Amount and Time of Credit in Export Import

Posted on 29 April 2023 Category : Export

Amount and Time of Credit in Export Import

In international trade, the growing competition is not confined to quality, price and delivery schedule but extends to terms of payment. International trade has been not only highly competitive, equally sensitive. Credit facilities extended to the importers, many a time, tilt the choice of exporter. Importer may prefer that exporter who can afford credit even though the price is relatively higher. When all the factors stand on the same footing between competing exporters, it is all the more choice of the importer to finalize with that exporter who extends credit on favorable terms. Here, the role of institutional credit comes into full play.

The extent of credit needed depends upon the terms of sale. Exporter who has finalized the terms of sale on CIF basis requires more funds to finance the export transaction, in relation to FOB contract when no advance payment is received from the importer. So, sale terms influence not only the amount of credit, but also when the credit must be extended to the exporter to facilitate successful completion of export transaction. In some cases, credit may be extended to the exporter by importer, through letter of credit, even to purchase raw materials to manufacture goods, meant for export. Export transactions are deemed to be complete only when the export proceeds are fully received from the importer.

The terms of payment play an important role in export business. How and when the exporter has to receive payment are decided during early negotiations between the exporter 1 and importer. Many exporters are able to clinch the deal based on attractive payment terms though they may not be totally competitive from the viewpoint of price or quality. Payment terms are determined by a host of factors, including the exchange control regulations of the country, financial competence of the exporter, monopolistic conditions of the product and above all bargaining strength of the parties. According to exchange control regulations in our country, the full value of export proceeds must be received within a period of six months from the date of shipment. Any extension of the period requires the prior approval of Reserve Bank of India.

There are five methods of receiving payment from overseas buyers. Choice of method, largely, depends on the bargaining muscle of the trading partners. Different methods of payment carry varying degrees of risk to the exporter.

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