Terms of payment
In determining the terms of payment, the contract establishes:
o currency of payment;
o due date;
o method of payment and form of payment;
o Reservations aimed at reducing or eliminating currency risk.
The following terms of payment for goods:
o payment forward (prepayment);
o with a deferred payment clause (payment of the full amount is postponed to a later date than specified in the contract);
o payment by installments (in parts).
The contract usually specifies specific terms of payment. If the deadline is not set directly or indirectly, the payment is made after a certain number of days after the seller has notified the seller that the goods are at his disposal or the goods are ready for shipment.
The main methods of payment: cash, payment in advance, payment on credit.
Cash payment full or partial payment of goods before the time or at the time of transfer of goods or shipping documents to the buyer's disposal.
Payment with an advance provides for payment by the buyer to the supplier of the amounts agreed in the contract against the payments due under the contract prior to the transfer of the goods at his disposal, but more often before the execution of the order. Advance payment performs a twofold function: as a form of lending by the buyer to the seller and as a means of securing obligations assumed by the buyer under the contract. If the buyer refuses to accept the ordered goods, the supplier has the right to pay the advance payment received for damages. Advance can be provided in monetary and commodity forms (raw materials, materials, component parts and parts). Advance in cash is determined as a percentage of the total cost of the placed order. The advance payment is usually made by offsetting the delivery of the goods in a certain percentage of each delivery. As a rule, an advance is either ensured by a bank guarantee or a reservation is entered into the contract that in the event of the seller failing to fulfill the terms of the contract, the advance is returned in full to the buyer.
Payment on credit provides for settlement of the transaction on the basis of the firm loan provided by the exporter (seller) > (short-term, medium-term or long-term).
Firm loans are provided in commodity or (and) money forms.
Providing a loan in commodity form is most often done by deferral or installment payment. When issuing a loan in cash in a contract, its terms are stipulated:
o the cost of the loan, determined in percent per annum;
o Credit period;
o loan repayment period;
o grace period during which the loan is not repaid.
When concluding a contract, it is determined in which currency the goods will be paid. Such currency can be the currency of the importing country, the exporting country or the third country. Sometimes under the terms of the contract, the right of the importer to make payments in different currencies is at his discretion.
Currency clause - the condition included in the contract of international purchase and sale with the purpose of insurance of the exporter from the risk of a decrease in the currency exchange rate between the moment of concluding the transaction and the actual moment of payment. Currency clause fixes the rate of one currency relative to the rate of the other in order to avoid losses from devaluation or revaluation.
There are two main types of currency clauses:
o Establishment of a stable currency in the commodity price agreement as the contract currency
o inclusion of conditions for changing the price of goods in the same proportion as the exchange rate of the agreed currency between the parties will change with respect to the contract currency.
In the conditions of floating exchange rates, different combinations of several currencies are used for the currency clause and the multi-currency (multi-currency) clause is fixed in the contract. As a rule, payment is connected with currency transfers and, accordingly, with currency risk.
Under currency risk is understood the danger of currency losses as a result of a change in the exchange rate of a foreign currency in relation to a national monetary unit when conducting foreign trade, currency, credit and other transactions. >
In terms of currency risk, the interests of the parties do not coincide - the exporter seeks to fix the chain in relatively stable currency, and the importer, on the contrary, is interested in setting the price in the currency , subject to depreciation. The exporter of pesetas losses when the exchange rate of the contract currency is lowered against the national currency in the period between signing the contract and making payment on it. The importer, on the contrary, incurs losses in connection with the appreciation of the contract currency.
If the currency of the price and the currency of payment coincide, then there is actually no currency risk. If there is a recalculation problem, then indicate the date of recalculation, the day of payment or the day preceding the payment, the foreign exchange market whose quotes are taken as a basis, the average rate between the rates of the seller and the buyer (or one of them).
The protection clauses included in the contract are aimed at eliminating or limiting currency risk. All reservations are based on the principle of linking payments due with changes in currency or commodity markets. Reservations that involve the recalculation of the payment amount are called bilateral, because possible losses and benefits are equally distributed to the exporter and importer. Can be applied and unilateral reservations. Although it is rare, an indexation clause, is subject to change in the amount of payment, depending on the movement of the general price index. Abroad, banks provide foreign exchange risk insurance.
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