text:
Payment Documentation Requirements/Required Documents and How and When to Apply Documents

Bill of Lading
A bill of lading (B/L) is a document issued by a transportation carrier (such as a motor, rail, or air carrier) to a shipper acknowledging that the carrier has received the goods for shipment. The bill of lading
 * acknowledges that the goods have been placed on board a particular vessel (or truck or other conveyance) for delivery to a specific destination.
 * states the terms in which the goods are to be carried.
 * serves as the contract between the shipper and the carrier.
 * stipulates where, when, and by whom goods are to be delivered.
 * stipulates where, when and by whom freight charges are to be paid.
 * may be a negotiable document, which means it is the tool by which ownership of the goods are transferred.

Generally speaking, the bill of lading serves both as a receipt of the goods and an agreement to transport the goods to a specific destination and consignee in return for payment of transportation charges.

Note: For air freight shipments this same document is called an Airway Bill.

Certificate of Origin
A certificate of origin is required by many countries; it certifies the country in which the imported goods were mined, manufactured, or assembled. The certificate of origin is used to reduce duty and taxes when there is a trade agreement in place between the importing and exporting countries. Information about whether a certificate of origin is needed and what is required can be obtained from the consulate of the importing country or in a current export reference guide. Certificates of origin are normally issued by an exporter or a party acting on their behalf and must be signed and sealed by a local chamber of commerce.

Commercial Invoice
The commercial invoice is the bill of sale and an exporter’s request for payment from a buyer. It is also important to any third party who needs to determine the value of a shipment, such as a bank that is asked to discount a draft, customs officials who must determine applicable duties and taxes, or an insurance company that has been requested to insure the goods while in transit. The commercial invoice is one of the major documents needed by an international manager and applies in every situation. This document is crucial to the accounting department for collections purposes. When issued, it normally triggers the reduction of inventory in an exporter’s tracking/computer system.

Consular Invoice
A consular invoice is a commercial invoice that has been reviewed by the consulate of the buyer's country for the purpose of determining the value and quantity of the shipment and to ensure that no indigenous laws or regulations governing imports are being broken. This process must be completed before the goods are exported.

Consular invoices may be required by various countries to facilitate customs at the destination as well as to facilitate the collection of taxes. Consular invoices include the owner’s declaration of the value of the shipment and a full description of the goods exported as well as all discounts or rebates being offered. These invoices are certified by the consul of the destination country. They generally include a sworn statement not only to the accuracy of the declarations made but also that there are no other invoices for the same shipment.

The consul may provide the required forms. Once the form is completed, the consul will affix a stamp or certification. There is sometimes a small fee charged by the consul for this service. Each space must be filled in accurately with nothing omitted. Some countries impose fines for the most trivial omissions or errors. For example, some countries penalize the buyer or seller for the use of ditto marks or for going outside of the assigned box in responding to a specific question.

Import License
If required, an import license is usually required by an importer from the country of destination. The process, time and costs associated with obtaining an import license will vary depending on the country as well as the commodity being shipped. It is essential that the import license be obtained before the goods are manufactured and/or shipped. If the goods arrive without this document, they will not be allowed entry into the country and will either be confiscated, destroyed or returned at the expense of the seller.

Packing/Weight List
This document is issued by the seller/exporter to verify quantity, box count and/or weights and measures of the commodity being shipped. The packing list is used by the freight forwarder to issue the bill of lading, by import and export customs to verify quantity and to apply applicable duties, and by the bank and buyer to verify counts and any other pertinent information.

Proforma Invoice
Although last in this list, since it is alphabetical, this document is the first one issued by the exporter. A proforma invoice is used as an order confirmation/quote as well as for an application for a letter of credit. Unlike in US domestic transactions, a purchase order is a binding document that confirms an order and requires a buyer to pay if the specifications are followed. If a buyer does not pay, legal recourse is available to the seller. In international transactions, the purchase order as described above does not exist. The proforma invoice is a non-binding document; however, it allows a buyer and seller to confirm their responsibilities in the transaction in writing with signatures. This document is extremely helpful in avoiding transaction discrepancies and wasted expenses.

Prev | Next


text:
Payment Documentation Requirements/Summary

Summary
An international manager should now be able to describe the major documents utilized in international trade as well as to identify how these documents are used and by whom. For a complete list of documents, issuer, user and uses for each, review the attached International Documentation Listing provided. It is important to note that the major documents and the minimum documents required for every export and import transaction to and from the US are
 * commercial invoice
 * packing list
 * bill of lading

Prev | Next

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text:
Payment Documentation Requirements/Resources

Resources
International Business: Environments and Operations, J. Daniel, L Radebaugh, 7th ed. Addison-Wesley Publishers. Exporting: From Start to Finance, 3rd Edition, L. Wells and K Dulat, McGraw Hill. The Global Entrepreneur, James Foley, 2nd Edition, Jamric Press, 2004. The Basic Guide to Exporting, US Department of Commerce.

World Trade Press Publications – www.worldtradepress.com US Department of Commerce – www.export.gov
 * Dictionary of International Trade
 * International Finance

Attachments
International Documents Listing

Prev | Next


text:
Payment Documentation Requirements/Activities

Activity
Activity 1 Using the International Documentation Listing provided, identify the documents that are issued by an
 * importer.
 * exporter.

Identify what each of the documents is used for.

Activity 2 Using the International Documentation Listing provided, identify the documents that are used by
 * importing customs.
 * banks.

Identify what each of the documents is used for.

Prev | Next


text:
Payment Documentation Requirements/Assessment

Assessment
{The bill of lading's general purpose is to -prove the goods were received in good condition. +prove ownership of the goods & facilitate transportation. -prove the shipper is paying for the freight. -prove the buyer is paying for the freight.
 * type=""}

{The documents required for every US import and export are -commercial invoice, certificate of origin, import license. -commercial invoice, certificate of origin, packing list. +commercial invoice, packing list, bill of lading. -commercial invoice, packing list, import license.
 * type=""}

{The commercial invoice +is the bill of sale and required for all shipments. -specifies title to the product/service. -is a negotiable instrument. -is not as important in international transactions as it is domestically.
 * type=""}

{It is important for the international manager to know who _______________________ international documents. -issues +issues and uses -uses -uses and requests
 * type=""}

Prev


text:
Financial and Legal Costs/Bank Charges

Loan Fees
Banks will charge customers fees and interest based on creditworthiness and length of time of the loan. There is no set formula since banks will often require assets as collateral to cover the amount of the loan. With some customers, they require “compensating balances,” meaning that the company needs to keep a minimum balance; therefore, an indirect cost to the customer exists since the funds cannot be used.

Banker’s Acceptances Fees
A banker’s acceptance is a negotiable instrument which may be used to obtain immediate funds by discount selling to the drawee bank or an investor. The instrument's marketability is limited only by the reputation of the accepting bank and market demand. The net proceeds of the sale are obtained by deducting the following two items from the face amount of the acceptance: (1) the discount rate (Interest Rate x Days to Maturity x Face Amount) and (2) the bank's acceptance commission. The combination of these is referred to as the "all-in" rate.

For example: Discount Rate (rate earned by investor) -- 5.13 % p.a. Bank Commission -- 1.50 % p.a. All-in Rate -- 6.63 % p.a.

Letters of Credit Fees
Depending on what has been negotiated, bank charges may be placed against (for the account of) a buyer/applicant or may be shared between a buyer/applicant and a seller/beneficiary. Rarely will all charges be for the account of a seller/beneficiary. If the charges are to be shared, the customary procedure is that each party will pay the applicable fees for his respective country and/or bank.

On average the charges could be 1% of the face amount of the letter of credit. These rates are negotiable and may be reduced if a significant amount of letter of credit business is done with a particular bank. In addition to the normal and customary fees, additional fees could be charged for
 * issuance
 * pre-advice
 * advice
 * amendments
 * extension
 * confirmation
 * documentary examination
 * payment
 * negotiation
 * acceptance
 * reimbursement
 * collection without examination
 * transfer
 * assignment of proceeds
 * SWIFT
 * handling
 * courier
 * discrepancy
 * cancellation
 * discounting

The important step is to identify these costs before the methods of payment are finalized since both parties may feel the costs outweigh the risks and will then choose a less costly method of payment.

