International payment of goods- Instruments of Payment

No export transaction can be said to be successful until the payment has been received for the goods delivered oversea,and the proceeds have been safely credited to the exporter's account.Compared with payment arrangement for domestic transaction,international payment arrangement are much more complicated and difficult.

1>Instruments of Payment
There are different means of payment including Draft,Promissory Note,Check,Credit Card and Cash,etc..Cash and Credit card are rarely used for large transactions in international trade.The common payment instruments of internation trade are Draft, Promissory Note,Check,among with Draft is the most frequently used one.

1.1 Draft/Bill of exchange
A draft is an unconditional written order addressed by one person to another and signed by the person giving it, requiring the person to whom it is addressed to pay at sight or at fixed or determined furture time the sum of money clearly specified to,or to the order of ,a specified person, or to bearer.
There are usually three parties to a draft:the drawer who issues,signs,and sends the draft to the second party,the drawee.The draft is addressed to the drawee or the payer,asking him either to pay or to accept and pay when the amounte indicated on the draft is due.Lastly,there is the payee who is to receive the payment made by the drawee.The payee and the drawer may be the same person,that is the exporter in the context of international trade and the payer and the drawee the importer.The payee may also be a third part,or,most typically,the bank at which the drawer has his account.
Draft is a negotiable money instrument,which means that the ownership of the draft may easily be transferred from one person to another either in exchange of value or merely as a gift.If the draft is transferred for value rather than as a gift,negotiation takes effect only when the endorsement is made and only then is the transferee considered the new owner.

From the different aspects draft can be divied into the following types:
*Bank's Draft and Commercial Draft
Bank's Draft is an order from on bank (the drawer) to another (the drawee) with whom it normally maintains a correspondent relationship,to pay to the named person (the payee) a specified sun of money on demand.
Commercial Draft ,the most commonly used instrument in world trade,is drawn by a firm or an individual.the drawee can be a firm, an individual or a bank.

*Clean Draft and Documentrary Draft
Clean Draft is the one to which no other documents are attached.A banker's draft is usually clean.
Documentary Draft is the one that can be honored only when certain other documents have been attached to.Commercial drafts are usually documentary.

*Sight Draft and Time Draft
Sight Draft is the one that is payable on sigh of the documents of title or on first presentation of the title documents to him by his bank.
Time Draft (usance draft, term draft ) is the one that is payable in a specifed number of days after sight,the date of issue or acceptance,or at a fixed future time.For example,"At ** days after sight","At ** days after the date of issue","At ** days after date of Bill of Lading" etc. may be clearly specified on the draft.
Issuance,presentation,acceptance,endorsement,discount and dishonor are some of the terms related to draft and need to be grasped:
**Issuance means the act of the drawer in filling up the draft with particulars including the name of the drawee ( or payer),the amount payable,the date and the place of payment and the name of the payee,etc..
**Presentation means that the holder of the draft presents the draft to the drawee (or payer) asking the latter either to pay or accept the bill.The drawee's seeing the bill is called "sight".If the draft is sight draft,the drawee has to pay the amount immediately as the sight of the draft;if it is usance or time draft,the drawee should accept the draft first and pay the amount on the date due.
**acceptance is required for a usance draft. It means if a usance is presented,the drawee takes up his responsibility by accepting the draft for paymnet as a fixed future date through putting the word "accepted",his signature and the date of acceptane on the face of the draft.
**In the international money market, draft is a circulative and transferable instrument.Endorsement serves to transfer the title of a draft to the transferee.An effective endorsement must be on the back of the draft itself and consists of a signature,or plus the name of the endorsee and related comments by the owner of the draft.
**Discount : If the holder of a usance draft wants to get money before payment,the draft can be discounted through a discounting back at the prevailing discount rate.
**Dishonor:When a draft is duly presented for acceptance or payment,but teh acceptance or payment is refused,the draft is said to be dishonored.Upon dishonor, the holder of a draft can exercise the right of resources asking the drawer or the endorser to pay the draft amount.However,the holder has to obtain a "Certificate of Protest" from a notary public,a law court,a bank or other institutions with authority of issuing it to certify the dishonor of the draft.Sometimes,to avoid the possibility of recourse,the drawer or the endorser may mark the draft with "without recourse" when issuing or endorsing the draft.But a draft with " without recourse" can hardly be discounted in the money market.

1.2>Promissory Note
The simplest kind of negotiable money paper is the promissory note. It is an unconditional promise in writing,made by one person to another,engaging to pay on demand or at a fixed or determinable time a certain amount of money to or to the order of a specifed person or to bearer. A promissory note is ,therefore, two party paper where the issurer (maker) promises to pay a second person.A promissory note can be issued by a person,a firm, or a bank.Compared with commercial promissory note issued by an individual or a firm,promissory note issued by a bank is more widely used in trade.

1.3>Check
A check is a special type of draft.The drawer is the person signing the check,the drawee is the bank where the drawer has an account,and the payee is the beneficiary,that is ,the person in whose favor the check is made out.Thus,a check is an unconditional order by the drawer or maker,asking his back to pay a certain amout of money to a third party,the payee.If a check is issued by a bank,it is called a bank's demand draft.When the drawer signs the check,he should see to it that his deposit in the bank is not lower than the amount of the check. If the drawer has not enough deposit in the bank (drawee) for the check amount, the check will be dishonored, and this kind of check is called a "bounced check",which is not allowed.