Forward Deals

 

Under a forward deal, a forward FX contract is executed by and between a designated bank and a domestic enterprise to provide for the foreign currency and exchange rate used to settle the underlying transaction and the amount of such transaction, and the tenor of the underlying trade contract. On the delivery day, the deal is settled in accordance with the specified currency, amount and exchange rate. Forward FX contracts may help minimize foreign exchange risks and lock in customers’ preferred exchange rate zone. Through a forward contract, a domestic customer may hedge risk exposures resulting from investment, financing and international settlement operations.

 

 

Cross-border RMB Services

 

The term “cross-border RMB settlement” refers to the settlement of a trade by use of the Renminbi as the pricing and settlement currency. This allows the parties to the trade to set the price(s) of and settle the import/export contract in RMB in regards to a trade between a resident and a non-resident; and the resident and the non-resident may hold RMB savings accounts through which trades are settled. Cross-border RMB services include but are not limited to documentary service, remittance, clearing and financing.

 

 

Remittance

 

I.                        Inward Remittance

Overseas remitters including those in Hong Kong, Macau and Taiwan may transfer funds to our bank, as receiving bank, via electronic transfer, demand draft (DD) and mail transfer (MT), and the receiving bank releases such funds to the recipient as instructed by the remitting bank.

Our competitive edge:

1.           Efficient correspondent bank network and intra-city network that enables swift payment;

2.           Centralized remittance management by the headquarters which guarantees prompt availability of the funds being transferred for withdrawal; and

3.           A well-developed customer service system which ensures customer satisfaction.

II.                      II. Outward Remittance

We execute customers’ outward remittance instructions by transferring money directly into their respective designated accounts through agency banks/correspondent banks.

Our competitive edge:

1.           An extensive network of overseas agency banks/correspondent banks to ensure safety and promptness of transfers; and

2.           Working with those receiving banks which have streamlined remittance procedures to guarantee timely receipt of payment.

 

 

Import Business Activities

 

The three payment methods commonly adopted in international trade settlement are remittance, collection and letter of credit (L/C). Among them, the L/C is the most popular and the most important financing method. The L/C is a bank credit where the issuing bank is the obligor in the case of importer default, serving as intermediary as regards to payment and transmission of documents. Issuing banks facilitate the financing of trades for both sellers and buyers, and thus help boost international trade.

Importer’s Utilization of L/C

Where an importer chooses to pay the goods imported by an L/C, upon the submission of application for the issuance of an L/C, such importer may be granted a credit facility of an amount up to 100% of the required amount of guarantee deposit which is credited to the account of guarantee deposit to minimize the importer’s need for working capital. The exporter is bound by the quality, quantity and date of delivery of the goods shipped as specified by the terms of the L/C.

Upon receipt of the payment notice given by our bank acting as the issuing bank, the importer may request our bank to accept and pay the draft (bill of exchange) drawn by the beneficiary on its behalf to enable it to take delivery of goods, which facilitates the utilization or distribution of such goods.

 

 

Import L/C

 

Import L/C

Import L/C refers to the written undertaking of payment issued by the issuing bank to the beneficiary (overseas seller) as per the application submitted by the importer. The payment is made upon receipt of the required complete set of documents sent by the negotiation bank/correspondent bank sending the documents within the specified period of time. The L/C is a well-developed method for international trade settlement. The bank credit insures that the exporter will receive payment and the importer will take delivery of the goods upon complying presentation.

We provide the following import L/C services: issuance of, revision, review, payment, acceptance or refusal of payment of L/Cs. At the Bank of Weifang, streamlined procedures allow us to issue L/Cs promptly, and in addition, we offer various credit facilities.

