INTERNATIONAL FINANCEOPEN ACCOUNT, ADVANCE PAYMENT &CONSIGNMENT

NABEEL FIRDAUS BIN MOKHTAR 08DPI12F2019PUTERA ACHRUFF ICHKANDAR BIN ROSLY 08DPI12F2010MOHD ASWADI BIN ISMAIL 08DPI12F2016NORHASHIMAH BINTI MOHD ISMAIL 08DPI12F2028NUR AZILA BINTU RUSLIN 08DPI12F2023

Adva

nce

paym

ent

•Is the part of a contractually due sum that is paid or received in advance for goods or services.•The balance included in the invoice will only follow the delivery. •It is called a prepaid expense in accrual accounting for the entity issuing the advance

-DEFINITION-

Adva

nce

paym

ent

Are the safest method of payment for exporter

Are least attractive option for the buyer (importer)

exporter

impo

rter

Adva

nce

paym

ent

Importer need to pay advance payment (ex: 50%) of goods price before exporter sent the goods

When exporter receive the advance payment, they will sent the goods to importer

The importer will pay the balance payment when they receive the goods

exporter

importer

importer

Adva

nce

paym

ent -RISK &

BENEFIT-• Are the least secure payment method for importer• Foreign buyers may be concerned that the goods may not be sent if payment is made in advance.

exporter

• An exporter can avoid credit risk because payment is received before the ownership of the goods is transferred• The exporter is relieved of collection problems and has immediate use of the money

importer

Open

acc

ount

The goods, along with all the necessary documents, are shipped directly to the importer who has agreed to pay the exporter’s

invoice at a specified date, which is usually in 30, 60 or 90 days

The exporter should be absolutely confident that the importer will accept shipment and pay at the agreed time and that the importing country is commercially and politically secure.

Open account terms may help win customers in competitive markets and may be used with one or more of the appropriate trade finance techniques that mitigate the risk of non-payment.

Open account is typically used between established and trusted traders.

Open

acc

ount

Open Account Transaction Flow

Open

acc

ount

Risk

o Buyer defaults on payment obligation.o Delays in availability of foreign exchange

and transferring of funds from buyer’s country occur.

o Payment is blocked due to political events in buyer’s country.

SELLER

Open

acc

ount BUYE

RoSeller does not ship per the order (product, quantity, quality, and/or shipping method).oSeller does not ship when requested, either early or late.

Cons

ignm

ent

• Variation of open account in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer.• Transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells the goods for the exporter who retains title to the goods until they are sold.• Payment to the exporter is required only for those items sold.• Appropriate insurance should be in place to cover consigned goods in transit or in possession of a foreign distributor as well as to mitigate the risk of non-payment.

Cons

ignm

ent

EXPORTER

INTERMEDIARIES:DISTRIBUTOR/AGENT BANK IMPORTER

PARTIES INVOLVES:

Cons

ignm

ent

Partnership in Exporting on Consignmentpartner with a reputable and

trustworthy foreign distributor or a third-

party logistics provider (3PL) that is based in its selected overseas

market

Export Working Capital Financingneed financing to

ensure that they have access to working

capital and credit while waiting for payment

from the foreign distributor

Government-Guaranteed Export

Working Capital Programs

Export-Import Bank offer programs that guarantee export working capital

facilities

Export Credit Insurance

Export credit insurance provides protection against commercial

losses

HOW TO EXPORT ON CONSIGNMENT

Cons

ignm

ent

EXPORTER

will not receive any money until part or all of the

consigned stock has been sold

exposed to higher product returns if the agents or consignees simply allow

the goods to rot or become damaged in

warehouses

IMPORTER

Payment to exporter are not guarantee

RISK