Documentary Collection Fees
To avoid the higher costs associated with letters of credit, many international businesses are utilizing the documentary collection services of banks. Similar to a letter of credit only in that documents/drafts are passed through the banking system and cannot normally be retrieved by the buyer without payment, there is no bank guarantee or elimination of risk. Because the banks are not absorbing any form of risk, the fees for this type of transaction are much lower than a letter of credit and make this method of payment worthy for consideration when transaction values are below US$10,000 or when the transaction is between parties that have begun to develop a relationship. Fees include
 * cost of transmitting funds
 * cost of issuing banker’s draft
 * cost of receipt of transfers
 * cost of issuing banker’s draft
 * cost of clearing foreign checks
 * cost of clearing checks in foreign currency

Electronic Funds Transfers Fees
Electronic funds transfers (also commonly known as wire transfers) are a quick and effective method of transferring larger sums of money between buyers and sellers, particularly when the buyer and seller are located in different countries. Banks rates vary, usually as a percentage of the transaction, and can be 1% to 3% of the transaction or a flat fee agreed upon with the customer.

Foreign Exchange Fees
Since this discussion is focused on international transactions, it is unlikely that every party involved in the transaction will avoid an exchange of currency. Such will happen only if foreign currency accounts are held by the buyer and seller or the companies are related. In a situation where the companies are not related and are located in countries that have different currencies and the banks do not offer foreign currency accounts, a currency exchange will take place. As expected, banks charge fees for the exchange service as well as for the opportunity of reducing foreign currency fluctuation-related losses by offering forward and option currency contracts.

The fees for these services will depend on the volume of currency being exchanged as well as the currencies involved in the transactions.

Prev | Next

title: Financial and Legal Costs/Bank Charges


text:
Financial and Legal Costs/Insurance Premiums

Insurance Premiums
In general terms, insurance is a transfer of risk from one party to another (an insured to a carrier) for a consideration referred to as a premium. A credit insurance policy specifically insures the extension of credit from one company to another by guaranteeing, according to the terms and conditions of the policy, that a seller will be paid either by a buyer or an insurance company.

Coverage
Policies can be tailored to meet specific needs. A general coverage policy can cover shipments to buyers through various combinations of coverage:
 * blanket limits on all customers
 * coverage on specific customers for specific amounts
 * protection for larger accounts only where these customers represent a significant concentration of risk
 * for businesses with large numbers of small balance accounts

Preset limits are structured around the credit rating of the Governing Mercantile Agency named in the policy (usually the credit rating agency used in the credit department or industry). This method demonstrates the flexibility of contemporary insurance policies by associating a table of ratings from the "governing agency" with predetermined limits of exposure. These agencies are either non-industry specific such as Dun & Bradstreet or industry specific such as Lyon's Furniture, Lumberman's Credit Association or Jewelers Board of Trade.

Costs of Insurance
Insurance costs depend on many factors: policy structure, creditworthiness of the risks involved, and the amount of retention of risk assumed by the insured. Typically a policy of domestic credit insurance would range between 1/10% of sales to 4/10% of sales. Additional considerations include the degree of risk (or quality of the customers and countries); historical loss experience in the organization; current credit extension and collection operating procedures; level of experience or expertise (as evaluated by the insurer); and the concentration or distribution of risk throughout the customer base. However, as with any insurance product, the quality of what is being insured will have a bearing on the cost of the insurance. Thus the insurance supplier should be viewed as a partner in the credit management objective. Consequently, the better job the company is doing, the more economical the insurance is in protecting the company against a catastrophic loss.

Prev | Next


text:
Financial and Legal Costs/Export Credit Insurance

Export Credit Insurance
Export credit insurance is a specialized line of insurance. These policies cover sales from the United States to countries world-wide. Like domestic policies, they cover against the financial inability to repay for goods sold or services rendered. Premiums for export coverage generally run higher and could range from 2.5/10% to 1% of covered sales. Many companies are finding that requiring letters of credit and other cash documents places an artificial obstacle between a buyer and seller, restricting growth. These companies often use credit insurance to offer open terms and be more competitive in the global market place.

Prev | Next


text:
Financial and Legal Costs/Legal Fees

Legal Fees
Legal fees are usually established on an hourly-basis with an attorney or as a percentage of the transaction. Attorneys may charge $200 to $800 per hour or more, depending on the circumstances of the transaction, the county laws involved, and the complexity of the case.

Areas where a risk manager might need support of either in-house or specialized legal advice include the following:
 * preparation of documents
 * collection of bad debts
 * mergers and due diligence
 * bankruptcy/litigation
 * contract preparation
 * loan analysis
 * negotiating and preparing of promissory notes that replace late accounts receivable

Prev | Next

title: Financial and Legal Costs/Legal Fees


text:
Financial and Legal Costs/Summary

Summary
An international manager needs to know all costs of the operation including the legal and banking charges. As a manager, it is essential to understand that dealing with risk assessment involves the costs of banking and legal charges, which can significantly impact the profitability of an operation.

Prev | Next

title: Financial and Legal Costs/Summary


text:
Financial and Legal Costs/Resources

Resources
FCIB on-line course, International Credit and Risk Management, FIB/NACM Corp, Columbia, MD. FCIB Online Resource Library - www.fcibglobal.com Credit Encyclopedia website - www.encyclopediaofcredit.com The Global Entrepreneur, James Foley, 2nd Edition, Jamric Press, 2004. Exporting from Start to Finance, Third Edition, L. Wells and K. Dulat.

Prev | Next

title: Financial and Legal Costs/Resources


text:
Financial and Legal Costs/Activities

Activity
Based on the available methods of payment for international transactions, identify the costs associated with each. Using the following scenarios, identify which methods of payment make sense to use and which do not make sense from cost perspective only:

Scenario A
Order Value - 2,000,000 Profit Margin – 40% Currency - USDollars Your role – Exporter

Scenario B
Order Value – 15,000 Profit Margin – 60% Currency – Euro Your role - Exporter

Scenario C
Order Value – 250,000 Profit Margin – 30% Currency – Japanese Yen Your role – Importer

Scenario D
Order Value – 75,000 Profit Margin – 50% Currency – US Dollars Your role - Importer

Prev | Next

title: Financial and Legal Costs/Activities


text:
Financial and Legal Costs/Assessment

Assessment
{Letter of credit fees are +negotiable, but extensive. -not negotiable and extensive. -too high to pay no matter what the risk. -very reasonable and easy to absorb.
 * type=""}

{The cost for a documentary collection is less expensive than a letter of credit because the bank -does not transfer the funds. -does not transfer the documents. -does not exchange the currency. +does not assume any risk.
 * type=""}

{Export credit insurance rates are based on -the country of origin and company bankruptcy rates. +the country of destination, company risk and value of credit. -the laws of the countries involved in the transaction. -the contract written and signed by the buyer and seller.
 * type=""}

{Letter of credit fees are generally -paid for by the applicant. -paid for by customs. +shared by the applicant & beneficiary. -paid by the freight forwarder.
 * type=""}

Prev

title: Financial and Legal Costs/Assessment


text:
Electronic Communications/Communication and Technology

Communication and Technology
As technology continues to play an ever larger role in every business transaction, an international manager must learn its applications and uses in international business in order to maintain a competitive edge. One of the first uses of technology for business has been communication first by telex, then fax, and now the internet. These developments have allowed companies to communicate details of sales agreements, including methods of payment and shipping dates as well as transmission of banking and shipping documents. These capabilities have led to the development of guidelines by which communication and transmission are acceptable and verifiable.

Prev | Next


text:
Electronic Communications/Communicating Methods of Payment and Fund Remittance

Communicating Methods of Payment and Fund Remittance
Communication between a seller and buyer need to be clear, so that there is no mistake in expectations especially when payment is being discussed. To expedite this process and to verify understanding, communication is conducted either via fax or more commonly via email. In a situation where hard copies of documents with original signatures are required, the documents are usually sent by courier or overnight delivery such as FedEx rather than through the postal service. In addition, an international manager should use technology to collect credit information about new customers. The accounting department must be properly advised of decisions relating to customers such as payment terms, payment due dates, and international expectations. An international manager may also require accounts receivable and collection support from the accounting department.

Proper communication between parties – the banks, seller and buyer – is critical to insure that there are no break-downs in the documentary process. The agreements that must be reached process include the following:
 * payment terms
 * the method by which funds will be remitted
 * the role of the banks for the transaction
 * the role of the freight forwarder for the transaction
 * the method by which documents will be transmitted

The decisions of payment terms and method of funds remittance will often dictate the role of the bank and freight forwarder. For example, if a letter of credit is chosen as the method of payment, banks will be involved from the beginning. Using a standard letter of credit or an electronic letter of credit is now an option and must be agreed upon.

Realizing the opportunities available by using the internet, banks have developed highly sophisticated websites, programs and databases that allow buyers and sellers to
 * apply for and track letters of credit
 * request amendments to letters of credit
 * submit documentation
 * request and track fund transfers
 * track foreign currency fluctuations
 * request and track foreign currency transfers
 * purchase and manage foreign currency contracts

A freight forwarder has a role in the communication process as well. A freight forwarder is hired to move freight for a shipper by arranging cargo space on a carrier as well as handling the logistics for delivering the goods to the carrier. A freight forwarder is responsible for preparing shipping documents and may also assist in preparing commercial documents on behalf of a seller. If documents are being prepared in conjunction with a letter of credit, it is crucial that the documents be prepared without discrepancy and transmitted per the requirements of the letter of credit. The communication process must be followed exactly.

