Fuzing » Trade Terms http://blog.fuzing.com Helpful Ideas!! Tue, 20 Oct 2009 11:25:41 +0000 http://wordpress.org/?v=2.8.1 en hourly 1 Open Account http://blog.fuzing.com/2007/08/open-account.htm http://blog.fuzing.com/2007/08/open-account.htm#comments Sat, 04 Aug 2007 22:18:44 +0000 admin http://blog.fuzing.com/2007/08/open-account.htm The term “Open Account” refers to a credit arrangement between the buyer and seller of goods or services in which the goods are shipped (or services rendered) prior to payment.  The buyer of the goods is granted a period of time after shipment (or service rendered) in which to pay the outstanding balance on their account.  This arrangement is very common in certain countries for domestic trade, but is less commonly used in international trade, and would only be used for long-standing and prompt paying repeat customers with impeccable credit.  Sellers employing the open account payment method should know their buyer and be comfortable with economic and political conditions in the buyer’s country.  Depending upon the currency being used, the seller may also be exposed to fluctuations in exchange rates.

An example.  If a seller grants a buyer terms of “net 30 days after shipment” then this means that the buyer must pay the outstanding balance within 30 days after the goods have shipped.   This arrangement would be a form of “open account” because the buyer is not paying for such goods until after they have shipped.

This trade tip is proudly brought to you by trade leads from the Bags, Cases and Luggage section of our business to business marketplace.

When an Open Account arrangement is used, all of the credit risk is borne by the seller of the goods because they make the shipment prior to receipt of payment.  This credit arrangement may also require the seller to invest large sums into working capital due to the cash-flow delays inherent with deferred payments on open accounts.  Sellers must bear the costs of purchase or manufacture of goods or services for the longest period of all of the common forms of payment method.

]]> http://blog.fuzing.com/2007/08/open-account.htm/feed 0 Letter of Credit (L/C or Documentary Credit) http://blog.fuzing.com/2007/08/letter-of-credit-lc-or-documentary-credit.htm http://blog.fuzing.com/2007/08/letter-of-credit-lc-or-documentary-credit.htm#comments Wed, 01 Aug 2007 20:43:38 +0000 admin http://blog.fuzing.com/2007/08/letter-of-credit-lc-or-documentary-credit.htm The term “Letter of Credit” (sometimes referred to as “Documentary Credit“) refers to an undertaking made by a bank to pay a beneficiary (usually the seller of goods) the sums owed by an account holder (usually the buyer of such goods), provided a pre-determined set of conditions are met.  It is essentially a guarantee made by an issuing bank that a seller will get paid for goods, provided that those conditions are met.  Hence, a Letter of Credit is a financial instrument that serves the interests of the seller, by guaranteeing payment, while also serving the interests of the buyer, by establishing credit with the seller.  Letters of credit are often used during the early phases of a business relationship to establish higher levels of trust and creditworthiness.

This trade tip is brought to you by trade leads from the Automotive and Transportation section of our Business to Business Marketplace.

Contractual relationships created or substantiated under a Letter of credit
There are essentially three obligations that are created under an L/C, namely:

  1. First there is a contractual arrangement directly between the buyer and seller of the goods or services in question.  This agreement is spelled out in the “sales contract” between the two parties.
  2. Second, there is the “Application and Security Agreement” or “Reimbursing Agreement” between the buyer and the issuing bank.  This agreement spells out the terms under which the bank may release funds to the seller.
  3. Third, the “Letter of Credit” (or “Documentary Credit”) is issued between the issuing bank and the beneficiary (typically the seller of the goods).

Each of these contracts is distinct and creates an obligation between the contracting parties. 

Fraud
It should be noted that while the Letters of credit are excellent tools when used as a method of payment, fraud cannot be mitigated entirely - there are many documented cases where a fraudulent Documentary credit was issued by a totally fictitious bank.  In this case the seller would never get paid!

]]> http://blog.fuzing.com/2007/08/letter-of-credit-lc-or-documentary-credit.htm/feed 1 Escrow http://blog.fuzing.com/2007/08/escrow.htm http://blog.fuzing.com/2007/08/escrow.htm#comments Wed, 01 Aug 2007 20:38:12 +0000 admin http://blog.fuzing.com/2007/08/escrow.htm The term “Escrow” refers to monies deposited by a buyer to a trusted third party (the “escrow agent“) that will be disbursed to the seller once the obligations of the seller have been met.  The Escrow mechanism is used to allay fears that buyers and sellers might have regarding payment by functioning in the following way:

This trade tip is proudly brought to you by trade leads from the Toys section of our Business to Business Marketplace.

  • Sellers generally fear that a buyer hasn’t got the means to pay for goods and services being contracted for – often sellers are unwilling to bear such credit risk.  The buyer allays the seller’s fear of not being paid by placing the agreed sum of money with the escrow agent – i.e. they place the money into the escrow agent’s “escrow account”. 
  • Buyers generally fear that if they hand over money directly to a seller, they may not receive goods or services that meet the sellers obligations.  The escrow agent allays the buyers fear of losing their money without receiving the goods or services contracted for by agreeing not to disburse the money from the escrow account to the seller until the seller has fulfilled their obligations under the sales contract.
  • Depending upon the agreement that the buyer and seller have with the escrow agent, the escrow agent may act in the capacity of arbiter to resolve disputes between the parties, although arbitration is generally restricted to issues relating to the disbursement of funds.
]]> http://blog.fuzing.com/2007/08/escrow.htm/feed 0 FAS – Free Alongside Ship (Incoterms 2000) http://blog.fuzing.com/2007/07/fas-free-alongside-ship-incoterms-2000.htm http://blog.fuzing.com/2007/07/fas-free-alongside-ship-incoterms-2000.htm#comments Sun, 29 Jul 2007 21:08:11 +0000 admin http://blog.fuzing.com/2007/07/fas-free-alongside-ship-incoterms-2000.htm The trade term FAS, or “Free Alongside Ship” means that the seller delivers (i.e. title is transferred to the buyer) when the goods are place alongside the ship at the named port of origination.  At that point the buyer bears the responsibility for loss or damage of the goods.  The FAS term requires that the seller clear the goods for export – This trade term definition brought to you courtesy of trade leads from the Motorcycles section of our business to business marketplace.

]]> http://blog.fuzing.com/2007/07/fas-free-alongside-ship-incoterms-2000.htm/feed 0 CFR – Cost and Freight (Incoterms 2000) http://blog.fuzing.com/2007/07/cfr-cost-and-freight-incoterms-2000.htm http://blog.fuzing.com/2007/07/cfr-cost-and-freight-incoterms-2000.htm#comments Sun, 29 Jul 2007 18:23:17 +0000 admin http://blog.fuzing.com/2007/07/cfr-cost-and-freight-incoterms-2000.htm In the case of CFR, or Cost and Freight, the seller relinquishes title to the buyer as soon as the goods are loaded onto the ship in the port of origination.  The seller pays the costs of transporting the goods to the named port of destination, but the risk of loss or damage to the goods is transferred to the buyer at the change of title.  The CFR term requires the seller to clear the goods for export.

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