TYPES OF INT'L PAYMENTS

Contents

●Wire transfer, its pros & cons●Bank guarantee – when can we use that●Letter of Credit – contemporary

instrument of global trade●Pricing●? ? ?

So, No.1 – WIRE TRANSFER●Transfer of funds from buyer’s bank account to

an account of seller●Made either (i) before shipment or (ii) after

shipment●Direct, but level of reliability is low●By fact, the simplest form of settlements

between trading parties, if there is a trust●Pricing… - we will talk about it later

HOW WIRE WORKS

1. Money sent

2. Goods shipped (hopefully)

Buyer Seller

OR, OTHER WAY …

1.Goods shipped(risk, isn’t it?)

2. Buyer pays $

Buyer Seller

Next, BANK GUARANTEE●Buyer’s bank undertaking that they will pay,

even if their customer fails, upon the condition that the seller / supplier confirms the fulfilment of its obligations. This guarantee is referred to as payment guarantee

or●Supplier’s bank’s guarantee, promising to

return the advance payment if the supplier fails to ship the goods / provide services – advance payment guarantee

WOW, LETTERS OF CREDIT!!!●The Banking instrument whereby bank

promises to pay to supplier upon presentation of LC required and compliant documents only, thus insuring both supplier (who will receive money whatever happens to buyer…, or his intentions) and buyer (only the compliant documents will be honoured)

●the bank is very important here, therefore, parties usually choose the first-rate European bank to process the payment

HOW…

Buyer’s (Issuing) BankSeller’s Bank

Seller Buyer

1) Contract

2b) Letter of credit

3a) Shipment

3b) Documents

4) Payment

2a) LC request

And finally, smth abt PRICES

Lets do it starting from lowest, and moving to the most expensive1.Wire transfers - usually, up to 0.25% of the

amount of transfer2.Bank guarantee – also 0.25%, but do not

forget, that the company will then have to pay for transfer too.

3.Letter of credit – the price may get up to 2% of the transaction amount (it includes fee for issuance; confirmation, if any; documents check; reimbursements; & etc.)

Oh, how could I forget

●Questions ???

●Your critics and comments