Prev | Next


text:
Lunar Boom Town/LOX Domestic and Exports/Lunar LOX Facility Design Study

Needed:
 * Production volumes
 * Installation schedule
 * Location, deliverables requirements, and volume of specific customers.

Design Study Approach

 * Review existing technical literature and applicable terrestrial facilities and technologies
 * Detail assumptions/projections of representative customer base
 * Line out major facility requirements and components sufficient for business planning

Deliverables:

 * Project Customer and Facility site maps.
 * Major subsystem and equipment list
 * Logistics plan, quantities, transport methods, etc.
 * Operations plans, who works where when responsibilities etc.
 * Projected operations costs and production capacities

Existing Components and Subsystems
ISS Radiators manufactured by Lockheed. Perhaps expansion capacity can be manufactured locally after local aluminum is available.

Oxygen Compressor for filling air bottles with breathable oxygen. "Oil free piston operation"

NASA PLSS (Primary Life Support System) crude performance specsPrimary_Life_Support_System

Design Challenges
What level of impurities from lunar extraction methods render LLOX unsuitable for unprocessed expansion into breathing mixtures of O2/N2?

What are economical ways of removing the impurities? Is it our problem? Perhaps we merely sell LLOX to the air venders as extracted and allow them to figure out how to economically purify it if required?

What level of impurities render llox unsuitable for what rocket engines? Are we selling rocket oxydizers or is this someone else's problem .... keep in mind this lion's share of the potential market.
 * In past U.S. rockets liquid oxygen used as the oxydizer has typically been of 99.5 percent purity

 * NASA uses United States Military Specification MIL-P-25508 (apparently the military now uses MIL-PRF-25508G as of 2006) to specify lox characteristics, note that three different grades (A,B, and F) are referenced.

Notes and links
"Solar furnace pyrolysis of lunar basalts in vacuum, as proposed by Elbert A. King and me (1983), is considered another highly promising process for nonterrestrial oxygen production. It does not require reagents imported from Earth. King (1982) demonstrated the process on Earth using terrestrial basalts and samples of the Murchison meteorite heated to approximately 3000°C in a furnace with a solar mirror 2 meters in diameter. Residues of metallic iron and oxides of aluminum, calcium, and titanium indicated the evolution of oxygen and volatile oxides of other elements. A bench-level research program is required to characterize, quantity, separate, and capture the oxygen and other volatiles liberated by the process. Residues of the process include metals (iron), semimetals (silicon), ceramics (AI-Ca- Ti oxides), and feedstocks rich in aluminum oxide for aluminum electrolysis." from http://www.nss.org/settlement/nasa/spaceresvol3/pt2benm.htm Mirwin 21:35, 25 September 2007 (UTC)

 * A status summary of vacuum pyrolysis.

 * Nasa article on vacuum pyrolysis of lunar regolith.

Oxygen Extraction Approach Two -- Hydrogen Reduction of Ilmenite
"In a review of proposed lunar oxygen production processes, including carbothermal reduction and electrolysis of basalts, Christian W. Knudsen and Michael A. Gibson, of Carbotek, Inc. (Houston), have concluded that hydrogen reduction of ilmenite is the simplest process proposed. Products of the reaction are iron, titanium dioxide, and water; oxygen is then extracted from the product water by electrolysis. Both batch and continuous-flow fluidized-bed processes for the reaction have been described. Although the preliminary results of bench-level tests on the batch process conducted by Richard J. Williams at JSC seemed promising, further engineering work by Knudsen and Gibson indicates to them that only a continuous process is practicable on a large scale." from http://www.nss.org/settlement/nasa/spaceresvol3/pt2benm.htm  Mirwin 21:39, 25 September 2007 (UTC)

Oxygen Extraction Approach Three -- Molten electrolyis
oxygen extraction via electrolysis

http://www.magicdragon.com/ComputerFutures/SpacePublications/llox-footnoted.html

Safety Considerations
Oxygen is extremely flammable and/or explosive when concentrated and mixed with other ambient materials. Information and guidelines applicable to design of oxygen handling facilities and equipment.

NASA Glenn Research Center Glenn Safety Manual Chapter 5 - Oxygen BMS Document GRC-M8300.001 Revision Date: 2/05

Applicable information resources

 * Industrial Gas Handbook: Gas Separation and Purification

 * http://www.oxygen-gas-plants.com/oxygen-nitrogen-gas-plants/ A Terran supplier's site with an overview of liquid oxygen and nitrogen production on Earth.  Note the three links to further information at bottom of the page.  Nice overviews of equipment and process.  Note that to use their equipment we will need to use stainless steel variant of equipment to get equivalent of medical (breathable) oxygen, recycle nitrogen, possibly redesign separator or molecular sieve or add process downstream to eliminate trace volatiles or simply live with them, add a cooling/transition process between the oxygen extraction and this liquification process.   Design questions: can we do without liquifaction and simply ship high pressure oxygen gas?  Is this more economical for startup?  Can we afford to forego rocket oxydizer market initially?

 * http://www.hq.nasa.gov/webaccess/CommSpaceTrans/SpaceCommTransSec39/CommSpacTransSec39.html
 * Contains estimated pricing and quantities for commercial lunar lox facility ... useful as check on our estimates.

University of Wisconsin course notes "Lunar Base Activation"
 * http://fti.neep.wisc.edu/neep602/lecture22.html
 * http://fti.neep.wisc.edu/neep602/FALL97/LEC24/lecture24.html

 * http://www.nas.nasa.gov/About/Education/SpaceSettlement/spaceres/toc.html

 * Course notes outlining many methods of lunar oxygen production A couple of decent diagrams and figures.

 * Could be a design approach here for a small scale initial plant. http://astro.fit.edu/isru/index.html

 * Description of proven approach using hydrogen catalyst. http://aerospacescholars.jsc.nasa.gov/HAS/cirr/em/6/6.cfm

 * Description of lowering lunar exploration costs by production and use of local oxygen. Could be useful in marketing pitch trying to nail down initial long term contracts. http://ares.jsc.nasa.gov/HumanExplore/Exploration/EXLibrary/DOCS/EIC033.HTML

 * http://ads.harvard.edu/books/lbsa/ Lunar Bases and Space Activities of the 21st Century - Online papers from 1984 NASA Symposium

"Early Lunar Resource Utilization: A Key To Human Exploration"

 * Wikiversity heat transferHeat_Transfer


text:
Electronic Communications/Communication Guidelines and Standards

Uniform Customs and Practice (UCP) for Documentary Credits
International standards of letter of credit practices were established for bankers by the International Chamber of Commerce. Historically, the UCP has been revised about every ten years to keep up with changing practice; the most recent revision, UCP600, was completed in 2006 and was put into effect July 1, 2007. Although the UCP defines rights and obligations of the various parties in a letter of credit transaction, it is not law, so any given letter of credit is subject to the UCP only to the extent indicated in the letter of credit itself. The UCP outlines the appropriate methods of communication and transmission of the documents (banking, commercial, and transportation).

Uniform Customs and Practice – Electronic Supplement (eUCP)
The ICC recognized the opportunities for using technology and began working on standards for electronic communication and transmission of documents. The electronic supplement to UCP 500 went into effect in April 2002. The eUCP provides a general framework of principles for dealing with the electronic documents (shipping, customs clearance and banking documents) being presented in letter of credit transactions. This document outlines the steps to authenticate documents and presentation requirements as well as the steps to take if a document is corrupted. The creation of this supplement shows the need and willingness of the ICC to maintain its currency in the world of business since changes in technology tremendously affect business.

SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a computer-based standardized message writing system that connects world-wide participating banks primarily for the purpose of communicating payment information. When an issuing bank instructs an advising bank by an authenticated teletransmission to advise a documentary credit or an amendment to a credit, the teletransmission will be considered to be the operative instrument. This system not only provides the communication network but also is a means of authentication. Without the assurance that a document or request is authentic, no action will be taken. SWIFT is also used as the means of transferring funds between banks. This system is known as an electronic funds transfer, wire transfer or, in short, a TT.

Prev | Next


text:
Electronic Communications/Summary

Summary
Having completed this lesson, you should now understand how letters of credit and the required documentation are communicated between the buyer, seller and involved banks. In addition, with the growth of the internet the ICC has adapted its letter of credit guidelines to the changes in business by authoring the eUCP.

