Remittance

Overview of Methods of Payment

• To effect payment in international trade, the parties involved need to discuss the means of payment, the place and time of payment, and the methods of payment.

• The means of payment means the instruments used in international trade. In international trade, cash is rarely used. Instead, traders use bills, especially bills of exchange for payment of the goods.

• The methods of payment chiefly include remittance, collection, and letter of credit.

• Besides, the bank guarantee, standby L/C, and a combination of two or more methods are also used in the payment of the goods.

• If the payment is done by remittance, it is called favorable exchange, by which the buyer makes the payment by bank transfer of his own accord;

• if by collection or letter of credit, it is adverse exchange, by which the exporter takes the initiative to gather the payment from the buyer.

• To choose a method for the payment of the goods, exporters are expected to consider the problem of credit.

• Different methods of payment mean different credits. Bank credit is more reliable than commercial credit.

• So it is quite important to choose the right method for the safe settlement of the payment.

What is Remittance

• Remittance is to deliver the payment of the goods to the seller by bank transfer.

• In remittance, there are four parties involved: the remitter, the beneficiary, the remitting bank, and the paying bank.

• From a legal point of view, the remitter remits the money to the beneficiary as it is required by the contract concluded between them.

• And when the remitter comes to the remitting bank, he fills an application form for the bank to effect the payment, which, upon acceptance, will be binding upon the remitting bank.

• And the paying bank pays the beneficiary because it is the branch bank or correspondent bank of the remitting bank in the country of the seller.

Nature of Remittance

• Remittance is chiefly used for payment in advance, cash with order, delivery first and payment afterwards for small quantity of goods, commission, sundry charges, etc.

• If it is used for payment in advance or cash with order, it will place the buyer in an advantageous position.

• If for delivery first and payment afterwards, it will place the seller in an advantageous position.

• Remittance uses commercial credit and hence in adopting this method the parties involved need have trust in each other.

Types of Remittance

• Remittance is of three types: • Mail transfer (M/T), • Telegraphic Transfer (T/T),

• Banker’s Demand Draft (D/D).

Mail Transfer (M/T)

• By Mail Transfer, the buyer will hand over the payment of the goods to the remitting bank that will authorize its branch bank or correspondent bank in the country of the beneficiary by mail to make the payment to him.

Telegraphic Transfer (T/T)

• By Telegraphic Transfer, the buyer will hand over the payment of the goods to the remitting bank which will authorize its branch bank or correspondent bank in the country of the beneficiary by telegraphic means to make the payment to him.

• Mail Transfer is less expensive, but it costs more time, while telegraphic transfer is more expensive but is much sooner.

Banker’s Demand Draft (D/D)

• By Demand Draft, the buyer will come to the local bank to buy a banker’s bill and then deliver it to the seller or beneficiary by mail. When the seller or beneficiary has received it, he will come to the bank designated by the banker’s bill for cash.

• Apart from banker’s bill, promissory notes or checks can also be used in this way.