Payment Method: Open Account and Consignment Account

-
Under this arrangement, the seller gives a certain credit period to the buyer to pay the purchase price of the goods for example 60 days after the shipment of the goods or 30 days from the invoice date and so on.

The goods are forwarded directly to the buyer. The invoice, insurance policy and shipping documents like bill of lading, delivery order or airwaybill are also dispatched directly to the buyer to enable him to take delivery of the goods and dispose of them. On agreed due date, the buyer makes payment accordingly.

The open account payment method is commonly practiced in trading within the country i.e. local trade.

Factors to be considered are:

The Buyer
  • Compliance of the contract requirements such as prompt delivery of the goods to third party buyers; prompt payment on the respective due dates to continue good track records,
  • Foreign exchange risk.
The Seller
  • Payment made only after shipment or delivery;
  • Buyer's credit risk and integrity;
  • Buyer's country risk - exchange control, political, economic and social conditions in the buyer's country;
  • Liquidity and cash flow requirements;
  • Foreign exchange risk.
Consignment Account

Under this arrangement, the goods are not sold outright to the importer (consignee). Rather the goods are entrusted to the consignee for sale to third parties (buyers).

Upon realization of the proceeds, the consignee would need to account to the seller (consignor) in a form of statement, known as Account Sales, setting out the sales proceeds, the relevant expenses incurred, commission payable and the net proceeds to be paid by the consignee.

Payment is then made as originally agreed.

Popular posts from this blog

Definition, nature and purpose of a Documentary Credit

-
Article 2 of the Uniform Custom and Practice for Documentary Credit defines a documentary credit as: "For the purpose of these articles, the expression documentary credits and standby letters of credit (hereinafter referred to as credits ) means any arrangements, however named or described, whereby a bank (the issuing bank) acting on request and on the instructions of a customer (the applicant) or on its own behalf: is to make a payment to or to the order of a third party (the beneficiary) or is to accept and pay bills of exchange (drafts) drawn by the beneficiary, or, authorizes another the bank to effect such payment or to accept and pay such bills of exchange (drafts) or, authorizes another bank to negotiate, against stipulated documents, provided that the terms and conditions of the credit are adhered with". In a layman language, a documentary credit may be describe as a legal undertaking in writing. It is issued by the customer's bank (also known as the issuing ba
Read more

Bills of Lading

-
Image
A bill of lading is a document issued by a carrier to a shipper, signed by the captain, agent or owner of a vessel, furnishing written evidence regarding receipt of the cargo, the conditions on which transportation is made (contract of carriage) and the engagement to deliver goods as the prescribed port of destination to the lawful holder of the bill of lading. A bill of lading is, therefore both a receipt for the merchandise and a contract to deliver it as freight. There are a number of different types of bill of lading a number of issues that relate to them as a group of documents. Straight Bill of Lading (Non-Negotiable) A straight bill of lading indicates that the shipper will deliver the goods to the consignee. The document itself does not give title to the goods (making it non-negotiable). The consignee need only to identify himself to claim the goods. A straight bill of lading is often used when payment for the goods has already been made in advance or in cases where
Read more

Various Basic Shipping Charges on Landside and Waterside

-
Landside Stevedoring - cargo handling charges for loading / discharging cargo on / from conventional breakbulk vessels. LCL Service Charge - charge for stuffing and unstuffing LCL (Less than Container Load) cargo into or from a container at the freight station. Equipment Transfer Charge (ETC) - charge for lifting an empty or loaded container onto / from the trailer. Also called Lift-on / Lift-off (LOLO) charge. This charge is applicable on FCL (Full Container Load) containers only. Terminal Handling Charge (THC) - charge for handling (receiving and delivering) FCL containers at the container yard (CY). Waterside Bunker Adjustment Factor (BAF) - surcharge for offsetting changes in fuel prices. Congestion Surcharge - surcharge levied on cargo that are discharge at a port where ships are experiencing delays in turnaround time. Currency Adjustment Factor (CAF) - surcharge for offsetting fluctuations in currency exchange rates of various currencies against the US Dollar. In Asia and Japan t
Read more