Prev | Next

title: Electronic Communications/Summary


text:
Electronic Communications/Resources

Resources
International Chamber of Commerce – www.iccwbo.org ICC Resources – www.iccbooksusa.com SWIFT – www.swift.com

Commercial Bank Websites
The Global Entrepreneur, James Foley, 2nd Edition, Jamric Press, 2004.

Prev | Next

title: Electronic Communications/Resources


text:
Electronic Communications/Activities

Activity
This activity is a web research exercise designed to allow you to research and identify the different types of communication systems set up by banks. Choose a commercial bank that conducts international banking and identify
 * the bank’s website.
 * the type of internal letter of credit application systems.
 * eUCP opportunities.
 * foreign currency exchange systems.
 * currency transfer and tracking systems.

Prev | Next

title: Electronic Communications/Activities


text:
Electronic Communications/Assessment

Assessment
{The changes in technology have required international businesses organizations to -rely solely on internet communications. -maintain requirements for hard copies only. -watch and observe the changes from the sidelines. +adapt their guidelines to internet communications.
 * type=""}

{The eUCP provides banks with guidelines to -use electronic Incoterms for international transactions. +electronically communicate and transmit documents for documentary collections. -electronically communicate common business practices. -use electronic methods of payment for international transactions.
 * type=""}

{When issuing documents for a letter of credit, freight forwarders must ensure the +comply perfectly with the letter of credit. -arrive at the bank immediately. -arrive at the buyer’s office immediately. -comply with the wishes of the seller.
 * type=""}

{The standard messaging system used by banks around the world is known as -EBanking. -ESystem. +SWIFT. -SWEAT.
 * type=""}

Prev

title: Electronic Communications/Assessment


text:
Terms and Conditions of Purchase or Sale/Modes of Entry-Relationships

Modes of Entry – Relationships
The modes of entry used by an exporter will depend on the product or service being sold as well as the country targeted for entry. Each mode of entry has its advantages and disadvantages based on the relative risk of a buyer and target country. These advantages and disadvantages will obviously affect the costs of the venture/transaction and ultimately the profitability of the international business. The experience of a seller as well as the company support in terms of personnel and finances will also help to determine the best mode of entry. Remember that the mode of entry is just that, the entry. Once the relationship has been established and experience and critical mass gained, it can be changed. It may cost to make a change, but long term profitability should be increased.

Agent
An agent will represent the manufacturer in the target market and be responsible for making contacts with potential buyers, conducting sales presentations and demonstrations and negotiating transactions. An agent normally does not take possession of merchandise since it is usually shipped directly to a buyer. An agent is paid a commission for the sale. The rate of the commission depends on industry standards as well as the value of the product, the value of the transaction and the market restrictions. An agent may be based in the country of export or import. Before signing an agent agreement with an individual based overseas, it is imperative that an international manager be aware of the local laws governing agent contracts and the labor laws that may apply.
 * Advantages to the seller
 * low cost
 * quicker entry
 * lower time commitment
 * can be a domestic sale
 * US laws pertain

 * Disadvantages to the seller
 * low return
 * reduced control
 * no market experience
 * increased market costs due to middleperson

Distributor
A distributor is normally located within the target market and is responsible for purchasing, stocking, and reselling merchandise. In many cases, a distributor is focused on a specific industry, trade, or channel of distribution and may provide sales, marketing and logistics services as well.. The level of service will depend on the price of the products and profit margin for both parties. The responsibilities of each party should be clearly spelled out in the contract.
 * Advantages to the seller
 * market entry control
 * higher return
 * development of relationships
 * experience in export marketing

 * Disadvantage to the seller
 * increased costs
 * increased time for market entry
 * reduced knowledge base for international expansion
 * fewer market targets
 * increased time commitment from company resources

The differences found between agents and distributors are as follows:
 * Agent
 * exclusive or non
 * small company
 * fewer resources
 * may be domestic sale
 * commission- based
 * do not take ownership of product
 * no responsibility of market relationships
 * agent protection laws do not favor exporter

 * Distributor
 * exclusive or non
 * usually larger than agent
 * in-market relationships
 * usually takes ownership of products
 * more market responsibility

Licensing
A licensing agreement will provide an overseas manufacture the right to produce products in a certain manner and use the name or logo of the product. A seller must provide specific and detailed instructions for manufacturing and will either require that all products be sold back to a seller or available for sale by the licensee. If the licensee is allowed to sell the products, an upfront fee as well as a percentage of sales is normally paid to the licensor.
 * Advantages to the licensor
 * decreased capital needs
 * increased return on research investment
 * decreased risk to local government issues
 * access to market faster – market test
 * extends life cycle of technology

 * Disadvantage to the licensor
 * less control – no marketing exposure
 * can steal technology after contract up
 * create own competitor
 * brand, quality and image must be protected
 * contract – negotiations must be thorough and complete

Franchising
Franchising provides the right to conduct business in a certain manner to a franchisee. This form of business, which is normally found in the service sector, has become increasingly popular in developing countries since successful business models can be bought and quickly established. The franchisor is normally paid an upfront fee as well as a percentage of sales and often required marketing support fees.
 * Advantages to the franchisor
 * duplicate time
 * reduced market investment
 * increased income
 * duplicate business model
 * build International Brand
 * entry to controlled markets

 * Disadvantage to the franchisor
 * loss of control
 * need to adapt to local market demands
 * loss of proprietary information
 * must be a business model that can be duplicated

Joint Venture
A joint venture allows a foreign company to establish an overseas presence by partnering with local or international companies. Each partner may contribute different resources to a venture, so their risk and reward will be based on the level of investment. In some countries, a local partner is required; in others one may not be required.
 * Advantages to the partners
 * reduced investment
 * access to controlled markets
 * in market contacts
 * in market knowledge
 * in market presence

 * Disadvantage to the partners
 * reduced control
 * reduced ROI
 * chance to lose market with a buy out
 * creates local competitor

Direct Foreign Investment (DFI)
A direct foreign investment is established when an overseas presence is created by a foreign company. It is a single venture that does not include local or foreign partners. The joint venture may be structured in the form of an overseas corporation or subsidiary of the parent company. This type of venture can be accomplished only if the foreign investment, property and labor laws of the overseas country allow for it.
 * Advantages to the seller
 * market control
 * local presence
 * increased return on investment (ROI)
 * developing relationships
 * in market knowledge

 * Disadvantage to the seller
 * increased investment of time
 * increased investment of financial resources
 * increased risk of buy out
 * increased investment of personnel resources

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Terms of Sale – the Advantages and Disadvantages

Terms of Sale – the Advantages and Disadvantages
After completing the country and customer analysis, the mode of entry decision will be made. This process is then followed by a decision regarding the terms of sale which include the method of payment. (As methods of payment are discussed in detail in Task 4 we will only provide a brief list and description of each method of payment. For further detail and definitions including risks and the advantages and disadvantages, please refer to 4.1).

Whether the credit-decision maker is dealing directly with the customer as the seller, agent, or distributor, credit evaluations to determine appropriate terms of sale and methods of payment must take place. The terms of sale available for international transactions include countertrade, barter, counterpurchase, advance purchase, buy backs bilateral arrangements, offsets, consignment or direct transaction. When selecting a direct transaction the appropriate methods of payment must also be chosen based on the risk involved in the transaction. The available methods of payment include: open account, documentary collection, letter of credit, or cash in advance.

Countertrade and Consignment
When traditional forms of financing are not available alternative types of financing such as countertrade, offsets and consignment are used. These alternative forms allow commerce to continue despite additional steps and obstacles presented. These alternative forms can allow the penetration of the market and the capture of a greater market share. Barter, counterpurchase, advance purchase, buy backs and bilateral arrangements are the most common commercial mechanisms for reciprocal trade under the umbrella of countertrade. This form substitutes the exchange of merchandise without the exchange of cash. Consignment is the placement of goods with an importer without giving title to the goods. When the goods are sold the exporter is paid

Countertrade
Countertrade is an arrangement whereby the importer and exporter contract to exchange goods or services as payment in kind without the use of cash. This exchange of goods and services to finance purchases represents 10-15% of world trade. Countertrade is often utilized in underdeveloped countries especially when there is a shortage of foreign exchange capabilities.

The governments of these developing countries can require trade deals to include countertrade because it can give them the following advantages.
 * Protection of foreign exchange reserves: Reserves can be limited or depleted, countertrade allows them to trade internationally regardless of their hard currency reserves.
 * Create new export products or markets: The exporting country through the buyer can get access to new contacts, distribution channels and market strength which can provide additional export sales further benefiting the exporting country.
 * Provide a balance of trade for political reasons: Balancing exports with imports ensures the balance of trade does not swing too far out of line as to put pressure on the national currency.
 * Acquire new technology: Technology takes time and resources to fully develop especially in the case of defense purchases.  Countertrade allows the importing country to gain the benefit of the technology and share in the employment benefits of the purchase.

