Guide Importing Exporting v1.0

8/2/2019 Guide Importing Exporting v1.0

1/22

Guide to importingand exportingInternational banking

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2/22March 2011 Page 2 o 22

Guide to importing and exporting

International banking

Tb tts

InTroducTIon 4

We have the solutions or your needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Important Inormation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

GeTTInG STarTed 5

What do I do rst? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Go to school . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Use the support networks and government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

rISK ISSueS 6

Types o risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Country Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Transport Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Exchange Rate Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Non Delivery / Perormance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

MaKInG and receIvInG InTernaTIonal payMenTS 8

Clean Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Types o clean payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

docuMenTary collecTIonS 10

What are documentary collections? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Types o documentary collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

MechanIcS o docuMenTary collecTIon 11

Flow o documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Flow o payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

leTTerS o credIT 13

What are letters o credit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Types o letters o credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Letters o credit may be conrmed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Mechanics o letters o credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Issuance process:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

docuMenTaTIon 17

International Trade Enabler: an electronic solution or importers and exporters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


3/22March 2011 Page 3 o 22



ManaGInG The caSh low 18

Trade Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Debtor Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

oreIGn currencIeS and payMenTS 19

International bank drat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Telegraphic transers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Foreign currency accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

GuaranTeeS 20

What are guarantees?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Types o guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Bid guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Advance payment guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Perormance guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Standby letter o credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

MechanIcS o GuaranTeeS 21

conTacT uS 22


4/22March 2011 Page 4 o 22



IntroductionThis guide is designed to assist you in understanding some o the important issues, products, services and documentation

associated with international trade. I you have never been involved in dealing with overseas customers or suppliers,

you should nd this guide particularly useul.

This guide is not comprehensive. It oers pointers, places or urther inormation and brie summaries o products and services.

Should you require urther assistance, BOQ is ready to help.

We have the solutions or your needs

BOQ oers a wide range o solutions and products to importers and exporters as well as providing access

to our specialists to discuss your individual requirements and circumstances.

You might need to:

Finance your shipments o goods

Establish documentary letters o credit and monitor their progress

Have a bank collect bills o exchange and documents rom your suppliers bank

Make payments overseas

Arrange or the processing o your export documentation, letters o credit or collections and receipts

Take out protection against exchange rate movements

Manage your cash fows in oreign currency

A BOQ branch manager or business banking manager is ready to meet with you and discuss how we can help you grow your

importing or exporting business. He or she has access to all our international trade and oreign exchange specialists

and can call on this expertise to assist you urther.

Call your local BOQ oce today to arrange an appointment or email us via the ollowing link

www.boq.com.au/contactus/cu-intbanking.aspx

Important Inormation

The inormation contained in this guide is general in nature and has been prepared or business customers by BOQ Limited,

or inormation purposes only. The products and services described are only available to approved customers.

Terms and conditions, ees and charges apply. For urther inormation, contact Bank o Queensland.

Any advice contained in the document has been prepared without taking into account your personal objectives, nancial situation

or needs. You should consider the appropriateness o any advice beore acting on it. Yous should obtain and consider the relevant

Product Disclosure Statement, terms and conditions and Financial Services Guide beore making any decision about whether

to acquire or continue to hold these products.

All product mentioned are issued by Bank o Queensland Limited (BOQ) ABN 32 009 656 740.


5/22March 2011 Page 5 o 22



Getting started

What do I do rst?Like any situation, you rst need to consider the marketplace or the products you are looking to import or export.

Consider the ollowing:

Is your product unique or new to the potential market? Will it have appeal?

Analyse the costs? What is the cost o the product? Where are the competing products priced at? Is there

a sucient margin or you, the wholesaler and the retailer?

Are there any legal issues or restrictions with the product or where it comes rom or where it is going to?

Is the market growing or this product? Do you have to create a new market?

Is there a reliable supply o the product? Is the quality consistent?

Go to school

Apart rom some o the obvious issues discussed above, there are some additional ones that are specic to importing

and exporting.

Learn about import duties, customs procedures, regulation and compliance, particularly quarantine

Gain an understanding o the documentation involved

Learn about the time goods are in transit and relevant costs

Learn about the country you are looking to do business with, local customs, business practices.

Some o the support groups listed below are very useul sources o inormation in relation to these issues.

