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"FORMS AND FEATURES OF THE ORGANIZATION OF THE INTERNATIONAL SETTLEMENT OPERATIONS"
Master student Kobeleva E. S. Associate Professor, Ph.D. Buryanova N. V.
Russia, Rostov-on-Don, Don State Technical University
ABSTRACT_
Research for International Settlements attracted the attention of economists since the emergence of the need for calculations. As the scope of the use and development of forms of payment themselves accumulated experience finds expression in a variety of methodological and reference materials, as well as in arbitration practice, the Anglo-American and European, and later Russia. Activation of foreign trade and the liberalization of foreign exchange legislation of Russia in the conditions of a market economy led to massive access to foreign markets of Russian companies as exporters and importers. Volumes of international payments, their role in the circulation of capital and the formation of the entity's financial performance.
International operations include international settlements on foreign trade in goods and services, for non-commercial operations, credit and capital movements. For international settlements include operations accompanying the financial obligations under the contracts between the companies, enterprises and individuals of various countries. A distinctive feature of such payments (compared to internal calculations) is the presence in their structure of the stage of exchanging different currencies.
The international settlement operations of banks represent the organization of payments for monetary requirements and obligations of the legal entities and individuals who are in the territory of the different countries.
The features of the organization of the international settlement operations are:
- international unification of international settlement terms;
- effecting payments through direct correspondent accounts of banks;
- primary use in settlement operations of freely convertible currencies since participants of international payments have no general means of payment;
- broad application of various bank guarantees in connection with high risks in export and import, etc.
International payments have, as a rule, a documentary character, i.e. are carried out upon presentation of the documents certifying the fact of transportation of goods, their assessment, insurance, etc.
The main forms of calculations in the external-economic turn-round are letter of credit, collection and a bank transfer.
The international act regulating collection payments are the Uniform Rules (Uniform Rules of Collections, further - "URC") developed by the International Chamber of Commerce during synthesis of practice in the field of the international bank payments, systematization of customs of a business conduct. The Uniform Rules according to the collection of payments (leaflet edition of 1995 - URC-522 works now) aren't the statutory act and are usually applied in the presence of the link to them in the contract between the client and the bank.
Without being the statutory act, URC nevertheless contain fundamental terms of encashment: the definition, types, the way and the procedure of obligations, responsibility of the parties, interpretation of various terms, and also other questions that it causes, in our opinion, a broad application of URC by various financial and credit organizations.
URC defines the collection as the operations with the documents which are carried out by banks on the basis of the instructions received in the collection order for purposes of:
- obtaining acceptance of payment and (or) payment;
- deliver commercial documents against acceptance and (or) against payment;
- deliver documents on other conditions.
ARTICLE INFO
Received 29 October 2016 Accepted 11 November 2016 Published 15 November 2016
KEYWORDS
collection form, letter of credit form, bank transfer, international payment, payment operations of banks
© 2016 The Authors.
In the course of the collection subjects of the collection participate (table 1). Table 1. Subjects of the collection
Subject of the collection Characteristic of the subject
1. Principal The person who sends an assignment about encashment to the bank
2. Remitting bank The bank to which the principal has entrusted the handling of the collection
3. Collecting bank The bank participating in operation on encashment bank
4. Presenting bank The bank collecting the bank submitting documents to the payer
5. Drawee The person to whom representation is to be made in accordance with the collection instruction
In the course of the collection order between its participants there are following relations:
1) obtaining documents by the seller from a carrier.
2) representation of the set of documents to the remitting bank by the seller together with the collection order.
3) verification of documents by remitting bank and their direction with the collection order to the collecting bank.
4) representation a set of documents to the buyer by the collecting bank for the purpose of receipt of payment or acceptance.
5) receiving payment from the buyer by the collecting bank and delivering documents to him.
6) transfer of the money caused in the contract by the collecting bank, to remitting bank according to an assignment in the collection. Transfer of revenue from the collection into the account of the seller by remitting bank.
7) when using the collection as an international form of calculations, both positive, and its negative sides can come to light (table 2).
Table 2. Advantages and disadvantages of application of calculations for the collection
Advantages of the collection Disadvantages of the collection
The buyer carries out payment only after he makes sure that the goods are shipped to his address, having checked goods and commodity documents During encashment the buyer may refuse to pay (or accept payment) upon presentation of the documents to him
The collection form of payment guarantees that the goods does not pass to the buyer as long as he does not fulfill the payment In some countries, it may be a delay of documents for payment and acceptance, until the goods are delivered. In the event of such delays expenses are assigned to the seller
The collection form of payment is cheaper than the letter of credit Transfer of documents and time of encashment are long
The division of the collection operation is carried out on different grounds. Proceeding from types of documents according to which encashment is carried out, URC allocate types of the collection (table 3).
