1、Chapter 6 Instruments of Payment Remittance Collection Chapter 6 International Payment and Settlement Bill of Exchange(Draft,Bill)Promissory Note Check(Cheque)6.1 Instruments of Payment Bill of Exchange(Draft,Bill)DefinitionContentsThe Classification of the Draft Procedure of Using a Bill of Exchang
2、eDefinition A Bill of Exchange is defined as“an unconditional order in writing,addressed by one person(drawer)to another(drawee),signed by the person giving it,requiring the person to whom it is addressed to pay on demand,or at a fixed or determinable future time,a sum certain in money,to or to the
3、order of,a specified person(payee),or to bearer”.Bill of Exchange(Draft,Bill)The Classification of the Draft According to the different drawer According to the documents accompanied According to payment timeBill of Exchange(Draft,Bill)Procedure of Using a Bill of Exchange Issuance Presentation Accep
4、tance PaymentEndorsementDiscounting DishonorRight of Recourse Bill of Exchange(Draft,Bill)Promissory Note DefinitionClassificationThe Involved Parties The Differences of the Promissory Note and the Bill of Exchange Promissory NoteDefinition The promissory note is an unconditional promise in writing
5、made by one person(the maker)to another(the payee)and signed by the maker engaging to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or bearer.-from Bills of Exchange Act 1882 of the United Kingdom Promissory NoteDefinition The
6、 promissory note is the note issued by the drawer,promising to make unconditionally a definite sum of money to the payee or the note holder at sight of the note.It is stipulated in Negotiable Instruments Law of the Peoples Republic of China that the promissory note is named as the bank promissory no
7、te,issued and signed by the central bank of China or other financial institutions.-from The Negotiable Instruments Law of the Peoples Republic of China Promissory Note Classification Commercial promissory notes /general promissory notes -drawn by the commercial firms.-sight promissory note and time
8、promissory note.Bank promissory notes -issued and signed by banks.Promissory Note The Involved Parties the drawer the payeePromissory Note The Differences of the Promissory Note and the Bill of Exchange The promissory note is a promise made by the drawer to make payment to the note holder;the B/E is
9、 an order made by one party to the other party requiring it to make payment.There are only 2 parties in a promissory note,but 3 parties in a B/E.The drawer of a promissory note is the payer,and a time promissory note neednt the acceptance;the drawee of a B/E is the payer.In whatever situation,for a
10、promissory note,the drawer is the first debtor;for a B/E,the drawer is the first debtor before the bill is accepted,the acceptor becomes the first debtor after the acceptance and the drawer turns into the second debtor.The promissory note is made out in only one original;the B/E is made out in dupli
11、cate.Check(Cheque)DefinitionClassificationCheck(Cheque)Definition A check is a sight B/E with the bank as the payer,that is to say,it is an unconditional order drawn on a banker by the drawer,requiring the banker to pay on demand a sum certain in money to or to the order of a specified person or to
12、the bearer.-the Bills of Exchange Act of UKCheck(Cheque)Definition A check means a bill issued and signed by the drawer,appointing the bank or other financial institutes to make payment of a sum certain in money unconditionally to the payee or the check holder.-Negotiable Instruments Law of the Peop
13、les Republic of ChinaDefinitionThe Involved Parties Classification 6.2 Remittance 6.2 Remittance Definition Remittance refers to that the payer makes payment to the payee through a bank or other institutions.For the remittance in the international trade,the buyer makes payment to the seller by bank
14、according to the conditions and the payment time stipulated in the contract.6.2 Remittance The Involved Parties Remitter Payee Remitting Bank Paying Bank 6.2 Remittance ClassificationMail Transfer,M/T Telegraphic Transfer,T/T Remittance by Bankers Demand Draft，D/D The Usage of the Remittance -Cash o
15、n Delivery,COD -Payment in Advance Conception of Collection The Involved PartiesTypesThe Property,Advantages and Disadvantages The Rules of Uniform Rules for Collections 522(URC522)Remarks for Collection 6.3 Collection 6.3 CollectionConception of CollectionDefinition Nature of Collection Procedure o
16、f Documentary Collection 6.3 CollectionConception of CollectionDefinition Collection is an arrangement whereby the seller draws a draft on the buyer and authorizes its bank to collect.6.3 CollectionConception of CollectionDefinition from ICC (the International Chamber of Commerce)The collection is t
17、he handling by banks,on instructions received,of documents(financial documents and/or commercial documents),in order to:a.obtain acceptance and/or,as the case may be,payment,or b.deliver commercial documents against acceptance and/or,as the case may be,against payment,or c.deliver documents on other
18、 terms and conditions.6.3 CollectionConception of Collection Nature of Collection Collection is a kind of commercial credit,offered to each other by firms and merchants.The collection bank acts only as collector of funds on behalf of the seller and is not committed to the obligation whether the buye
19、r makes payment or not.It is dependent on the commercial credit of the buyer if the seller will be paid after the delivery of goods.Therefore,a collection transaction puts the seller under a great risk.6.3 CollectionConception of CollectionProcedure of Documentary Collection The buyer and the seller