Use the support networks and government agencies

Most overseas countries have embassies, high commissions or other representation in Australia and provide links to

trade organisations that promote international trade between Australia and their respective countries. These organisations

can be an excellent source o inormation and advice.

You would also be well served by speaking to other business people with experience in importing or exporting,

particularly those dealing with the same countries you are considering dealing with. There are also a number trade

and industry associations that provide useul orums or discussion and ideas. These include:

The Australian Trade Commission (Austrade) www.austrade.gov.au

The Australian Institute o Export www.aiex.com.au

International Chamber o Commerce www.iccwbo.org

World Chambers Network www.worldchambers.com

Sea Freight Councils www.seareightcouncils.com.au

Commerce Queensland www.commerceqld.com.au

Australian Industry Group www.aigroup.asn.au

Australian Federation o International Forwarders www.a.asn.au

Customs Brokers & Forwarders Council o Australia www.cbca.com.au


6/22March 2011 Page 6 o 22



RISK ISSUESInternational trade throws up a number o risks you would not be concerned about i doing business solely inside Australia.

These include the consequences o economic or political instability, less control over quality, more complicated transportation

processes and exchange rate fuctuations.

The reality is that these risks are eectively managed every day by thousands o businesses.

In order to successully manage the risks, you need to have a strategy that is built around taking sensible precautions.

Most risks can be eectively managed by knowing your customers and suppliers, insurance and by selecting the most

appropriate payment method.

Types o risks

Ts pmt risks

Many countries have government regulations that can prevent or restrict payments or receipts in oreign currencies

(or their own currency).

Sometimes these regulations can be changed without warning, meaning that transactions already agreed to may not be able

to be completed, resulting in nancial loss to either or both parties.

Mitigts

Always try to deal with suppliers or customers in countries with stable political environments or where the risk o

unorseen government regulation that restricts trade is unlikely.

Exporters or the bank may also be able to insure some o these risks via entities such as Atradius Credit Insurance NV

(www.atradius.com/au/).

Country Risk

Country risk is the ultimate risk o dealing with a oreign country. I there is a signicant event such as war, terrorism,

ailure o government, government bankruptcy or economic embargoes payments or goods may not be able to leave a country.

Sometimes these circumstances can change without warning, meaning that transactions already agreed to, may not be able

to be completed, resulting in nancial loss to either party.

Business laws in certain countries also require close scrutiny. This should include the likelihood that they may change

and their compatibility with laws in Australia.

MitigtsExporters or the bank may also be able insure some o these risks via entities such as Atradius Credit Insurance NV

(www.atradius.com/au/).

Importers and exporters can also consult the various trade and industry associations mentioned on page (4)

or assistance in evaluating these risks.


7/22March 2011 Page 7 o 22



Transport Risk

Goods should always be insured during transit. Who pays or insurance and how the goods are insured is a matter o negotiation

between the two parties involved. Make sure this is very clear. It is essential to understand what the insurance coversand i there are gaps. For example, in an import transaction, and i the supplier has paid or the insurance, you may not

be covered ater the goods arrive at an Australian port. You should also ensure you are satised in relation to the issue

o where claims are payable.

Mitigts

Various commercial insurance companies and insurance brokers can assist with insurance requirements.

Exchange Rate Risks

Movements in exchange rates can signicantly aect the prot margin you expect to retain on your international trade transaction.

Once you have ordered goods rom overseas or have received an order rom a buyer overseas that requires a paymentin oreign currency, you have an exchange rate risk.

Mitigts

I you like to have more certainty around the exchange rates you will transact at, you may elect to enter into a orward

exchange contract. (www.boq.com.au/business_international_hedging.htm). This contract is where you agree to purchase

(or sell) a xed amount o oreign currency at a xed exchange rate on an agreed uture date, a date which aligns

with a scheduled payment you need to make to a supplier or expect to receive rom a customer. By entering into a

orward exchange contract, you will know how many Australian dollars you will need to pay or a xed amount o

oreign currency on that uture date or conversely how many Australian dollars you will receive in exchange

or a xed amount o oreign currency.

Non Delivery / Perormance

When dealing with any suppliers there is always a risk o non-perormance and this is heightened when dealing

with people overseas. Non perormance may mean delivering inerior product, not delivering at all or not at the agreed time.