Table 3. Types of the collection
Types of the collection Characteristic of the type
clean collection Collection only of financial documents.
documentary collection Collecting payment according to the financial documents accompanied with commercial documents and also according to the commercial documents which aren't accompanied with financial documents.
Division of the collection into clean and documentary has practical aspect. The financial documents accompanied with commercial documents or the commercial documents which aren't accompanied with financial documents serve as the proof of execution of the transaction from the supplier of goods. Besides, types of the collection give the chance differently to spread risks between the parties according to the transaction.
The relations according to the letter of credit transaction between the parties of the transnational contract of purchase and sale and banks are regulated by the Uniform Custom and
Practice for Documentary Letter of Credits (Uniform Custom and Practice for Documentary Letter of Credits - UCP). This document is also developed by the International Chamber of Commerce. Leaflet edition of 2007 -UCP-600 works now.
Using a letter of credit form of calculations is more favourable for the seller of goods as removal of money from the account of the buyer precedes sending goods to his address. It distinguishes calculations for the letter of credit from other forms of calculations, in particular, from the acceptance of the payment requirement (when calculating by payment orders) or calculations for the collection. Shipping goods, the seller is obviously informed on solvency of the contractor according to the main transaction. At the same time untimely opening of the letter of credit by the buyer (payer) allows the seller to detain or refuse performance of the contract. The letter of credit is convenient for the payer (buyer) to that the money which is registered on the letter of credit, continues to belong to it and act from the letter of credit only after the seller sends goods and will submit the relevant documents to the bank.
In the course of the letter of credit certain subjects are also involved (Table 4).
Table 4. Subjects of the letter of credit
Subjects of the letter Characteristic of the Subject
1. Applicant
2. Issuing or operating bank The bank which opened the letter of credit in favour of the beneficiary. Depending on the carried-out functions intermediary banks are divided into "advising", "executing", "confirming".
3. Advising bank It carries out functions on confirmation of authenticity of the letter of credit (the changes made to it) which it advises, and also the accuracy of the indication of terms and conditions of the letter of credit or the changes made to it.
4. Paying bank The bank authorized by the issuing bank on execution of the letter of credit, that is on payment, the acceptance of a draft and their payment or on a negotiate of a draft.
5. Confirming bank The bank which adds its confirmation to the letter of credit on the basis of powers or a request of the issuing bank. It is obliged to fulfill continuously after submitting the documents provided by the letter of credit the payment obligation to the beneficiary or to carry out a negotiate from the moment of "addition" of its confirmation to the letter of credit.
6. Beneficiary
The main difference of a letter of credit form of calculations from calculations by payment orders is as follows:
- when using a letter of credit form of calculations the essence of an order of the payer consists not in money transfer to the account of the recipient, but in opening of the letter of credit, that is in allocation, reservation of money due to which calculations with the recipient will be conducted;
- receiving money when opening the letter of credit is caused for their recipient (beneficiary) by need of observance of conditions of the letter of credit which are defined by its contract with the payer, and also are duplicated in an assignment of a payer to bank for opening the letter of credit. The duty to check (only on external signs) observance of all conditions of the letter of credit is assigned to the paying bank.
The difference of the collection from the letter of credit is that in a case with the collection the bank doesn't incur obligations on payment of documents, and acts only as the intermediary reporting documents only against payment or the acceptance of the bill.
Settlement by letters of credit is performed in a certain order:
1) The exporter and the importer conclude the contract in which they specify that calculations for the delivered goods will be made in the form of the documentary letter of credit. The terms of payment in the contract have to be contained in an order of the importer to bank about opening of the letter of credit.
2) After the conclusion of the contract the exporter prepares goods for shipment that is the importer informs.
3) Having received the notice of the exporter, the buyer directs to the bank the application on opening of the letter of credit in which the terms of payment containing in the contract are specified.
4) After registration of opening of the letter of credit the issuing bank sends the letter of credit to the foreign bank, as a rule, to the bank serving the exporter — the advising bank.
5) The advising bank, having verified authenticity of the arrived letter of credit, informs the exporter of opening and conditions of the letter of credit.
6) The exporter checks compliance of conditions of the letter of credit to payment conditions of the signed contract. In case of discrepancy the exporter informs the advising bank of rejection of conditions of the letter of credit and the requirement of their change. If the exporter accepts conditions of the letter of credit opened in his favour, it ships goods to the terms established by the contract.
