Business transactions – Corporate angle
CONFIDENTIAL
© Mecklai Financial Services Limited 2008.
No part of this document can be circulated or reproduced in any form without prior approval of Mecklai Financial Services Limited
Trade: Product Range
Domestic Trade
• Letter of Credit
• Documentary Collections (in/out)
• Bills Discounting
Imports
• Letter of Credit
• Documentary Collections
• Advance/Direct
• Buyers’ Credit
• Suppliers’ Credit
Trade Account
(CA/EEFC)
Exports
• Pre / Post Shipment
• LC Advising/
Confirmation/
Negotiations/ Transfer
Guarantees
• Bid Bonds / Performance
Bonds
• Financial
Documentary collections – Complete flow
Acceptance or Proceeds (7)
Presenting
Bank
Proceeds
(9)
Importer
Documents (6)
Bills of Lading (8)
Documents and
Collection Order (5)
Goods
(2)
Bills of Lading (3)
Remitting Bank
Proceeds (10)
Bills of Exchange, Documents and
Lodgement Form (4)
C
o
n
t
r
a
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t
(1)
Exporter
Documentary Collections
 Governed by Uniform Rules for Collection, ICC Publication No. 522
(URC 522), 1995 – most importantly UCP 600 (Reading material
provided)
 Exporter ships the goods to the importer and presents the
documents to his bank. Exporter’s bank sends documents to the
importer’s bank for collection of payment
 As per payment terms of the collection instructions, the importer’s
bank asks importer to either
o pay and get the documents (D/P)
o accept to pay on a future date and get the documents (D/A)
Importer Perspective – Doc. Coll.
 Advantages
o Cheaper and Convenient as compared to Letter of Credit
o Control over settlement
o Opportunity to inspect documents before settlement
 Disadvantages
o Delay in Goods clearance as documents are in Banking system
Exporter Perspective – Doc. Coll.
 Advantages
o Cheaper and Convenient as compared to Letter of Credit
o Control over documents via banking system
 Disadvantages
o No Guarantee of payment
Regulatory Environment
Foreign Trade Policy
FEDAI/FEMA
Trade
RBI
ICC – UCP, URC &
ISP
Working Capital Cycle
Sourcing raw
materials
Internal Labour and
Contractors
Profit Distribution
Trade
Debts & Debt
servicing
 Collections
 Letters of Credit
 Import/Export Financing
Finished Goods
Duties & Taxes
Cash
Corporate Operating Cycle
Debtors
Accounting Impact
 Invoicing Date: Invoice is prepared based on the terms of
PO/LC dated around BL date and imports are booked in
accounts as on the invoice date.
 Invoicing Rate: As per corporate’s internal policy
- (Frequency – Daily, weekly, fortnightly, etc.)
- (Source: Lead bank, Reuters, Bloomberg, etc.)
 Revaluation (on month-end /quarter-end dates) – As per AS
11/AS 30 or Ind-AS.
 Final Settlement
Foreign Trade Transactions: Points to note
 Merchant Import guidelines to be followed strictly. The entire
merchanting trade transactions should be completed within an
overall period of nine months and there should not be any
outlay of foreign exchange beyond four months
 Bill of entry submission to bank while making Import payment.
One copy of Bill of entry reported by Custom to RBI.
 Form A1 for import of goods and Form A2 for import of
services. Form 15 CA/ CB certification for payment under
Form A2 (services)
 No bank will accept import documents for transactions where it
is routed to / with countries on which sanctions are in
existence ( Iran, Cuba, N. Korea, Syria, Libya.. 7 countries)
 If any replacement to be sent free of cost then GR waiver to be
taken from AD bank.
Foreign Trade Transactions: Points to note
 In case of Advance, FIRC to be taken, On shipment , Bill
requires to be lodged with AD banks where advance received Bank realization to be taken from AD bank; FIRC is valid only
till 1 year from the date of remittance and should be nullified
within that time, if it needs to be extended then approval from
AD Category 1 bank should be taken with proper clarification.
 In case of Turnkey projects, Project export approval needs to
be taken. (DPX 1/ DPX 3)
 As per RBI, export invoice to be realized in 12 months and
beyond that it will be reported by AD bank to RBI.
 Reduction in invoice value of 10% allowed at AD category 1
bank level. However, CA certificate for last 3 calendar years of
export proceeds is required.
Foreign Trade Transactions: Documentation
 LC issue
- Documentation: Covering letter, Certificate of origin, Vendor
approved PO copy, Fema Decl., Form A1/A2,
Stamp paper, Insurance copy.
 Payment process
- Documentation: Covering letter, Bill of entry, Fema Decl.,
Amount, rate and currency, Invoice copy, PO
copy, Form A1/A2.
 Insurance is required for 110% of cost as per UCP 600
Thank You