These advantages are almost exclusively for the importing country. The importing country has considerable loss of flexibility and the additional following experience risks. Developed countries generally do not use countertrade because of the associated costs and the availability of a tradable currency which allows them to trade more freely.
 * Sales: The importer may not have sales experience in the countertrade product and experience substantial problems in the disposition of the foreign goods.
 * Negotiations: The negotiation process is more difficult to accommodate related costs and adequate legal protection to protect financial interests.
 * Standards: The establishment of quality standards can be difficult.
 * Contract: Contract terms are more difficult for non-cash transactions.
 * Profitability: Countertrade imposes added costs which can include trading house brokerage fees, storage and marketing fees, and customs fees and import duties.

This may not be the most desirable way to do business but it does provide additional opportunities. It is often used to penetrate new markets, secure long term supplies and allows trade where conventional financing would be impossible.

Barter
Bartering is the most widely known form of countertrade but it represents only a small part of all countertrade transactions. Barter involves an even exchange of goods or services for goods or services. This exchange can involve more than two parties. One example could be a computer manufacturer had some older inventory that would not sell in the local market. They found a buyer in South America that had nuts to exchange for computers. The computer manufacturer sold the nuts to a local grocery store chain in exchange for some cross marketing opportunities. Trading houses that specialize in this form of trade are often involved in these complex barter arrangements.

Counterpurchase
Counterpurchase also known as parallel bartering is considered the classic or most commonly used form of countertrade. This is defined as an arrangement where one company agrees to sell products to a foreign purchaser for cash, but also simultaneously agrees to purchase products or services from the foreign partner. The purchase amount can vary and can contain penalties for non-fulfillment dependent upon the underlying contract.

In a counterpurchase deal a car manufacturer agrees to sell the government of China $15 million worth of vehicles in exchange the car manufacturer agree to purchase $6 million worth of component parts for one of its divisions. The transaction does not have to be balanced but must be acceptable to both parties and is contractually binding. The complete transaction may occur over time and consists of two independent contracts.

Advance Purchase
Advance purchase is where the buyer pays in advance for the goods through an independent third party mainly a bank (because of their reliability) placing the funds into an escrow account of the exporter. It must be noted that banks in the United States do not offer this type of transaction

This process is very advantageous to the exporter. The exporter secures the payment in the local currency avoiding any potential exchange loss. This is especially true in countries that regulate and control the inflow and outflow of their currency. The difficulty for the exporter is that the regulators may not approve an advance payment unless the exporter agrees to utilize the proceeds locally and not to transfer the funds out of the country. This makes the transaction very similar to a counterpurchase differing only in the timing of the payments.

Buy Backs
Capital plant and equipment can be purchased by paying with the products produced from the equipment purchased or some combination of cash and product. This form of financing the purchase of capital plant and equipment is buy backs. The exporter of the equipment will then have the problem of selling the product given as payment in order to convert the product back into desired cash. This form of countertrade for plant and equipment is usually done by large organizations that can handle the payback period (the time it takes to sell the product that was accepted as payment) which is usually long term. They must also have the resources to market the “buy back” product.

For example a soda company sells bottling equipment and syrup to a foreign government in exchange for the bottled product produced from the bottling plant. The soda company will distribute the product using its own global marketing efforts to sell the bottled goods. The bottled product will convert to cash in partial settlement for the equipment and syrup that is sold.

Bilateral Arrangements
Bilateral trade is a form of barter that binds trade between two countries. Countries will use this form of trade to exchange goods at agreed to prices avoiding currency conversion by passing through a clearing account which should balance after a predetermined time.

Sources of Assistance for Countertrade
 * Trading houses
 * Banks and consultants
 * Insurance facilities

Offsets This is one of the more commonly used forms of countertrade. Suppliers of capital equipment agree to purchase goods or services from the country that purchased the capital equipment. This allows the repatriation of their local currency. The following forms can be considered offsets.

 * Co-production - This is a government to government agreement to produce all or part of an item sharing technical information and know-how to produce the item. It includes government to government licensed production.
 * Licensed Production - This is an agreement between commercial manufacturers to produce all or part of an item sharing technical information and know-how to produce the item.
 * Subcontractor Production - This is an agreement between a commercial manufacturer and a subcontractor to produce component parts without the need for licensing because there is no sharing of technical information or know-how. This is usually a direct commercial contract or arrangement between two commercial producers.
 * Overseas Investment - Offsets may require for the exporter to invest in a subsidiary or joint venture in the foreign country. This is also considered foreign direct investment.
 * Technology Transfer - Offsets may require the transfer of technology in the form of research and development under a direct commercial arrangement with the subsidiary or joint venture.

Consignment
Consignment is the transfer of goods without the transfer of title to those goods until they are sold. The importer acting as an agent for the exporter is responsible for selling the goods and paying for them once they are sold. This is considered an effective inexpensive way to test market a product in a foreign environment.

Direct Transaction
This option is what one would commonly encounter in a buy sell relationship. Once chosen the international manager must then work with the finance department to access the credit worthiness of the customer and offer the appropriate payment terms for both parties. The payment term options include:

Open Account
When open account payment terms such as Net 90 Days – Invoice Date have been agreed to, the seller will ship the goods and all the necessary shipping and commercial documents directly to the buyer. The buyer has agreed to pay the seller’s invoice at a future date (in this case 90 days after invoice date). Therefore, the seller ships the goods to the buyer along with the commercial and shipping documents; and then the buyer remits the funds of the agreed date.

Documentary Collections
When 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).

Letter of Credit
After 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.

Cash in Advance
A seller requires payment either by credit card, wired funds, company or bank checks 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.

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Applying your Knowledge of the Advantages and Disadvantages

Applying your Knowledge of the Advantages and Disadvantages
An 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.

Country Risk
Economic and political problems in a country affect international trade and put payments at risk. Examples of political risk include war, sanctions, embargos, boycotts, insurrection, strikes, riots, civil commotion, cancellation of import or export permits, visas or quotas, moratoriums on external debt repayment and lack of a convertible currency. The analysis of reliable data on the country and the use of correct financial tools can help control the risk of doing business in other countries.

Commercial Risk
International trade often brings together a buyer and a seller that have had little contact or knowledge of each other. This lack of relationship can present problems for both the buyer and the seller. The buyer may not pay on time or worse become insolvent. The seller may not deliver the goods or provide the services contracted for. Companies can usually manage these risks by doing an appropriate credit review, securing the transaction with insurance or using an appropriate payment method.

Transaction Viability
The costs associated with pricing an export product are greater than the domestic market. This makes the pricing strategy more difficult. Pricing and costing a product are essential in determining whether a transaction is viable. There are many factors that come into play but fit into three categories. Environmental factors such as legislation that will impact factors like inflation and currency conversion. Market factors impact purchasing power, competition and market share. Internal factors within the exporting company determine whether resources and established financial parameters can be met.

Sources of Information
There many ways to evaluate a domestic buyer prior to doing business with them but with international buyers this same information is more difficult to acquire. Depending on the source the information acquired may not be as reliable. Good credit decisions require a developed knowledge base and contacts to collect the credit information needed.

Good sources of commercial information include the following

 * Credit bureaus: Companies such as Dun & Bradstreet operate around the world and can provide detailed information depending upon the time and money provided for the research.  Industrialized countries reports will likely look like a local report where a developing country may not have financial information available to make a decision.
 * Banks: Foreign banks will provide basic information if authorized by the company in question to release the information.  The information they are likely to provide is how long they have been banking with them, if they have a credit facility, average balances and if the account is in good standing.  This is only an indication of how they manage their bank account and not how they pay their vendors.
 * Chambers of commerce: Many companies must be members of chambers of commerce and may be able to help investigate a potential client.
 * Foreign trade commissions: Foreign trade commissions can have broad information that can apply to both commercial and country risk.  Files may be maintained especially if the experience is negative.
 * The clients Web site: Web sites can be rich in information and be verified later.
 * Public documents: Public companies financial statements are public knowledge and can be accessed through various sources.
 * Accountants: Large accounting firms have offices worldwide they can assist with collecting information on potential customers and provide information on country issues.
 * Other sources: This is just a starting point.  There are many other sources of information to assist in the decision making process.

Good sources of country risk information include the following

 * The Department of Commerce: Specific information and country analysis can be acquired from the Department of Commerce.  The Department of Commerce can be an inexpensive solution to the acquisition of the information but they do take more time because of their limited resources.
 * The Internet: The internet is easily accessed with a few key words.  This information is often more current and is a good supplement to more comprehensive reports especially if there are any current uprisings in the country in question.
 * Country reports: The Economist magazine provides detailed reports and analysis of various countries.  The information provided by them is updated annually without any national bias.
 * Banks: Major banks with foreign offices will prepare country risk analyses and distribute them to their clients.  The information provides financial information often helping the exporter decide on which payment method to use.
 * Accountants: The large accounting firms all produce books on specific countries on how to do business abroad.
 * Other sources: This is just a starting point.  There are many other sources of information to assist in the decision making process.  Country risk is one of the easier risks to research because it is more visible and information is updated regularly.

