Export proceeds

and

Export Credit Guarantee Corporation of India (ECGC)

Export Proceeds

Meaning of Export
Goods which leaves the boundaries of country.

Methods of Export
Types of Export Physical Exports Software Exports Deemed Exports Third Country Export Service Export Modes Sea, Air, Post, SEZ CDs, E-mail, etc. EOUs and other categories Sea, Air, Post, Agency business

Basics of Trade
Contract of sale between Buyer and Seller
Flow of goods from Seller to Buyer Flow of payment from Buyer to Seller

1. Sales Contract
Seller

2. Goods are Shipped

Buyer

3. Payment

Overview of trade settlements

Payment in Advance
Buyer pays seller before shipment is made.

Open Account
Buyer receives documents and goods before payment is made. Documentary Collection (D/P, D/A) Seller sends shipping/ commercial documents to the sellers bank and then forwarded to the buyers bank for release to the buyer against payment or acceptance.

Documentary Credits
DC is an undertaking by an issuing bank to pay the seller, subject to fulfillment of terms and conditions as evidenced by documents.

Advance Payment
Buyer pays seller before shipment is made. Process flow
3. Goods Shipped
1. Contract 4. Documents
Seller/Beneficiary Buyer/Applicant

2. Payment

2. Payment 2. Reimbursements

Sellers Bank

Buyers Bank

Advance Payment

Documents Required For Advance Payment

Purchase Order By Buyer Proforma invoice By Exporter

Other Bank Related docs

.

Open Account
Buyer receives documents and goods before payment is made.
Process Flow

2. Goods Shipped 1. Contract 3. Documents Seller/Beneficiary 4. Payment Buyer/Applicant

4. Payment

4. Reimbursements

Sellers Bank

Buyers Bank

Open Account

Documents Required for Direct Payment (shipment has been effected) 1. Commercial invoice 2. Bill of lading or Airway bill 3.Other docs as per contract / purchase order

Documentary Collections Seller sends shipping/ commercial documents to the exporters bank and then forwarded to the buyers bank for release to the buyer against payment or acceptance.

Payment Terms
SIGHT BASIS Documents against Payment (D/P) Pay immediately when documents are sighted

USANCE BASIS Documents against acceptance (D/A)- accept the draft & pay at a later date (tenor pre decided).

Collections
Financial Documents Bill of Exchange Demand of payment; may be drawn payable at sight or payable at a tenor

Collections
Commercial Documents:
Commercial Invoice Packing List

Certificate of Analysis
Insurance Policy / Certificate Inspection Certificate Transport Document

Documentary Collection Cycle

Seller

1. Sales Contract

2. Goods are Shipped

Buyer

3. Documents and Collection Order presented to remitting bank

8. Payment less charges

6. Payment (DP) or Promise to Pay at future date (DA)

5. Documents Examined by Drawee

7. Payment less charges

Remitting Bank

4. Documents and Collection Order Sent to Collecting Bank

Collecting Bank

Conflicting Needs
In any trade arrangement a conflict of needs exists:

Seller needs
Payment for the goods Payment as soon as the goods are despatched

Buyer needs
To receive the correct goods Goods at the right time Time to pay

DCs assist in bridging the gap between conflicting wants

Documentary Credits
Definition A written undertaking by a bank Given to the seller, at the buyers request To effect payment up to a stated amount within a stated time Against presentation of stipulated documents complying with the terms of the credit

Documentary Credit Cycle

Vendor 1. Sales Contract

5. Goods are Shipped 7. Documents Negotiated 6. Documents Presented 4. DC Advised

Client

2. DC Application

11. Import Bill Settled

10. Documents to Applicant

9. Reimbursement by Issuing Bank

3. DC Issued

Negotiating Bank / Advising Bank

8. Documents sent to Issuing Bank

Issuing Bank

Documentary Credits
Advantages for Importer:
Only needs to pay when conformed documents are received Is ensured the goods arrive in time May request for inspection certificate to ensure the quality of the goods shipped Can negotiate better price and terms Can conserve capital as he does not have to pay cash in advance

Documentary Credits
Advantages to Exporter:
Payment guaranteed by Issuing Bank upon complying presentation in accordance with DC terms Being irrevocable, the credit cannot be amended or cancelled without his or the banks consent

Payment Risk Ladder

Seller
Least Secure

Buyer
Open Account Collection DA* Collection DP* Documentary Credits Confirmed DC
Most Secure

Advanced Payment
Most Secure
DA - Documents against Acceptance DP - Documents against Payment

Least Secure

Export Credit Guarantee Corporation of India (ECGC)

Damages, Robbery, Pilferage Political, Economic War, Emergency Insolvency of buyers or its bankers Others

What is ECGC

Government of India initiative to strengthen the export promotion drive by covering the risk of exporting on credit.

Exposure of Risks
Exporter Bank/FIs Export Finance

Buyer
Commercial Risks Political Risks

Insolvency of the buyer Failure of buyer to make payment Repudiation / Non-Acceptance, etc.

War / Revolution Shortages of currency Restriction by Govt. Addl. Freight payment due to diversion of voyage, etc.

ECGC Provides
Range of credit risk insurance.

Offers Guarantee to banks and FIs.

Overseas investment insurance to Indian Companies investing in joint Venture.

Type of cover
Shipments (Comprehensive Risks) Policy Small Exporters Policy Specific Shipment Policy - Short Term(SSP-ST) Export (Specific Buyers) Policy Export Turnover Policy Buyer Exposure Policies Consignment Exports Policy Service Policy

Software Project Policy

Type of Cover / Guarantee

Export Credit Insurance Packing Credit Export Credit Insurance-Individual Post - Shipment

Export Credit Insurance-Export Finance (ECIB-EF)

Export Credit Insurance-Export Performance (ECIBEP)

Countries and its Rating

A1 USA A2 Bhutan B1 Brunei B2 Ghana C1 Cambodia C2 Guyana D Afghanistan

UK
Australia Denmark France Japan

Chile
Colombo Hong Kong Kuwait Maldives Nepal Pakistan

Egypt
Indonesia Kenya Nigeria Philippines Iran

Haiti
Palau Senegal

Ecuador
Mongolia St. Lucia St. Vincent & Grenadine Syria Togo

Iceland
Liberia Tajikistan Sudan Myanmar

Iraq
North Korea Palestine NIUIE Island Western Sahara Nauru Central African Republic

Charges
It is Country and Payment Term Specific

Commercial and Political Risk

(Non DC transactions)

- 0.29 3.0% - 0.06 1.75 % - 0.12 2.06 %

Political Risk ( any transactions) DC Bank and Political risk

Commercial and Political Risk (Open Credit) - 0.41 0.82%

DCs - The Contracting Parties

Exporter / Beneficiary

1. Commercial Contract

Importer / Applicant

2. DC Application

Issuing Bank

The DC Cycle - DC Advised

Beneficiary

1. Commercial Contract

Applicant

2. DC Application

Advising Bank
3. DC issued

Issuing Bank

The DC Cycle
5. Goods shipped

Beneficiary

1. Commercial Contract

Applicant

6. Docs submitted 4. DC advised

2. DC Application

Advising / Advising Bank Nominated Bank

Issuing Bank
3. DC issued

The DC Cycle
5. Goods shipped

11. B/L exchanged for goods

Beneficiary

1. Commercial Contract

Applicant
12. Submits proof of import to issuing bank (bill of entry)

6. Docs submitted 4. DC advised

8. Debit a/c 10. Docs 9. Reimbursement

2. DC application

Advising / Nominated Bank

Issuing Bank
7. Docs 3. DC issued

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