Advantages of Import L/C:

1.           Strengthened bargaining position – The L/C provides the exporter with a guarantee of conditional payment in addition to the exporter’s commercial credibility, serving as a credit enhancement for the exporter and giving the latter a better bargaining position in getting favorable prices from the importer;

2.           Guarantee for goods – By substituting the bank’s credit for the exporter’s credit, the bank stands surety for the trade through effective control of the ownership, shipping date and quality of the goods shipped as provided in the documents and terms of the L/C; and

3.           Reduced needs for capital – The L/C may help reduce the importer’s needs for proprietary funds during the period starting from the issuance of the L/C to the payment.

Required materials for the issuance of the L/C:

1.           Application form;

2.           Import/export contract;

3.           Filing form for import payment in foreign exchange, as applicable;

4.           Relevant documents of government approval of import business activities;

5.           Financial statements of the previous year and the immediately preceding reporting period; and

6.           Proof of guarantee deposit or any other effective legal guarantee.

 

 

Trade Financing under Import L/C

 

I.                        Acceptance of draft

Acceptance of draft is a trade financing arrangement whereby, upon the issuance of the L/C or receipt of documents, the importer agrees to give up the underlying documents and goods to our bank acting as accepting bank, in exchange for payment in the specified foreign currency to the exporter.

1.           Materials required for the acceptance of the draft (bill of exchange) drawn by the beneficiary:

(1)          Application form;

(2)          Draft acceptance contract; and

(3)          Effective legal guarantee.

2.           Advantages of draft acceptance:

(1)          Meeting the importer’s financing needs by resolving problems of fund shortage;

(2)          Enhancing the importer’s business management performance; and

(3)          Reinforcing the importer’s credit standing.

3.           Notes:

(1)          Draft acceptance service is offered only in association with letters of credit issued by our bank;

(2)          In principle, we reject an application in case of non-complying presentation, unless the applicant explicitly accepts the non-complying presentation; and

(3)          In principle, we do not accept a draft with incomplete title documents.

II.                     Shipping Guarantee

In order to bridge the time gap between the arrival of shipment and the receipt of documents, the importer may enter into a guarantee agreement with our bank, under which our bank issues a guarantee to the shipper or its agent so that the importer may take delivery of goods before receipt of shipping documents.

1.                       Documents required for the issuance of a shipping guarantee:

(1)          Application form;

(2)          Unconditional payment acceptance or undertaking of unconditional payment;

(3)          Shipping guarantee agreement; and

(4)          Relevant bills including the bill of lading and commercial invoice.

2.                       Advantages of shipping guarantee:

(1)          Avoidance of unnecessary expenses and safeguard for uninterrupted production; and

(2)          Accelerated stock rotation and capital turnover.

3.                       Notes:

(1)          The term for shipping guarantee generally does not exceed 30 days;

(2)          The applicant shall provide a complete set of original bill of lading; and

(3)          The applicant shall waive the right to refuse payment in the case of non-complying presentation.

III.                  Usance L/C at sight

To meet your short-term shortage of funds caused by long production lead time, we provide usance L/C at sight. An applicant may apply for a usance L/C payable at sight with a forward draft drawn by the beneficiary. This is a financing arrangement whereby our bank, as issuing bank, instructs a correspondent bank to pay the draft in the specified currency upon receipt of relevant documents.

1.           Required materials for the issuance of a usance L/C at sight:

(1)          Application form;

(2)          Import contract;

(3)          Financial statements of the previous year and the current reporting period;

(4)          Effective legal guarantee; and

(5)          Relevant background materials.

2.           Advantages of usance L/C at sight:

(1)          Meeting domestic financing shortage; and

(2)          Solving problems in capital turnover and enhancing fund management competence.

3.           Notes:

(1)          The applicant shall provide a written undertaking for the payment of usance L/C at sight;

(2)          Prior to the issuance of a usance L/C at sight, a usance rate must be agreed upon by and between the applicant and our bank;

(3)          In principle, we reject an application in case of non-complying presentation, unless the applicant explicitly accepts the non-complying presentation; and

(4)          In principle, we do not accept a draft with incomplete title documents.