7) The exporter receives the relevant documents from the transport organization.
8) Having received transport documents from the transport organization, the exporter presents them together with other documents provided by conditions of the letter of credit to the bank.
9) The bank checks whether the submitted documents correspond to conditions of the letter of credit, completeness of documents, correctness of their drawing up and registration, consistency of the requisites containing in them. Having checked documents, the issuing bank sends them to exporting bank for payment or the acceptance.
10) Having received documents, the issuing bank carefully checks them, and then transfers an amount of payment to the bank serving the exporter.
11) The account of the importer is debited on an amount of payment.
12) The bank of the exporter enlists revenue into the account of the exporter.
13) The importer, having received commercial documents from the issuing bank, enters possession of goods.
В теории международного частного право принято выделять виды аккредитива (таблица 5).
In the theory of international private law the following types of the letter of credit can be allocated (table 5).
Table 5. Types of the letter of credit
Types Characteristic of the type
1. Covered Letter of Credit This letter of credit means that the issuing bank has to transfer the amount of the letter of credit (covering) at the expense of the drawee or the allowed credit at the nominated bank's disposal for all period of validity of the letter of credit.
2. Standby Letter of Credit The opening of the Standby Letter of Credit means that the issuing bank doesn't transfer the amount of the letter of credit to the nominated bank, however the last acquires the right to charge off the money provided to the beneficiary as execution of the letter of credit from the account of corresponding issuing bank or the different way of compensation of the sums to the nominated bank paid according to the letter of credit is specified in the letter of credit.
3. Revocable Letter of Credit The opening of the Revocable Letter of Credit reserves the issuing bank the right to cancel or modify the letter of credit without prior notice to the beneficiary.
4. Irrevocable Letter of Credit Irrevocable Letter of Credit can't be changed or cancelled without prior consent of the beneficiary in favor of which it is opened, unlike revocable to which these changes are made without such notice. Each credit must clearly indicate whether it is revocable or irrevocable.
5. Confirmed Letter of Credit The letter of credit which at the request of the issuing bank is confirmed by the nominated bank. The fact of confirmation of the letter of credit by the nominated bank certifies emergence of the additional obligation of the nominated bank to make payments to the beneficiary according to conditions of the letter of credit. The confirmed letter of credit can't be changed or cancelled not only without consent of the recipient of monetary means, but also without consent of the nominated bank.
Besides the collection and the documentary letter of credit by the way of the clearing settlement are also bank transfers: the organization- buyer charges to the bank to transfer money to the contractors. Payments from accounts are made by the banks according to the order managing such accounts and within available balance on an account (an exception - the contract of "overdraft" with the bank).
The consent of the payer to payment is realized by use of the corresponding payment tool (payment order) which testifies to the order of the owner on funds write-off from the account opened in bank- recipient of the order.
In this form of payment in charge of the bank includes a transfer payment from the account to the account of the transferor at the time of transfer's payment order.
The transfer is made according to the following scheme:
1) The conclusion of the contract between the importer and the exporter.
2) The importer sends to the bank the application for transfer.
3) Then there is a delivery of goods, it can precede payment or follow it, it is defined by terms of the contract and the currency legislation of the country.
4) The importer's bank having received the payment order from the importer sends it on its own behalf to bank of the exporter's bank.
5) Having received the payment order, exporter's bank verifies its authenticity and carries out operation on transfer of money for the account of the exporter.
Today the easiest and convenient way of calculations are the money transfers made by means of payment orders. However when exporting goods the contractor isn't always confident in reliability of the contractor. To resolve this matter is possible by means of other documentary calculations, such as the collection and the letter of credit.
In practice the letter of credit in view of the fact that the seller even until shipment of goods can be convinced of solvency of the buyer enjoys the greatest popularity. However this operation is rather expensive. That is why exporters are more or less confident in their customers using calculations based on the collection.
REFERENCES
1. "Uniform Rules for Collection "(ICC Publication N 522) (Ed. 1995, entered into force on 01.01.1996) - Consultant-Plus [electronic resource] URL: http: //www.consultant.ru (Date of appeal 25.10.2016r.)
2. "Uniform Customs and Practice for Documentary Credits (UCP 600). Issue of 2007 "(ICC Publication N 600) - Consultant-Plus [electronic resource] URL: http: //www.consultant.ru (Date of appeal 25.10.2016r).
3. "ICC Uniform Rules for Interbank Reimbursement under Documentary Credits "(ICC Publication N 525) (entered into force on 01.07.1996) - Consultant-Plus [electronic resource] URL: http: //www.consultant.ru (Date of appeal 25.10.2016r).
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