of a country, local or municipal regulations, or other commonly accepted legal standards that derive from the basic sources of international law, that is, custom or commonly accepted practice. This perspective on applicable law may be broken down into the following elements: Law of parties to the contract (domestic / foreign)For example, with a Saudi seller and US buyer, as provided by contract, law of either jurisdiction may serve as the controlling law for resolution of any questions that arise under the contract or during performance of the contract. The choice of law needs to be explicit within the contract between the parties.Law of the place of execution of the contractFor example, with goods originating in Brazil for consumption in the US, with the contract signed simultaneously in New York City (State of New York) and Rio de Janeiro, State of Rio de Janeiro, Brazil, the choice of law needs to be made explicit under this contract.Law of arbitration / enforcement of the contractFor example, the mechanism for arbitration in the event of any dispute arising under the contract needs to be provided for, as does the chosen forum (more specifically, its location). In the event of non performance, provision needs to be made for subsequent efforts to protect the interests of the respective parties.Choice of lawThe applicable code is whatever the parties designate by agreement, but in sufficient detail to avoid additional conflict. Such can include the choice of the law of a specific state in the United States, rather than simply the choice of US law (essentially federal law, which generally addresses national interests and issues pertaining to all the states).
|
About Us | Terms of Use | Contact Us | Partner with Us | Press Release | Sitemap | Disclaimer | Privacy Policy
©1999-2011 OpenLearningWorld . com - All Rights Reserved