 

 

Documentary Collection

 

According to the documentary collection procedure, our bank, designated by the remitting bank, i.e. an agency bank or a correspondent bank to act as collecting bank, collects payment from the importer as instructed by the agency bank or correspondent bank, as applicable, and releases to the importer relevant commercial documents.

There are two types of documentary collection, including document against payment (D/P) and document against acceptance (D/A).

1.      Advantages of documentary collection:

Low charges – Bank charges are low compared to documentary credits, reducing the financial expenditures and controlling the cost of the importer;

Convenience – Simpler and customer-friendly procedures

Accelerated capital turnover – The importer does not have to pay any advance for the goods being prepared for shipment or being shipped, thus minimizing its working capital need, and upon payment or acceptance, as applicable, the importer may immediately take possession of the documents and dispose of the goods delivered;

Improved cash flow – In D/A terms, upon acceptance, the importer may immediately take possession of the documents and dispose of the goods delivered. The importer pays the goods out of the cash flow generated by the sales of the goods. Therefore, the importer barely needs to advance any funds before the goods are sold, with its financial conditions and solvency improved.

2.      Circumstances that warrant the use of documentary collection

The applicant seeks a convenient and low-cost means of payment.

If the applicant has sufficient working capital, D/P terms are recommended;

If due to insufficient working capital the applicant needs a financing facility that allows it to pay for the goods at a later date and that it has a good relationship with the exporter, D/A terms are recommended;

3.                       Notes:

(1)          In D/P terms, the applicant shall provide proof of payment and the Import Foreign Exchange Payment Verification Form;

(2)          In D/A terms, the applicant shall comply with the time draft acceptance procedure pursuant to relevant rules and effect the payment on the maturity date; and

(3)          The applicant may also use other trade financing means such as “acceptance documents against payment”.

 

 

Trade Financing under Import Documentary Collection

 

In order to speed up your capital turnover and stock rotation and meet your production needs, we also offer payment notes service. Payment notes service works as follows: upon receipt of the complete set of documents sent by the exporter through the remitting bank, we, as collecting bank, pay the bill of exchange and release the documents in accordance with the contract of payment notes service executed by and between our bank and the importer. The importer will take delivery upon presentation of the documents and use the proceeds to repay the principal and interests to the collecting bank.

1.      Required materials for payment note service:

(1)          Application form;

(2)          Financial statements of the previous year and the current reporting period;

(3)          Collateral or guaranty acceptable to the collecting bank; and

(4)          Any other materials required by the collecting bank.

2.      Advantages of documentary collection:

Via the documentary collection service, the applicant may take possession of the shipment to meet its production and sales needs with money advanced by the collecting bank.

3.      Notes:

(1)          The importer and exporter must have an established long-term partnership relationship. Both parties are in good standing;

(2)          If the importer fails to repay the advance in due time, we will collect the claim with the importer; and

(3)          The shipping destination must be in stable political and financial conditions.

 

 

Notes, Tips, and Cautions for Importers Which Use L/Cs

 

Once issued, generally the L/C is irrevocable. In other words, the applicant is not allowed to revise or revoke the L/C without consent of the advising bank and the beneficiary. Therefore, the applicant must be prudent in filling out the contents and terms in the application form so as to ensure its rights and interests as well as credit standing.

(1)          Specify the type of L/C;

(2)          Specify the amount, quantity of shipment and the permissible quantity variation prescribed by the L/C;

(3)          Specify the maturity of and the place where the L/C is issued;

(4)          List the port of shipment and the port of discharge;

(5)          Specify the description of the goods and terms of price;

(6)          Specify all necessary documents;

(7)          Specify the expenses to be borne by each party; and

(8)          Do not include any terms other than documents-related requirements in the L/C.

 

 

Export L/C

 

Export L/C

The export L/C refers to the services provided to the exporter after the correspondent bank receives the L/C issued by the issuing bank, including advising; receipt, review, and sending of documents; and reimbursement. As issuing bank, we provide the following export L/C services: L/C advising, L/C transfer, documents review, negotiation, documents inquiry and collection of claims. We also offer export loans facilities.

