Free Online Course in International BusinessCommunicating Methods of Payment and Fund RemittanceCommunication 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. Communication Guidelines and StandardsUniform Customs and Practice (UCP) for Documentary CreditsInternational 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.SWIFTSWIFT (Society for Worldwide Interbrain 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.SummaryHaving 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.ResourcesInternational Chamber of Commerce – www.iccwbo.orgICC Resources – www.iccbooksusa.com SWIFT – www.swift.com Commercial Bank Websites The Global Entrepreneur, James Foley, 2nd Edition, Jamric Press, 2004.
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