Distribution Policy And Risk Management

Distribution policy and risk management.

There are two basic methods of payment against documents. Document against payment (D/P) The importer receives the documents (which make him the owner of the goods bought) at the moment when he fullfils his obligation to pay. This method provides big security to the exporter. Documents against acceptance (D/A) The buyer receives the documents from the offering bank after he has accepted a bill of exchange, This accepted bill will usually remain of the offering bank until the day of expiration. On the day of expiration the bill must be presented to the importer who will than have to pay.

At request of the importer the bank opens the credit in favour of the exporter. The credit-opening bank then has an independent payment obligation vis-a-vis the exporter, provided the exporter presents the agreed documents in time. The documents have been stated in the signed contract between buyer and seller. Instead of the creditworthiness of the importer the exporter is now dealing with the creditworthiness of a bank. This paying method provides much greater security for the exporter because payment is no longer dependent on the willingness to pay of the importer. The L/C must conform to the rules of the Uniform Customs and Practice for Documentary Credits, publication no. 500.