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 contract. For 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 contract. For 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 law. The 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).

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Components and Implications of Commercial Agreements

Components and Implications of Commercial Agreements
By utilizing the following checklist, you will have a better understanding of the components and implications of commercial conditions.

Currency, relating to commercial conditions, means an appreciation that the foreign exchange (FX) market is an enormous, sophisticated, and efficient global communications system operating around the clock to enable transactions. It is not expected that an international manager will be an expert in currency valuations. Large commercial banks are the dominant players in the FX market, serving as intermediaries between supply and demand; corporations are the principal end users. FX transactions are speculative by nature and thus can be volatile, increasing risk. Three basic transactions for managing FX risk are spot transactions, forward transactions, and options.
 * Incoterms are internationally accepted commercial terms defining the respective roles of buyer and seller in the arrangement of transportation and other responsibilities that clarify when the transfer of ownership of the merchandise takes place. They are used in conjunction with a sales agreement or other methods of transacting the sale.
 * Who is paying taxes, duties, and insurance--the buyer/seller/agent/distributor/vendor- should be spelled out in the business contract and defined by the Incoterms associated with each transaction.
 * Transfer of title is normally processed by an invoice with a bill of lading frequently as part of a title transfer.  A B/L is a document signed by a transportation company ("carrier") to show receipt of goods for transportation from and to the points indicated. Although US law recognizes such a thing as a non-negotiable bill of lading, international law distinguishes bills of lading from waybills in that a bill of lading is a title document issued to order of a "consignee" who can then transfer title (legal ownership of the goods) by endorsement and delivery ("negotiation") of the bill of lading. Someone must present the bill of lading at the point of delivery in order to claim the goods. A waybill is not negotiable in this way.  The transportation company will simply deliver the goods to the consignee. A transport document issued "consigned to order of..." is a negotiable bill of lading; one issued simply "consigned to..." is a non-negotiable waybill.
 * Methods and terms of payment from the most risky for the buyer, “open account,” to least risky, “cash in advance,” determine who is responsible for approving, controlling and monitoring the risks.
 * Force majeure is a term used to describe a "superior force" event. The purpose of a force majeure clause is two-fold: it allocates risk and puts the parties on notice of events that may suspend or excuse service. The essential requirement of force majeure is that the invoking party's performance of a contractual obligation must be prevented by a supervening event that is unforeseen and not within the control of either party. Typical force majeure events include acts of God, superseding governmental authority, civil strife, and labor disputes. However, there is no uniform set of events that constitutes force majeure. Instead, force majeure remains a flexible concept that permits the parties to formulate an agreement that corresponds to their unique course of dealings and industry idiosyncrasies.  Events since 9/11 have increased the necessity to include additional, unthinkable events, such as terrorism and the threat of biological and chemical warfare.
 * Warranties are an undertaking, ether expressed or implied, that a certain fact regarding the subject matter of a contract is presently true or will be true. In addition, a warranty is a document that states certain facts and conditions about a product's operation and correct use and clarifies the limits of its performance under various circumstances.  For a risk manager, a warranty can result in non-payment of an invoice or delayed payment while a replacement product or service is provided to the customer.
 * Liability, in its broadest legal sense, means legal liability, any obligation one may be under by reason of some rule of law, usually spelled out in the contract.
 * Liability for delay is normally part of a contract. A seller (be it manufacturer, agent, distributor, joint venture) will reach an agreement with a buyer as to delivery of the goods or services which can reduce the amount paid by the buyer to the seller.
 * Terminations involve a buyer and seller agreeing that with notice to one or both parties the agreement can be terminated. An international manager must insure that the contract has not expired if pursuing outstanding funds which, while still possibly legally collectible, become more difficult to collect when a contract has expired.
 * Law governing the contract is 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; and the defined choice of law related to the contract. It is critical for a credit manager to seek legal counsel to cover the components of contract law and insure that the commercial risk is lessened.
 * ICC arbitration/resolution of disputes, utilizing the internationally recognized guidelines issued by the ICC, allows for a more global approach to conflict resolution should it arise.
 * Specific issues relating to distribution agreement include
 * Agency/distributor agreements, commission arrangements, exclusive/non-exclusive arrangements—all must be included in the agreement to ensure that all parties are aware of their responsibilities and costs.
 * International joint ventures, licensing or franchising agreements, tax, finance, accounting, intellectual property--all are additional issues to be considered when a  complex arrangement is entered into.

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Summary

Summary
It is imperative that an international manager understand the available modes of entry, terms and conditions of sale as well as the methods of payment and their associated risks. Combining this knowledge with an understanding of the components of a commercial contract will allow an international manager to effectively and profitably negotiate the appropriate terms and conditions of sale for the goods or service being transacted. Understanding and knowledge, however, are different than being a legal professional. Therefore, before any contract is signed it is essential to have an attorney review the contract. An international manager’s responsibility is to create business and profits; the attorney provides legal guidance.

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Resources

Resources
FCIB on-line course, International Credit and Risk Management, FIB/NACM Corp, Columbia, MD). FCIB Online Resource Library: http://www.fcibglobal.com/ Credit Encyclopedia website:  http://www.encyclopediaofcredit.com  The Global Entrepreneur, James Foley, 2nd Edition, Jamric Press, 2004.  Exporting from Start to Finance , Third Edition, L. Wells and K. Dulat  Directory of International Trade - 7th Edition –Edward Hinkelman, World Trade Press. www.worldtradeprese.com US Department of Commerce – www.export.gov International Chamber of Commerce – www.iccwbo.org ICC Resources - www.iccbooksusa.com

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Activities

Activity
Select a variety of foreign countries and the same number of products and/or services. 1. Divide the class into groups of 4 or other even numbers and assign a country and product or service to each group. 2. Have each group research their country and identify the country risks. 3. Divide each group in half with one- half representing buyers (importers) and the other half sellers (exporters). 4. Assign specific characteristics to each company:
 * large or small – (sales and staff)
 * time in business - (2 years or 10 years)
 * profitability and cash flow - (strong or weak)
 * international experience – (little or a lot)

5. Have each group identify the business relationship they would want to establish. Include
 * method of payment
 * contract components

6. Bring the buyers and sellers back together to negotiate their positions and come to agreement. 7. Have the buyers and sellers create a document outlining the key points of their relationship. 8. Discuss as a class the issues that were raised in the negotiations and the way they were resolved.
 * product/service
 * country
 * company

Countertrade Activity
This classroom exercise will engage the students in countertrade activity. The students will also have an easy introduction to balance sheet and income statement transaction activity. The groups will have similar circumstances and monetary value but the outcome of the exercise should produce dissimilar profitability.

The students are broken down into four groups by the facilitator. Each group will be given a random group number and its countertrade task provided below but only for task 1 all subsequent tasks will be given after completion of the prior task. None of the students will have the luxury of a tradable currency to complete their transactions until the last task. They will use some form of countertrade to achieve their profit objectives. The exercise can be done in one session or over several sessions but each task should be separated by a discussion break and then distribute the next task providing time for the students to formulate a strategy for each successive task.

Task 1
Each company will be given a task sheet outlining a set of circumstances which from a strategic standpoint should not be shared with any other company. Company 1 and Company 3 should be introduced by the facilitator and allowed to barter their goods. Company 2 and Company 4 should also be introduced by the facilitator and allowed to barter their goods. Once the task is complete the facilitator should pass out task 2.

Profile Company 1 Company 1 is a computer manufacturer. Their recent audit has forced them to write down their inventory as indicated in their income statement below. The auditors discovered the inventory contained product that was over one year old and a newer product has recently replaced this particular line. The company could not find a domestic buyer to buy the older line and had no other prospective buyers. This is the reason the auditors forced this action. The company has also just lost a major supplier of component parts. This is the only domestic supplier of these component parts. The company will face bankruptcy if they do not find a new supplier and must take any risks necessary to get these parts. Any replacement component parts purchased if not used within the organization can be sold in the local market for a profit because of the shortage of supplies in the market.

Below is the balance sheet and income statement for Company 1. Please note in order to keep the example simple only the items necessary to complete the tasks will be given in the income statement and balance sheet.