Exporter’s Utilization of L/C

Upon receipt of an effective L/C issued by a bank which is in good standing, the exporter may apply for a loan package with our bank to ensure timely shipment preparation. After the shipment, the exporter may present the complying documents to our bank for negotiation, and may receive payment through export draft acceptance. This insures receipt of payment and speeds up capital turnover.

Settlement through the L/C is safe, but is not completely risk free. For instance, the exporter might face the risk of delay or failure in providing an L/C by the importer, as well as risks of bankruptcy of or undue refusal of payment by the issuing bank; the importer might have to cope with the risk of delivery failure or shoddy goods and fraudulent documents provided by the exporter. However, compared with other settlement methods, the advantages of the L/C outweigh the disadvantages.

Advantages of Export L/C:

(1)                    Low risks: By substituting the bank’s credit for the importer’s credit, an export L/C provides a conditional payment undertaking;

(2)                    Stronger control: the exporter gets an unconditional payment undertaking from the issuing bank subject to complying presentation, with the quality of documents being under the exporter’s complete control;

(3)                    No burden of costs: Generally, the issuing bank charges the issuance of the L/C to the importer;

(4)                    Guarantee of performance: Upon receipt of the L/C, the exporter can be sure that the importer has completed the necessary import procedures, which guarantees the performance of the export contract.

 

 

Trade Financing under Export L/C

 

I.            Loan package

In order to provide the exporter with funds required for the payment of production materials and organization of production incurred prior to shipping, our bank offers loan package service. The exporter may apply for such pre-shipment financing upon presentation of the original copy of the L/C.

1.      Required materials for the granting of a loan package:

(1)          Application form;

(2)          Original copy and any revision of the L/C;

(3)          Export contract; and

(4)          Effective legal guarantee acceptable to our bank.

2.      Advantages of loan package:

(1)          Seizing business opportunities and boosting competitive edge; and

(2)          Reduced use of proprietary funds through trade financing.

3.      Notes:

(1)          After submission of the application for loan package, the original copy of the L/C shall be retained by our bank, and the exporter must present the required documents;

(2)          The payment in foreign currency received under an L/C should be the primary source of repayment for the loan package;

(3)          The L/C for loan package is irrevocable and non-transferrable;

(4)          The L/C shall not include terms that adversely affect the implementation of the export and receipt of payment in foreign currency; and

(5)          Don’t include any terms that restrict negotiation payment by the importer.

 

II.           Export draft acceptance and discount

In the case of settlement by L/C, the applicant may submit the complete set of bills to our bank to secure short-term trade financing before receipt of the payment from the importer. In the case of an L/C at sight, the applicant may apply for export draft acceptance; in the case of a usance L/C, the applicant may apply for export discounting.

1.           Required materials for export draft acceptance/discounting:

(1)          Application form;

(2)          Letter of undertaking;

(3)          Original copy and any revision of the L/C;

(4)          Financial statements of the previous year and the current reporting period; and

(5)          Effective legal guarantee acceptable to our bank.

2.           Advantages of export draft acceptance/discounting:

Via export draft acceptance/discounting, the applicant can collect payment in foreign currency in advance and speed up capital turnover.

3.           Notes:

(1)          The L/C shall have clear and reasonable terms as well as simple and clear route for reimbursement;

(2)          The L/C shall not contain any clauses that may adversely affect the exporter; and

(3)          In the case of delay in collecting payment in foreign currency, apart from inquiring about and collect the claim, our bank may also exercise the right of recourse against the exporter.

III.          Forfaiting

In respect of forfaiting , an applicant may apply for discounting with our bank for the accounts and bills receivable generated in international trades under a usance L/C which has not reached maturity to obtain trade financing.