Sometimes these events may be the result o things outside the control o the supplier, like industrial action,

shipping availability or in an extreme case, acts o war or other violence.

The non-perormance, whatever the cause, may have an adverse aect on your business; you may lose customers

or miss sales as a result.

For the exporter, the major risk is the risk o not being paid in terms o the sales contract. Eorts to recover unpaid monies

can be costly and time consuming.

Mitigts

There are no guaranteed ways o eliminating all these risks, but they can be managed using appropriate document control

and payment methods.


8/22March 2011 Page 8 o 22



Making and receiving international paymentsMaking and receiving payments is integral in overseas trade, this section covers the main payment and control methods available.

There are three main ways o making and receiving international payments and controlling the document fow and access to goods.

Clean payments

Documentary collections

Letters o credit

Each is explained in more detailed below, and the key points o each are set out in a table ormat.

Clean Payments

wt mts?

Clean payments are characterised by trust. Either the exporter sends the goods and trusts the importer to pay oncethe goods have been received, or the importer trusts the exporter to send the goods ater payment is eected.

In the case o clean payment transactions, all shipping documents, including title documents, are handled directly

by the trading parties. The role o banks is limited to clearing unds as required.

The diagram below highlights the fow o goods and the fow o payment.

ext

pmtGs

Imt


9/22March 2011 Page 9 o 22



Types o clean payments

There are two types o clean payments.

o at

The importer is trusted to pay the exporter ater receipt o the goods.

The exporter ships the goods and the documents directly to the importer and waits or the Importer to send payment.

pmt i a

An arrangement whereby the exporter is trusted to ship the goods ater receiving payment rom the Importer.

The importer sends payment directly to the exporter and waits or the exporter to send the goods and documents.

The ollowing table and diagram highlight the key points in relation to these two payment methods.

o at pmt i a

Imt Assumes ewer risks

Delays use o cash reserves

Assumes greater risks, including the risk o

not receiving the goods

More nancing requirements

ext Assumes greater risk o not being paid

May help clinch sale by oering this

option

Assumes ewer risks

Assists in cash fow by receiving payment

in advance

The ollowing diagram compares the risks o each type o clean payment.

higst isk t xt

lst isk t imt

lst isk t xthigst isk t imt

o at

pmt i a


10/22March 2011 Page 10 o 22



Documentary collections

What are documentary collections?A documentary collection is a method o payment used in international trade whereby the exporter entrusts the handling

o commercial and oten nancial documents to banks and gives the banks instructions concerning the release

o these documents to the importer.

Documentary collections are subject to the Uniorm Rules or Collections published by the International Chamber o Commerce.

The last revision o these rules came into eect on 1st January 1996 and is reerred to as the URC 522.

Types o documentary collections

Documentary collections may be processed in two ways:

dmts gist mt

Documents are released to the importer only against payment.

This is known as a sight collection or cash against documents (CAD).

dmts gist t

Documents are released to the importer only against acceptance o a drat (bill o exchange)

This is known as a term collection.

The ollowing table highlights the key points or the two collections types.

dmts agist pmt (d/p) dmts agist at (d/a)

Imt Ability to examine documents prior

to payment

Line o credit not required

Release o transport documents

and subsequent access to goods only

made ater payment

Payment is deerred until ater goods

have been accessed, assisting cash fow

Ability to examine documents prior

to acceptance

Release o transport documents

and subsequent access to goods only

made ater acceptance o payment terms

Dishonouring accepted drat carries

legal liability, business reputation

implications exist

ext Documents not released to importer until

payment eected

Less costly than letter o credit

Risk o reusal o payment exists

Commercial / country risks still exist

Risk o non-acceptance o documents

Banks do not guarantee payment

Legal enorcement o unpaid obligations

are expensive and time consuming


11/22March 2011 Page 11 o 22



Mechanics o documentary collectionThe mechanics o a documentary collection are separated into the ollowing three steps:

Gs

Ater the importer and the exporter have established a sales contract and agree on a documentary collection as the method

o payment, the exporter ships the goods. In a documentary collection, the importer is known as the drawee and the exporter

as the drawer.

dmts

Ater the goods are shipped, documents originating with the exporter (e.g. commercial invoice) and the transport document

(e.g. bill o lading) are delivered to a bank, called the remitting bank in the collection process. The role o the remitting bank

is to send these documents, accompanied by a collection instruction giving complete and precise instructions to a bank

in the importers country, reerred to as the collecting/ presenting bank.

