Methods of Payment Flashcards
1
Q
What is the Payment Risk look like?
(Top to bottom pyramid)
A
- Consignment.
- Open account.
- Draft payment.
- Documentary credit.
- Cash in advance.
2
Q
What is Open account?
A
- More use with domestic type businesses.
- All it is:
Price = $100 CAD DDP your warehouse
Term of Payment = net 30 (you owe me the full amount in 30 days).
2/10 net 30 is you get 2% discount is you pay me in 10 days out of the 30 days. - Basis for granting credit by checking history.
- Factoring as an option.
3
Q
What is Factoring?
A
- Selling to some or all foreign accounts receivable to a third party.
- Minimize risk of getting paid.
- Done usually by small companies with small accounts.
4
Q
What is Letter of Credit?
A
For the buyer/importer:
- Helps ensure that order will be delivered under all conditions stipulated (Time, Quality, Quantity).
For the seller/exporter:
- Help ensure the buyer (has the money to pay & will pay if all conditions are met).
- Can be used to obtain short-term financing required to fill the order.
- Based on the legitimacy of the document.
- The L.o.C. will have conditions, which the bank of the buyer is going to issue a L.o.C. to the seller’s bank stating that the buyer has the funds to pay.
-The l.o.c. will say « My company has bought x amount of the product from this seller, and it will arrive on x day ».
5
Q
What is negative of Letter of Credit?
A
- There are fees.
- If the conditions are altered the fixing is complexed.
6
Q
What is the Documentary Credit?
A
- Written undertaking by a bank. (Issuing Bank).
- Given to the Seller (Beneficiary).
- At the request and in accordance with the Buyer’s (Applicant) instructions.
- To effect payment at sight or at term up to a stated amount.
- Against stipulated documents within a prescribed time limit.
7
Q
What is the difference between insurance and facturing?
A
- Fracturing you get your money sooner.
- Insurance you might not get your money back.