20、 conclude the sales contract,stipulating the payment is made by documentary collection with D/P at sight.The exporter authorizes the local bank to effect the collection,submitting the full set of shipping documents with draft to the remitting bank.The remitting bank sends the draft and the shipping
21、documents to the collecting bank of the importers country together with the instructions received from the exporter.6.3 CollectionConception of CollectionProcedure of Documentary Collection The presenting bank makes presentation of the payment advice to the buyer.The importer makes the payment and g
22、ets the documents.The collecting bank informs the remitting bank and makes transfer of the payment to the remitting bank.The remitting bank credits the payment to the account of the exporter.6.3 CollectionThe Involved PartiesPrincipal Remitting Bank Collecting Bank Payer Presenting Bank 6.3 Collecti
23、onTypesDocuments against Payment:D/P -Definition -Classification Documents against Acceptance，D/A Definition The document against payment refers to that the seller delivers the documents upon receipt of the payment from the buyer(importer).The buyer cannot get the documents until it makes the paymen
24、t to the seller.Documents against Payment:D/P Classification D/P at sight D/P after sight Documents against Payment:D/PD/P at sightAfter the shipment,the seller draws a sight draft and makes presentation of it with the full set of shipment documents to the buyer through the banks,and the buyer makes
25、 the payment at sight of the bill;the bank releases the documents to the buyer on receipt of the full payment from the buyer.D/P after sightAfter the shipment,the seller draws a sight draft and makes presentation of it with the full set of shipment documents to the buyer through the banks,and the bu
26、yer accepts the bill after confirming it and makes the payment on the mature date;then the bank releases the documents to the buyer.The Property,Advantages and Disadvantages Collection is a kind of commercial credit in favor of the buyer.The payment by collection neednt go through as complicated pro
27、cedures as the L/C,without the requirement of bank deposit,with lower bank service charges,and not occupying capital.The remitting banks and collecting banks are not committed to the obligation of payment,and thus it is completely dependent on the buyers credit whether the seller can receive payment
28、 or not.The buyer is in the risk of failure or delay of being paid in case that the buyer goes bankruptcy,loses the ability of discharging debt or refuses to pay in purpose.6.3 Collection The Property,Advantages and Disadvantages Although D/P is to deliver the documents on receipt of payment,the buy
29、er may refuse to make payment and give up the documents when the market is shrinking.In this case,the seller will bear the loss of money and goods as well.The banks are not committed to the obligation of keeping and delivery of the shipment,but the seller has to pay for the settlement charges of del
30、ivery,customs clearance,warehouse storage,insurance,resale,auction or shipping back,etc.For the payment by D/A,the risk for the buyer is larger.6.3 Collection The Rules of Uniform Rules for Collections 522(URC522)The instructions of Collection shall write the words like“keep to URC522,and D/P after
31、sight is not advisable”.The usance bill is not allowed and the commercial documents shall be delivered after the payment.For the D/P after sight,it shall be remarked with documents against payment or documents against acceptance.The consignee shall not be the banks or to order of bank;banks are only
32、 in charge of documents,not responsible for the goods.6.3 Collection The Rules of Uniform Rules for Collections 522(URC522)Banks are not responsible for the verification of documents,but in charge of confirming if the quantity of documents is the same as indicated in the collection instruction.The p
33、resenting bank shall send the advice of dishonor to the remitting bank in case that the collection is dishonored.6.3 Collection Remarks for Collection The seller shall make a detailed investigation about the credit of the buyer before accepting the payment by collection.For the countries that are st
34、rict on foreign exchange,it is not advisable to adopt Collection as the payment method.The seller shall have a full understanding of the commercial regulations of the import country.For example,in some Latin American countries,the shipping documents will be released to the buyer on receipt of the ac
35、ceptance for D/P after sight,it makes no difference with D/A.For these countries,it is not advisable to accept D/P after sight as the payment term.6.3 Collection Remarks for Collection The exporter shall try to conclude the contract with CIF term if the payment term is by collection.The risk is larg
36、er with FOB or CFR in case that the buyer refuses to pay as the seller does not hold the insurance policy.For the exports with FOB or CFR,the seller shall insure for the export credit.For the collection,the seller shall have a wholesome accounting system with regular examination,urge and settle the
37、unpaid businesses in prevention of the possible loss.6.3 Collection Questions:What are the differences between the commercial bill and the bankers bill?Who are the involved parties in a bill of exchange?Why is the drawer the main debtor(before the acceptance of the draft)?Which one is the payer in t
38、he involved parties in B/E,promissory note and check?What is the title of the B/E?How many ways are there for the title of the B/E?What is the endorsement of the B/E?How many types are there for the endorsement?What is the property of the collection?How to use it in the international trade?What are the differences between D/P after 30 days sight and D/A after 30 days sight?