1.           Required materials for the provision of forfaiting services:

(1)          Application form;

(2)          Forfaiting agreement;

(3)          L/C and relevant background materials;

(4)          Acceptance text from the issuing bank;

(5)          Complete set of shipping bill, and bill of exchange;

(6)          Letter of assignment; and

(7)          Export contract.

2.           Advantages of forfaiting:

(1)          Mitigating risks: transferring state risks, exchange rate risks and importer credit risks to the forfaitor, protecting the applicant from such risks;

(2)          Boosting the applicant’s competitiveness in export business: the applicant may use forfaiting to provide the importer with deferred payment and boost the applicant’s competitiveness in export business;

(3)          Financing the applicant’s export business and improve the structure of its financial statement; and

(4)          Early filing of the Import Foreign Exchange Payment Verification Form and early handling of tax refund procedures: once forfaiting is completed, it is considered that the collection of foreign exchange payment is completed. The applicant can then file the Import Foreign Exchange Payment Verification Form and go through the tax refund procedures before the payment actually takes place.

3.           Notes:

(1)          When signing the import/export contract with the overseas buyer, the applicant should require the buyer to choose an issuing bank or an accepting bank in good standing;

(2)          Forfaiting service is suitable for both large and small-sized transactions. However, small-sized transactions have higher financing cost;

(3)          Our bank only serves as intermediary in connection with the resale of drafts (bills of exchange); and

(4)          In accordance with our practice, we reserve the right of recourse in the following circumstances:

A.        The issuing bank fails to repay the matured draft due to an injunction restraining the payment; and

B.         The exporter is suspected of fraud.

 

 

Notes, Tips, and Cautions for Exporters Which Use L/Cs

 

The main risks faced by the exporter include: the importer’s failure to issue the L/C or delay in the issuance of the L/C; the issuing bank’s refusal of payment due to non-complying presentation; bankruptcy of the issuing bank, and fraud committed by the issuing bank and the importer acting in concert. Therefore, the exporter is invited to pay attention to the following:

1.           When the credit standing of the importer is not clear, the exporter should urge the importer to provide an effective L/C in a timely manner. The exporter should proceed to shipment only upon receipt of the L/C to prevent any possible losses;

2.           The exporter should require the importer to choose an issuing bank which is in good standing in order to reduce bank-related risks as well as facilitate the financing process;

3.           The exporter should check the conformity of all the terms specified in the L/C with the contract, requiring the importer to revise any inconsistencies;

4.           The exporter should produce the document strictly in compliance with relevant requirements specified in the L/C to avoid any inconsistencies; and

5.           The exporter should ship the goods and procure insurance policy strictly in compliance with relevant requirements specified in the L/C, and check the documents issued by any third party including the bill of lading, insurance policy and inspection certificate.

 

 

Documentary Collection

 

1.      Methods and application of documentary collection

There are two types of documentary collection, D/P and D/A, differentiated by document release conditions.

(1)          D/A (document against acceptance): documents are submitted for the acceptance of usance draft. The exporter submits export documents such as invoice and bill of lading to the remitting bank. The remitting bank then forwards the documents to the collecting bank in the country of the importer, instructing the collecting bank to present the usance draft drawn by the exporter to the importer. Upon acceptance of the usance draft on behalf of the importer, the collecting bank will release the documents to the importer.

(2)          D/P (document against payment): D/P is further divided into document against payment at sight and document against payment of usance bill. Document against payment at sight refers to the release of documents against sight draft or upon payment. In regard to the document against payment at sight, the exporter submits export documents such as invoice and bill of lading to the remitting bank; and the remitting bank forwards the documents to the collecting bank in the country of the importer, instructing the collecting bank to release the documents to the importer upon receipt of the payment. In the terms of document against payment of usance bill, documents are released against payment of usance bill.