The collecting/ presenting bank acts in accordance with the instructions given in the collection instruction and releases

the documents to the importer against payment or acceptance, according to the remitting banks collection instructions.

Note: The exporters bank and the remitting bank need not be the same. Also, the collecting bank and presenting bank

need not be the same. Each role could be perormed by a dierent bank.

See illustration next page.

pmt

Payment is orwarded to the remitting bank or the exporters account and the importer can now present the transport document

to the carrier in exchange or the goods.

See illustration next page.

Gs

ext/d

Imt/d


12/22


13/22March 2011 Page 13 o 22



Letters o Credit

What are letters o credit?A letter o credit is a written undertaking by the importers bank, known as the issuing bank, on behal an importer (applicant),

promising to eect payment in avour o the exporter (beneciary) up to a stated sum o money, within a prescribed

time limit and against stipulated documents.

A key principle underlying letters o credit is that banks deal only in documents and not in goods. The decision to pay

under a letter o credit will be based entirely on whether the documents presented to the issuing bank appear on their ace

to be in accordance with the terms and conditions o the letter o credit. It would be prohibitive or the banks to physically

check whether all merchandise has been shipped exactly as per each letter o credit.

The International Chamber o Commerce (ICC) publishes internationally agreed-upon rules, denitions and practices

governing letters o credit, called Uniorm Customs and Practice or Documentary Credits (UCP). The last revisiono these rules was eective 1st July 2007 and is reerred to as the UCP 600.

Types o letters o credit

There are two types o letters o credit, revocable or irrevocable.

1. A revocable letter o credit can be revoked without the consent o the exporter, meaning that it may be cancelled

or changed up to the time the documents are presented. Revocable letters o credit are very rarely used.

2. An irrevocable letter o credit cannot be cancelled or amended without the consent o all parties including the exporter.

Unless otherwise stipulated, all letters o credit are irrevocable.

Letters o credit may be settled either by sight or by acceptance:

I payment is to be made at the time that documents are presented, this is reerred to as a sight letter o credit.

I payment is to be made at a uture xed time rom the presentation o documents, this is reerred to as a term

letter o credit.

The ollowing table highlights the key elements o the two settlement types in letters o credit

Sigt tt it Tm tt it

Importer Assured that all conditions o letter o

credit must be met prior to paymentbeing made to exporter

Ability to negotiate more avourable terms

with exporter when letter o credit oered

No guarantee that goods will be

as specied

Ties up line o credit

Same as or sight letter o credit

with additional advantage odeerred payment


14/22March 2011 Page 14 o 22



Sigt tt it Tm tt it

Exporter

Undertaking rom issuing bank that you willbe paid i you meet all terms o the letter

o credit

Shits credit risk rom importer to the

issuing bank

Not obliged to ship goods i letter o credit

is not as agreed in sales contract

Documents must be prepared in strict

compliance with letter o credit

Failure to comply with the letter o credit

leaves you at risk o non payment

Same as or sight letter o credit butpayment is deerred

By oering a deerred payment to the

importer, you may secure a sale or a

better price

Letters o credit may be conrmed

Under a conrmed letter o credit, a bank, called the conrming bank, adds its commitment to that o the issuing bank to pay

the exporter under the letter o credit provided all terms and conditions o the letter o credit are met. The conrming bank

is usually located in the same country as the exporter.

An exporter would request a conrmed letter o credit i it does not consider the nancial strength o the issuing bank

or the country in which it is located to be acceptable risks.

Mechanics o letters o creditThe mechanics o a letter o credit are separated into the ollowing three steps:

Iss

Ater the trading parties agree on a sale o goods where payment is made by letter o credit, the importer requests

that its bank (the issuing bank) issue a letter o credit in avour o the exporter (beneciary).

The issuing bank then sends the letter o credit to the advising bank. A request may be included or the advising bank

to add its conrmation. The advising bank is usually located in the country where the exporter does business and may be

the exporters bank, but does not have to be.

Next, the advising/conrming bank veries the letter o credit or authenticity and sends it to the exporter.

The diagram on the ollowing page illustrates the issuance process.


