The exporter will make arrangements for securing the payment from the importer. There are mainly four methods available for the exporter to secure payment.
The method of obtaining payment will be determined by the terms and conditions as agreed to earlier between the two parties. The various methods of securing payment are discussed below:
(i) Documentary Bill:
The exporter draws a bill of exchange on the importer and sends the documents such as bill of lading etc. though his bank to be delivered to the importer only when he accepts the bill or makes payment. This bill may be either a D/P or D/A bill of exchange. In case of a D/P (Documents against payment) bill is documents are not handed over to the importer, except against payment D/A documents against acceptance) bill implies that the documents are to be handed over to the importer against his acceptance of the bill. In the later case, the branch of the bank concerned received payment on maturity of the bill and then only the exporter gets credit to his account.
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(ii) Discounting the Documentary Bill:
ADVERTISEMENTS:
If the exporter wants immediate payment, he can get the bill discounted from his banker. For this purpose he has to give a letter of hypothecation to the bank so that in case the bill is dishonored, the bank may sell the goods and recover the amount which has already been paid to exporter.
A letter of hypothecation usually clearly indicates if the bank recovers less amount than what it paid to the exporter, the exporter is liable to pay the difference. The surplus if any goes to the exporter. The exporter does not favor this method as it involves uncertainty of payment on the one hand and on the other the loss by way of discount.
(iii) Documentary letter of credit:
In this method the importer is required to open a letter of credit, with a bank having branch in the exporting country and send it to the exporter. The exporter can present documentary bills to the bank who will pay him immediate cash against the letter of credit. This method is favored by the exporters as it ensures a quick and guaranteed payment from the importer.
(iv) Payment through a foreign bank draft:
ADVERTISEMENTS:
Under this method, the importer sends a bank draft for the value of the goods drawn on his bank and payable at some branch of the bank in the exporter’s country. The exporter on receipt of such a draft can get immediate payment from the bank. This method of payments also favoured by the exporters.
After securing the payment the foreign exchange so received is to be surrendered by the exporter to the Reserve Bank of India within the prescribed time under the Foreign Exchange Regulations Act, 1947.