Means of payment
The chief means of payment in foreign trade are:
1) mail or telegraphic transfer of the stipulated amount of money
2) cheques
3) bills of exchange
cheques
A cheque is a written order (písemný příkaz) given by the customer to his bank to pay a
certain sum of money of his current account to the payee (věřitel) named in the cheque.
The parties to a cheque are:
1) the drawer (výstavce) who draws the cheque, who orders his bank to be paid
2) the payee (věřitel) to whom the cheque is to be paid
3) the drawee (směnečník) – it is the bank which pays it
There are two kinds of cheques:
a) a cheque to bearer (na doručitele) which may be paid by a bank to anyone who
presents it
b) a cheque to order (na řad) mus be endorsed (žirování = rubopis) py the payee, it
means that the payee must write his name on the back of the cheque before it is
paid to him
bills of exchange
A bill of exchange (směnka) is a written order requiring the person to whom it is addressed to
pay on demand (požádání) or at a fixed future time (v určité době v budoucnosti) a certain
sum of money.
The parties of bill of exchange are:
1) the drawer (výstavce)
2) the drawee (směnečník – banka) to whom it is addressed
3) the payee to whom it is to be paid. (věřitel) the payee may be identical with drawer
A bill of exchange can be payable on demand (on presentation or at sight) or at a future time
(at a fixed future time it can be:
a) either after date (so and so many days after the date of issue)
b) or after sight (so and so many days after acceptance – after the drawee has
accepted the draft, it means he has seen it for the first time)
Bills of exchange are negotiable instruments (převoditelné prostředky) as well as cheques and
can be transferred to other person by endorsement.
Terms of payment
There are 4 basic terms of payment in foreign trade.
1)
2)
3)
4)
payment in advance (down payment) (předčasně)
payment by means of L/C
payment against documents D/P – document against acceptance D/A
payment after delivery
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payment in advance
Is usually effected by a mail or telegraphic transfer from the buyer’s account to the seller’s
banking account.
a) In the export trade payment in advance is the most favourable for the seller
because the risk of non-payment for the goods is totally excluded. But payment in
advance is not too frequent in foreign trade because the buyers are generally
unwilling to pay for the goods before they can lay hands on them. If they agree to
it they insist on a special discount on the price.
b) In the import trade on the other hand payment in advance is the least advantageous
of all terms of payment because it is a credit transaction with all its risks.
More frequent than payment in advance is therefore a combination of this term of payment
with other terms. For example part of the total value of the goods is paid in advance and the
remaining parts are paid either by a L/C or against documents or after delivery. This method
of payment is used especially when the goods form big investment unit such as factory
equipment.
a letter of credit – L/C
Is the most current and one of the best means of payment. The buyer instructs his bank to
open an account with a bank in the seller’s favour. The seller may draw it against presentation
of certain documents stated in the L/C – called shipping documents. The L/C is opened for a
fixed sum and its validity may be extended. Irrevocable (neodvolatelný) L/C means that it
cannot be recalled before the date of expiry ... (uplynutí)
In foreign trade payments are usually made by irrevocable L/C against shipping documents.
There are 2 kinds of L/C.
a) personal L/C is available against the signature of the owner and against
presentation of his passport or identity card. It is used mostly by travellers.
b) documentary L/C is called so because it is available against presentation of
shipping documents.
D/A
– Documents against Acceptance (doklady proti přijetí), the buyer receives the
documents after his accepting a Bill of exchange drawn (vystaveny) on him for the price, at a
given period may be 30, 60, or even 90 days.
D/P
– documents against payment (proti platby) means (cash against documents) The
specified documents with a copy of the invoice are handed over to the buyer on payment of
the full price in cash.
Payment on credit – payment after delivery.
In the export trade selling on credit is usually the worst term of payment. After the buyer has
taken possession of the goods it depends only on him when and how much he will pay. It is
difficult for the seller to force him to do so often even by legal action. Therefore before the
buyer is granted credit the seller must get a complete Credit Report (informace o
úvěroschopnosti). It is information about his financial standing, yearly turnover (roční obrat),
regularity of payments to other sellers. If the seller does not find the buyer reliable
(spolehlivý) enough, he either insist on another tem of payment or he asks for banker’s
guarantee.
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