TMW-Payment.docVIP

Introduction A significant element in a trade situation between a Buyer and a Seller is the payment for the goods. In this process, the Seller wants to be certain that the Buyer will pay the agreed amount on time once the goods have been despatched. At the same time, the Buyer wants to be sure that the Seller delivers the goods as agreed, at the right time and place and in the right quantity and quality. There are different options for handling the transfer of payment from the Buyer to the Seller. The contract between the parties will therefore stipulate in detail which method of payment has been agreed. In this section we will go through some common methods of payment: Letter of Credit, Documentary Collection and Cash payments. You should note that there are other payment methods, the choice of which will depend on the commercial arrangement between the Seller and the Buyer. Relevance to us Maersk Line as a carrier and Maersk Logistics as a logistics provider is not directly involved in the payment for the goods between the Buyer and the Seller. However, it can be useful for us to be aware of which types of commercial arrangements exist as they may influence requirements, requests or procedures that shippers and consignees are imposing on us. Letter of Credit (L/C) Letter of Credit (L/C) is the most common payment method in international trade. The arrangement is also known as Documentary Credit. It is a banking mechanism in which the Buyer′s bank guarantees payment for the goods to the exporter so long as all required documents are presented by the exporter to the bank, in exact conformity with the terms of the L/C. In this way, the bank takes on a risk and secures the payment towards the exporter. The bank charges a fee for this service and may also require the Buyer to deposit a specified amount while the L/C is open. Actors and Activity Flow The Buyer applies for the L/C at his bank, also referred to as the Issuing Bank. The Issuing Bank checks the credit