How do you pay a foreign seller you have never met?
By Dominic Omondi | June 2nd 2021
Last week, we went through the initial steps of importation, including agreeing on the terms of shipping.
Today we will find out the two common methods of international payments. How do you pay a foreign seller who you have never met without the risk of losing the money?
After agreeing on the incoterms, the next step is to pay the seller. There are several international methods of payments, but two are critical.
Benjamin Mwandawiro, Senior Operations Officer (Documentation) at Kenya Ports Authority (KPA) continues with our series on how to import and export goods.
1. Cash in advance: With this method of payment, the buyer sends the money to the seller before receiving the product. While it protects the seller, it exposes the buyer. What would happen once you remit the money and the potential seller disappears and becomes untraceable? That is why it is popular among traders who are already familiar with each other. It can be a relative buying from another. It could be paid through remittance by a bank or use of a credit card.
2. Letter of credit: This is what is encouraged in international sales contract. As soon as you have agreed with the potential seller on the product you want to buy, you approach your bank and pay for the services through a letter of credit. You will also provide requirements from the seller. For example, the Bill of Lading (a kind of title deed for the goods on board a ship) must be a clean one. The seller must also provide commercial invoice, the packing list, and any other item in terms of documentation that you feel is necessary.
3. Your bank will then get in touch with the seller’s bank informing the latter that they have a given amount, let us say $3,700 (Sh400,000) that they would like to remit to the seller’s account once they are provided with the list of specifications.
4. The seller’s bank will get in touch with him. The lender will inform him that they have $3,700 they want to credit to his account.
5. The seller will proceed to book space for shipment with a shipping line depending on the incoterms that he had agreed to. As soon as he books space, he is issued with a shipping order. The shipping order is also issued with a letter for collection of empty containers if the cargo is containersied. He will also stuff the cargo and engage customs processes at the port of loading. Once that is done the seller will deliver the container or cargo to the port of loading.
6. At the port of loading, a mates receipt is generated by the master of the vessel or appointed agent. The mates receipt is what informs the production or the generation of a bill of lading – a shipping document that is used for the shipment of cargo from one port to another or others. It has three primary functions:
a) It is a document of title: Once your name appears on it, then it means the cargo described there is yours.
b) It is also a receipt on goods on board the vessel. In other words, it confirms that these goods were actually received on board the vessel.
c) It is evidence of a contract between you and the carrier shipping line so that in case of anything you can follow up with the shipping line.
7. The collection of the bill of lading forms is what is known as a cargo manifest. A cargo manifest is a list of all the cargo carried and is used for cargo clearance at the port of discharge.
Bill of lading is issued in three copies. The seller will collect the outward bill of lading. He will look at the list from the buyer and provide all the required documents then submit to his bank. Once he submits to his bank, the bank will credit his account with the money. The seller’s bank will then courier the documents to the buyer’s bank. Once the buyer’s bank gets the document then they will remit the money to the seller’s bank.
Next week: What happens at the port of discharge
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