Payment instruments used in international trade and their influence on delays and money transfer management

I. Introduction

The buying or selling contracts in the international trade transactions include a series of special clauses. The purpose of every transaction, especially of international transactions, is to obtain profit. Therefore, the clauses regarding the prices, the payment conditions and the payment methods are extremely important both for the importer as for the exporter. They will focus on them not only during the negotiation of the contract but also during its unfolding.

Also, these clauses state how much, how and where the merchandise will be delivered by the exporter. Due to the fact that from the moment the merchandise is shipped and until the corresponding payments are received there is a considerably long period of time, both contracting parties try to obtain as many warranties as possible during the negotiation process – the exporter will try to obtain guarantees that the payments will be made on time, while the importer will want guarantees that it will receive on time the precise quantity of merchandise requested and having the price and quality stated in the contract.

Based on the degree of trust and relationship existing between the contracting parties, there are a series of techniques and payment instruments meant to offer them both the above-mentioned warranties. Basically, one might say that the more solid the reputation of the importer, the less warranties will the exporter request. This reputation is the outcome of all the factors involved in the company’s activity within the past several years, or even decades.

By adopting at a global scale a standardization regarding the payment instruments and techniques, the international forums involved in this activity struggle to reduce the risks, and not eliminate them altogether since this is practically impossible.

The payment instruments used in international trade are: national currencies, international currencies, bills of exchange, the promissory note, the checks, and, lately, also the card, while the payment techniques used are: the incasso and the documentary collection (the letter of credit and the commercial letter of credit).

II. Instruments and Methods of International Payment

II.1 Currencies

National currencies are characterized by:

- buying power;

- can be used in almost all possible transactions;

- can be used as reserves also in states other than the issuing one.

The currency in the form of coins and banknotes is called cash currency, while the one available in a bank account is called account currency.

Based on the way the currency account was deposited at the bank, it can be:

- on-sight currency account;

- due-date currency account.

Based on the exchange capability characterizing the currency, there can be:

- convertible currency (currencies which can be exchanged with other national or international currencies);

- non-convertible currencies (currencies which can be exchanged for other currencies but not the other way around);

- transferable currencies (they enjoy a limited convertibility determined by regional agreements);

- freely used currencies (are fully convertible; this category includes the American Dollar, the British Pound, the Japanese Yen, and, recently, the EURO).

International currencies are those national currencies which are used outside the borders of the issuing state and represent, on the international market, instruments of payment and reserve. In this category there may be included also the S.D.R (Special Drawing Rights)- Romanian: D.S.T (Drepturi Speciale de Tragere), the E.C.U (The European Currency Unit) and the EURO.

II.2 Payment and Credit Instruments

The bill of exchange, the promissory note and the check are payment as well as credit instruments. The quality of payment instruments is given by their ability to be exchanged into liquidities, whereas their credit instrument ability results from the period of time which passes between the day when the merchandise was received and the payment date.

II.2.1 The Bill of Exchange (Draft)

In what regards the bill of exchange, it can be defined as a document used by a person, in this case the drawer, to order unconditionally another person, meaning the drawee, to pay a certain amount of money to a beneficiary at the due date or on sight.

II.2.2 Promissory Note

The promissory note is a document by which a physical or legal person called issuer commits itself to pay on sight or at the due date a certain amount of money to a third person, called beneficiary

Both the bill of exchange and the promissory note can be endorsed and, usually, all the stipulations applicable to the bill of exchange can also be applied to the promissory note. The discounting, the prescription, the payment and the forfeiting are examples of such stipulations applicable to both instruments.