 * Company 1
 * Balance Sheet

Cash..........................................$       0.00 Inventory.....................................$1,000,000.00 Total Assets................................$1,000,000.00 Liabilities and Equity Accumulated Gain/(Loss).............$1,300,000.00 Current Year Gain/(Loss)..............$ (300,000.00) Total Liabilities and Equity............$1,000,000.00
 * Company 1
 * Income Statement

Income........................................$     0.00 Expense (Inventory write down)......$300,000.00 Income Before Tax........................$(300,000.00)

Inventory consists of 1,300 units at a cost before the inventory write down of $1,000.00 per unit. There are 300 units that are older models and have been in inventory for over 1 year. Accumulated Gains are all prior years’ accumulated retained earnings or profits. Each computer in inventory is normally sold to a retailer for $2,000.00 per unit.

Profile Company 2 Company 2 is a television manufacturer. Their recent audit has forced them to write down their inventory as indicated in their income statement below. The auditors discovered the inventory contained product that was over one year old and a newer product has recently replaced this particular line. The company could not find a domestic buyer to buy the older line and had no other prospective buyers. This is the reason the auditors forced this action. The company has also just lost a major supplier of component parts. This is the only domestic supplier of these component parts. The company will face bankruptcy if they do not find a new supplier and must take any risks necessary to get these parts. Any replacement component parts purchased if not used within the organization can be sold in the local market for a profit because of the shortage of supplies in the market. Below is the balance sheet and income statement for Company 2. Please note in order to keep the example simple only the items necessary to complete the tasks will be given in the income statement and balance sheet.
 * Company 2
 * Balance Sheet

Cash..........................................$       0.00 Inventory.....................................$1,000,000.00 Total Assets...............................$1,000,000.00 Liabilities and Equity Accumulated Gain/(Loss)..............$1,300,000.00 Current Year Gain/(Loss)..............$ (300,000.00) Total Liabilities and Equity............$1,000,000.00
 * Company 2
 * Income Statement

Income.................. ......................$       0.00 Expense (Inventory write down).......$  300,000.00 Income Before Tax.........................$ (300,000.00)

Inventory consists of 1,300 units at a cost before the inventory write down of $1,000.00 per unit. There are 300 units that are older models and have been in inventory for over 1 year. Accumulated Gains are all prior years’ accumulated retained earnings or profits. Each computer in inventory is normally sold to a retailer for $2,000.00 per unit.

Profile Company 3 Company 3 is a computer component parts manufacturer. The company is very profitable and reputable but domiciled in an underdeveloped country without a tradable currency. The company exports all of the products it produces because there are no manufacturers in their local market. The company has been building inventory under contract for a major buyer however they have just learned that the company has declared bankruptcy and will not be able to pay them or meet their contractual obligation. The company must find a new buyer or face bankruptcy. The company in the past has been very successful at importing finished computers in exchange for their component parts and selling them in the local market at a significant profit.

Below is the balance sheet and income statement for Company 3. Please note in order to keep the example simple only the items necessary to complete the tasks will be given in the income statement and balance sheet.

 * Company 3
 * Balance Sheet

Cash...........................................$       0.00 Inventory......................................$1,000,000.00 Total Assets.................................$1,000,000.00 Liabilities and Equity Accumulated Gain/(Loss)..............$1,000,000.00 Current Year Gain/(Loss)...............$       0.00 Total Liabilities and Equity.............$1,000,000.00

 * Company 3
 * Income Statement

Income.........................................$       0.00 Expense (Cost of Goods Sold)........$       0.00 Income Before Tax........................$       0.00

Inventory consists of 1,000,000 units at a cost of $1.00 per component part. Accumulated Gains are all prior years’ accumulated retained earnings or profits. Each component part normally sells for $2.00 per unit.

Profile Company 4 Company 4 is a television component parts manufacturer. The company is very profitable and reputable but domiciled in an underdeveloped country without a tradable currency. The company exports all of the products it produces because there are no manufacturers in their local market. The company has been building inventory under contract for a major buyer however they have just learned that the company has declared bankruptcy and will not be able to pay them or meet their contractual obligation. The company must find a new buyer or face bankruptcy. The company in the past has been very successful at importing finished televisions in exchange for their component parts and selling them in the local market at a significant profit.

Below is the balance sheet and income statement for Company 4. Please note in order to keep the example simple only the items necessary to complete the tasks will be given in the income statement and balance sheet.

 * Company 4
 * Balance Sheet

Cash.............................................$       0.00 Inventory........................................$1,000,000.00 Total Assets..................................$1,000,000.00 Liabilities and Equity Accumulated Gain/(Loss)................$1,000,000.00 Current Year Gain/(Loss).................$       0.00 Total Liabilities and Equity...............$1,000,000.00

 * Company 4
 * Income Statement

Income...........................................$       0.00 Expense (Cost of Goods Sold).........$       0.00 Income before Tax...........................$       0.00

Inventory consists of 1,000,000 units at a cost of $1.00 per component part. Accumulated Gains are all prior years’ accumulated retained earnings or profits. Each component part normally sells for $2.00 per unit.

Task 1 Company 1
You will be introduced to Company 3 by the facilitator. Company 3 has the component parts that you desperately need. Company 3 is domiciled in an underdeveloped country without a tradable currency. Your company only has its inventory to negotiate with. The old supplier of the component parts that you are seeking to replace charged you $3.00 per component part. The company feels if they can acquire these component parts the local market will pay $4.00 because of the shortage in the market. Your objective is to barter as many units of your inventory especially the older inventory for your needed component parts knowing that you must achieve your normal profit margins. The negotiations between the two companies will be an all in price avoiding the need to identify separately items such as insurance and freight. This information is considered confidential and should not be shared outside of the company.

Task 1 Company 2
You will be introduced to Company 4 by the facilitator. Company 4 has the component parts that you desperately need. Company 4 is domiciled in an underdeveloped country without a tradable currency. Your company only has its inventory to negotiate with. The old supplier of the component parts that you are seeking to replace charged you $3.00 per component part. The company feels if they can acquire these component parts the local market will pay $4.00 because of the shortage in the market. Your objective is to barter as many units of your inventory especially the older inventory for your needed component parts knowing that you must achieve your normal profit margins. The negotiations between the two companies will be an all in price avoiding the need to identify separately items such as insurance and freight. This information is considered confidential and should not be shared outside of the company.

Task 1 Company 3
You will be introduced to Company 1 by the facilitator. Company 1 can barter finished goods for your component parts. The local market has been paying $3,000.00 for older product and $4,000.00 for newer product. You do not have a tradable currency so you must barter. Your objective is to barter as many units of your inventory for finished goods knowing that you must achieve your normal profit margins. You are restricted by your local government to maintain 25% of your current inventory. This restriction was applied when you were allowed to export your product. The local government intends to use the proceeds from sale of your restricted inventory to help increase their foreign currency reserves. The negotiations between the two companies will be an all in price avoiding the need to identify separately items such as insurance and freight. This information is considered confidential and should not be shared outside of the company.

Task 1 Company 4
You will be introduced to Company 2 by the facilitator. Company 1 can barter finished goods for your component parts. The local market has been paying $3,000.00 for older product and $4,000.00 for newer product. You do not have a tradable currency so you must barter. Your objective is to barter as many units of your inventory for finished goods knowing that you must achieve your normal profit margins. You are restricted by your local government to maintain 25% of your current inventory. This restriction was applied when you were allowed to export your product. The local government intends to use the proceeds from sale of your restricted inventory to help increase their foreign currency reserves. The negotiations between the two companies will be an all in price avoiding the need to identify separately items such as insurance and freight. This information is considered confidential and should not be shared outside of the company.

Task 2
Each company will have to calculate the income or loss from the completion of task 1. They will place goods on consignment with the same company they have been dealing with. The transaction will be completed with the delivery of another product that must be sold.

Task 2 Company 1
You have discovered that the component parts that you bought were more valuable if sold directly in the local market for $4.00 per unit and you sold all that you had. You have sold all of your bartered goods and have increased your cash and sales and have reduced your inventory by the amount of units you bartered. You will approach Company 3 to take on consignment all of your remaining inventory and are willing to take on consignment any of their units. Your company has negotiated with the local government of Company 3 to buy with the proceeds from the sale of your inventory grain for $1,000.00 per ton in order to get the proceeds out of the country. All related costs are included in the $1,000.00 per ton of grain. You must decide on what price to charge Company 3 for each piece of your inventory that they sell knowing that you will have additional costs to sell the grain purchased from the local government. You have also discovered Company 3 has been getting a minimum of $4,000.00 per unit in selling your newer products. You must decide on how much you will be paid per unit if your remaining inventory is sold by Company 3.