15/22March 2011 Page 15 o 22



Issuance process:

Gs

Upon receipt o the letter o credit, the exporter reviews the letter o credit to ensure that it corresponds to the terms

and conditions in the purchase and sales agreement; that the documents stipulated in the letter o credit can be produced;

and that the terms and conditions o the letter o credit can be ullled. Assuming the exporter is in agreement with the above

it arranges or shipment o the goods.

Ater the goods are shipped, the exporter presents the documents specied in the letter o credit to the advising/conrming bank.

Once the documents are checked and ound to comply with the letter o credit (i.e. without discrepancies),

the advising/conrming bank orwards these documents to the issuing bank.

In turn, the issuing bank examines the documents to ensure they comply with the letter o credit. I the documents are in order,

the issuing bank will obtain payment rom the importer so payment can be made to the exporters bank.

Documents are delivered to the importer to allow it to take possession o the goods.

pmts

The payment under the letter o credit is either made at the time the documents are released to the importer (sight letter o

credit) or on acceptance o the bill o exchange (term letter o credit). The importers bank then sends the payment or advice

o acceptance to the exporters bank.

The ollowing diagram illustrates the fow o documents and payment under a letter o credit.

ext / Bfi

Imt / aitIssig Bk

aisig / cfmig Bk

Advice / conrmation o the

letter o credit

Requests to advice & possibly

conrm the letter o credit

Importer applies

or letter o credit

Contract Negotiations


16/22March 2011 Page 16 o 22



The ollowing diagram illustrates the degree o risk involved across all three payment types.

higst isk t xt

lst isk t imt

lst isk t xt

higst isk t imt

o at

pmt i a

dmt ctis

Documents Against Acceptance

Documents Against Payment

ltts cit

Unconrmed

Conrmed

ext / Bfi

Imt / aitIssig Bk

aisig / cfmig Bk

Gs

dmts

dmts

dmts


17/22March 2011 Page 17 o 22



DocumentationInternational trade involves documentation, there is no escaping it. The documentation provides evidence that goods

have been shipped, that legal and regulatory requirements are met and that the goods are described correctly. They also conrm

the nancial arrangements and the method o payment. The commercial contract you agree with the supplier or customer

will detail all the documentation that will be required.

Correct documentation is essential i you are to be a successul international trader. Errors or omissions in documentation

can lead to delays in receiving goods, delays in making payments, both o which have the potential to cost you money

and also damage the relationships you have developed. The trade and industry associations mentioned on page 4 are,

useul resources in the completion o correct documentation and determining what documentation you will need to receive.

International Trade Enabler: an electronic solution or importers and exporters.

BOQ provides an on-line solution to importers and exporters who are dealing in documentary letters o credit, documentarycollections and other trade nance instruments known as International Trade Enabler. This system will save you time and money in

the establishment and amendment o letters o credit and also provides a detailed diary unction and reporting capability which

will keep you up to date with the progress o your transactions. Your transactions and other records are protected and kept

secure by 128-bit encryption technology. International Trade Enabler is very easy to use and there are

no set up ees or BOQ customers.

Access International Trade Enabler via the BOQ website at www.boq.com.au/international_business_tradeenabler.htm


18/22March 2011 Page 18 o 22



Managing the cash fowThis section o the guide discusses the nance options or importers and exporters and highlights the instruments used to eect

payments and manage oreign currency cash fows and risks.

The management o cash fow is critical or any business. The additional time involved in transporting goods to and rom overseas

may put extra pressure on your cash fow. There is likely to be a signicant period between the time you have to pay or the goods

and the time you are paid or on-selling them, or perhaps a gap between the time when you manuacture and the time you

are paid by your customer.

Short-term nance can ease this pressure and the most popular methods are trade nance and debtor nance.

Your BOQ manager and trade nance specialist can help you with the most appropriate solution, depending on your individual

circumstances.

Trade FinanceTrade Finance is designed to provide short term unding or international trade transactions. Obtaining Trade Finance or other

nance rom BOQ will usually be more cost eective than obtaining payment terms rom your supplier.

I youre an exporter, you may need to grant payment terms to a customer which will aect your cash fow.