2.      Functions and characteristics of export documentary collection

(1)          The bank requests, on behalf of the exporter, release of documents to the overseas buyer against payment or acceptance from the overseas buyer, and collects payment on behalf of the exporter;

(2)          The bank generally does not review the documents and only checks if the number of documents is consistent with the collection engagement letter;

(3)          Successful payment collection solely depends on the credit standing of the overseas buyer, and the bank is not liable for the collection; and

(4)          Upon receipt of payment by the overseas buyer, the bank will credit the payment to the account of the importer or execute the outward remittance as instructed by the exporter.

3.           The risks of export documentary collection

(1)          As documentary collection is built on business credibility, the exporter is faced with greater risks;

(2)          In quite a few occasions, the importer is unwilling to redeem documents or accept the draft drawn by the beneficiary due to a drop in the price of the goods shipped which has occurred after the shipment, which is a way to press the exporter to lower the price; and

(3)          Due to a change in the import policy of the country of import, the importer fails to obtain import license or or is not allowed to make a payment to any overseas entity.

 

 

Trade Financing under Export Documentary Collection

 

1.      Methods and application of documentary collection

There are two types of documentary collection, D/P and D/A, differentiated by document release conditions.

(1)                   D/A (document against acceptance): documents are submitted for the acceptance of usance draft. The exporter submits export documents such as invoice and bill of lading to the remitting bank. The remitting bank then forwards the documents to the collecting bank in the country of the importer, instructing the collecting bank to present the usance draft drawn by the exporter to the importer. Upon the acceptance of the usance draft on behalf of the importer, the collecting bank will release the documents to the importer.

(2)                   D/P (document against payment): D/P is further divided into document against payment at sight and document against payment of usance bill. Document against payment at sight refers to the release of documents against sight draft or upon payment. In regard to the document against payment at sight, the exporter submits export documents such as invoice and bill of lading to the remitting bank; and the remitting bank forwards the documents to the collecting bank in the country of the importer, instructing the collecting bank to release the documents to the importer upon receipt of the payment. In the terms of document against payment of usance bill, documents are released against payment of usance bill.

2.      Functions and characteristics of export documentary collection

(1)                   The bank requests, on behalf of the exporter, release of documents to the overseas buyer against payment or acceptance from the overseas buyer, and collects payment on behalf of the exporter;

(2)                   The bank generally does not review the documents and only checks if the number of documents is consistent with the collection engagement letter;

(3)                   Successful payment collection solely depends on the credit standing of the overseas buyer, and the bank is not liable for the collection; and

(4)                   Upon receipt of payment by the overseas buyer, the bank will credit the payment to the account of the exporter or execute the outward remittance as instructed by the exporter.

3.      The risks of export documentary collection

(1)   As documentary collection is built on business credibility, the exporter is faced with greater risks;

(2)   In quite a few occasions, the importer is unwilling to redeem documents or accept the draft drawn by the beneficiary due to a drop in the price of the goods shipped which has occurred after the shipment, which is a way to press the exporter to lower the price; and

(3)          Due to a change in the import policy of the country of import, the importer fails to obtain import license or is not allowed to make a payment to any overseas entity.

 

 

Export Invoice Discounting

 

In respect of trade settlement through remittance, export invoice discounting refers to a trade financing arrangement whereby, our bank, without obtaining the title documents, provides your company with trade financing against the commercial invoice handed over by the exporter, which specifies the terms of payment assignment. The accounts receivable of the goods shipped are the primary source of repayment.

1.                       The following conditions must be met by any exporter seeking export invoice discounting at our bank:

(1)                   Having an import/export license;

(2)                   Maintaining RMB or foreign exchange accounts at our bank and enjoying a long-term and stable business relationship with us;

(3)                   Being in good credit standing at our bank in regard to international settlement; and

(4)                   Enjoying a long-term and stable business relationship with the overseas buyer.

2.                       Required materials for export invoice discounting:

(1)                   Application form;

(2)                   Export invoice discounting agreement;

(3)                   Export contract;

(4)                   Commercial invoice providing for payment transfer; and

(5)                   Relevant background materials.

Attachment: Application Form for Import L/C (the letter of undertaking is on the back)