Task 2 Company 2
You have discovered that the component parts that you bought were more valuable if sold directly in the local market for $4.00 per unit and you sold all that you had. You have sold all of your bartered goods and have increased your cash and sales and have reduced your inventory by the amount of units you bartered. You will approach Company 4 to take on consignment all of your remaining inventory and are willing to take on consignment any of their units. Your company has negotiated with the local government of Company 4 to buy with the proceeds from the sale of your inventory grain for $1,000.00 per ton in order to get the proceeds out of the country. All related costs are included in the $1,000.00 per ton of grain. You must decide on what price to charge Company 4 for each piece of your inventory that they sell knowing that you will have additional costs to sell the grain purchased from the local government. You have also discovered Company 4 has been getting a minimum of $4,000.00 per unit in selling your newer products. You must decide on how much you will be paid per unit if your remaining inventory is sold by Company 4.

Task 2 Company 3
You have been very successful in selling the inventory that you bartered for at the market price of $3,000.00 for older units and $4,000.00 for newer units. You have sold all of your bartered goods and have increased your cash and sales and have reduced your inventory by the amount of units you bartered. You have been given permission by the local government to put the remaining 25% of your component parts on consignment in exchange for taking on consignment any remaining inventory available from Company 1. The local government has agreed to sell grain to be exported at a cost of $1,000.00 per ton to Company 1. You will be able to offset the value of the units sold that you put on consignment with Company 1 by the equivalent value of units taken on consignment. Company 1 does not know you have this advantage. You must convince them of this offset or you will be forced to pay the local government a 10% commission on the consigned goods sold by Company 1 on your behalf. You have also discovered Company 1 has been getting a minimum of $4.00 per unit in selling your product. You must decide on how much you will be paid per unit if your remaining inventory is sold by Company 1.

Task 2 Company 4
You have been very successful in selling the inventory that you bartered for at the market price of $3,000.00 for older units and $4,000.00 for newer units. You have sold all of your bartered goods and have increased your cash and sales and have reduced your inventory by the amount of units you bartered. You have been given permission by the local government to put the remaining 25% of your component parts on consignment in exchange for taking on consignment any remaining inventory available from Company 2. The local government has agreed to sell grain to be exported at a cost of $1,000.00 per ton to Company 2. You will be able to offset the value of the units sold that you put on consignment with Company 1 by the equivalent value of units taken on consignment. Company 2 does not know you have this advantage. You must convince them of this offset or you will be forced to pay the local government a 10% commission on the consigned goods sold by Company 2 on your behalf. You have also discovered Company 2 has been getting a minimum of $4.00 per unit in selling your product. You must decide on how much you will be paid per unit if your remaining inventory is sold by Company 2.

Task 3
All transactions will be converted to cash and the outcome of all the transactions posted to the balance sheet and income statement.

Task 3 Company 1
You have sold all of the parts that you received on consignment for the asking price of $4.50 a unit. You have paid or offset as agreed with Company 3 the value of their consignment goods. You have found a broker to buy the grain for your asking price of $1,000.00 per ton at a cost of $100.00 per ton (prorated for partial tons) to repatriate the value of your consignment goods. Company 3 has sold your inventory at the agreed price which you have received in the amount of grain purchased from their local government. Your holdings can now be converted to cash and determine how much profit or loss you have made.

Task 3 Company 2
You have sold all of the parts that you received on consignment for the asking price of $4.50 a unit. You have paid or offset as agreed with Company 4 the value of their consignment goods. You have found a broker to buy the grain for your asking price of $1,000.00 per ton at a cost of $100.00 per ton (prorated for partial tons) to repatriate the value of your consignment goods. Company 4 has sold your inventory at the agreed price which you have received in the amount of grain purchased from their local government. Your holdings can now be converted to cash and determine how much profit or loss you have made.

Task 3 Company 3
You have sold all of the parts that you received on consignment for the asking price of $4,500.00 a unit. You have through the local government settled the remaining value of the agreed upon price of the consignment goods of Company 1 in grain and offset as agreed the value of your consigned goods all of which have been sold by Company 1. Do not forget if you were unable to negotiate the full amount of the offset or any portion a 10% tax will apply and taken directly by your local government. Your holdings can now be converted to cash and determine how much profit or loss you have made.

Task 3 Company 4
You have sold all of the parts that you received on consignment for the asking price of $4,500.00 a unit. You have through the local government settled the remaining value of the agreed upon price of the consignment goods of Company 2 in grain and offset as agreed the value of your consigned goods all of which have been sold by Company 2. Do not forget if you were unable to negotiate the full amount of the offset or any portion a 10% tax will apply and taken directly by your local government. Your holdings can now be converted to cash and determine how much profit or loss you have made.

Prev | Next


text:
Terms and Conditions of Purchase or Sale/Assessment

Assessment
{As part of the terms and conditions of the sale, an international manager must consider +the advantages and disadvantages of the methods of payments. -whether the buyer or seller is writing the contract. -only when the products will be shipped and the price. -the creditworthiness of the buyer and the political risk of the country.
 * type=""}

{Laws governing international contracts known as jurisdiction -should be an neutral country. -are executed in the buyer’s country. -are executed in the seller’s country. +should be identified in the contract.
 * type=""}

{The type of distribution agreement established between the buyer and seller will -include only the minimum points in order to make the transactions easier. -include the same components whether it is a joint venture or agent agreement. +include specific components as they relate to type of relationship. -include only the minimum points to avoid huge legal fees.
 * type=""}

{The Incoterms help define -who is responsible for legal costs in case of a dispute. -who is responsible for the marketing costs for the goods. -who is responsible for the product warranties. +most of the responsibilities and costs of the buyer and seller.
 * type=""}

{The United States agrees to ship wheat to Russia in exchange for oil from Russia after three years the exchange will be balanced between the two countries. Which best describes this type of transaction. +Bilateral arrangements -Consignment -Advance purchase -Buy backs
 * type=""}

{The buyer has placed US$50,000.00 in an escrow account for the purchase of goods from the seller. Which best describes this type of transaction. -Consignment +Advance purchase -Bilateral arrangements -Buy backs
 * type=""}

{15,000 chickens are received in exchange for 25,000 umbrellas This type of transaction is best described as: -Bilateral arrangements -Counterpurchase +Barter -Buy backs
 * type=""}

{A jewelry manufacturer places some of the manufactured goods with a retail store in the hopes of selling it. This type of transaction is best described as: +Consignment -Counterpurchase -Bilateral arrangements -Buy backs
 * type=""}

{The United States agrees to provide US$14 million worth of missiles and purchase US $5million in oil from Saudi Arabia. Which best describes this type of transaction. -Consignment -Counterpurchase -Bilateral arrangements +Buy backs
 * type=""}

Prev


text:
Resources for Selecting Payment Methods/Foreign Government Agencies

Foreign Government Agencies
As countries negotiate trade agreements, it is often understood that each country will work to promote the other’s products in their home markets. This support may come in the form of offices for trade promotion established in the embassies or consulates (www.embassies.org) or separate agencies such as the Japanese External Trade Organization (JETRO) (www.jetro.org) or the Hong Kong Trade Development Council (www.tdctrade.com).

US Dept. of Commerce – www.export.gov
Building on existing economic and community development efforts, the USDoC attempts to help strengthen America's transitioning and most needy communities, while making better use of taxpayer dollars by reforming and restructuring many of the existing federal economic and community development programs. The Export Assistance Division of the USDoC can provide market research, industry analysis, in market support as well as company credit profiles, trade leads and trade show support.

Small Business Administration (SBA) - www.sba.gov
The SBA offers numerous loan programs to assist small businesses. It is important to note, however, that the SBA is primarily a guarantor of loans made by private and other institutions. The SBA’s primary business loan program helps qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels. It is also the agency’s most flexible business loan program, since financing under this program can be guaranteed for a variety of general business purposes. Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets. In addition, the SBA provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically such a loan is secured from a private-sector lender. Many of the programs offered by the SBA are geared toward exporters and financing export transactions.

Export Import (EXIM) Bank - www.exim.gov
EXIM bank is the US government agency that provides foreign receivable insurance to US companies. Policies are available to both public and private sector companies and can cover up to 100% of losses incurred due to political or commercial risks. The paperwork and required documentation is quite extensive, however the benefits far outweigh the costs as these programs allow US exporters to extend more favorable payment terms to their overseas customers. This could lead to increased export sales and profits, while reducing the risks associated with the transactions.

Many state and local government agencies are also helpful. Most states in the US have created agencies and/or funding opportunities to help local companies develop their international business ventures. These efforts may come from the state, county or city Economic Development Agency or Small Business Development Centers. There are also a variety of initiatives focused on minority businesses. The programs may include funding, trade missions, reverse trade missions, trade shows, or networking/training seminars. The best way to identify these resources is to check your state or local government websites. For example, in California, the state funds the Centers for International Trade Development (CITD) which are housed at community colleges across the state (www.citd.org).

Prev | Next