Find out more about Trade Finance via the BOQ website at www.boq.com.au/business_international_trade.htm

Debtor Finance

BOQ Debtor Finance is a nancing product that allows you to maximise your cash fow through borrowing against

the outstanding value o your trade debtors. This product is suitable or businesses experiencing rapid growth that sell goods

or services on credit terms, but have restricted liquidity.

Find out more about Debtor Finance via the BOQ website at www.boq.com.au/business_loan_debtornance.htm


19/22March 2011 Page 19 o 22



Foreign currencies and paymentsInternational bank drats and telegraphic transers are used to make payments overseas to suppliers or receive payments

rom customers.

International bank drat

An international bank drat is a bank cheque drawn in a oreign currency. Given that the drat must be posted or couriered

to the supplier, this method is usually used when the amount is small or the time actor is not critical.

Find out more about drats via the BOQ website at www.boq.com.au/business_international_exchange.htm

Telegraphic transers

Telegraphic transers are an electronic payment made by one bank to another or the credit o a nominated bank account.These payments are secure, ast and can be made almost anywhere in the world.

Find out more about telegraphic transers via the BOQ website at www.boq.com.au/business_international_exchange.htm

Foreign currency accounts

Foreign currency accounts are another way to help you manage your oreign currency cash fows. Rather than convert every

single payment rom Australian dollars to oreign currency, you could hold an amount o the oreign currency in an account

or payments to be made rom. This has particular application when you also have receipts in the same currency, by removing

or reducing the need to convert all payments. Foreign currency accounts are available in several major currencies.

Find out more about telegraphic transers via the BOQ website at www.boq.com.au/business_international_oreigncurrency.htm


20/22March 2011 Page 20 o 22



Guarantees

What are guarantees?A guarantee is issued by a bank on behal o its customer, the exporter, as nancial assurance to the importer to be collected in

the event that the exporter deaults on certain specied contractual obligations.

The bank that issues a guarantee will pay the named beneciary the amount specied on presentation o a written demand as

outlined in the guarantee.

While there are standard guarantee ormats, guarantees can be tailored to meet your specic contractual needs.

Types o guarantees

These types o guarantees are commonly requested in oreign contracts.

Bid guarantee

An importer will oten ask oreign contract bidders to post a bid guarantee as evidence o serious intent to supply the goods

or services i selected. In the event that the selected supplier is unwilling or unable to carry out the contract, the Importer can

collect the amount o the bid guarantee.

Advance payment guarantee

An advance payment guarantee covers the amount o the down-payment the exporter requests rom the importer and provides

the importer with some security that, i the exporter does not deliver under the terms o the contract, the amount o thedown-payment would be retrievable.

Perormance guarantee

A perormance guarantee permits the Importer to draw on the guarantee i the exporter ails to perorm according to the terms

o the contract. For example, in the event that the exporter is unable to complete the contract as agreed halway through

a project, the importer is compensated with the amount o the perormance guarantee.

Standby letter o credit

Oten standby letters o credit are used instead o guarantees. Standby letters o credit work in much the same wayas guarantees, oering nancial assurance to the importer i the exporter deaults on agreed-upon contractual obligations.

However, there are at least two important ways in which standby letters o credit dier rom guarantees.

1. Standby letters o credit are governed by the international chamber o commerces UCP while guarantees are subject

to the laws o the country o the issuing bank.

2. Banks in several countries, including the United States, are not empowered to issue guarantees, and thereore

use standby letters o credit instead.


21/22March 2011 Page 21 o 22



Mechanics o guaranteesDuring contract negotiations, the importer requests that the exporter provide a guarantee securing an aspect o the contract

(e.g. bid, advance payment). The exporter (applicant) enlists its bank (issuing bank) to issue the guarantee in avour

o the importer (beneciary) or a specied amount and within a stated time rame.

In the event o deault by the exporter, the importer would demand against the guarantee through the advising bank.

ext / ait

ctt

ngtiti

Issig Bk

aisig BkImt / Bfi

Gt is st t

st bk t

issig bk i t

t imt.

ais Gt.

ai t

Gt.


22/22



Contact usBOQ has a number o specialist trade nance managers who can work with our business and retail bankers to create tailored

solutions to the unding needs o both importers and exporters.

For assistance with trade nance and services contact one o our international services experts on 1300 55 72 72

or email us via the ollowing link www.boq.com.au/contactus/cu-intbanking.aspx