In domestic trade sales on open account are very common; in fact only in recent years have sellers begun to draw drafts on buyers (domestic trade acceptances). There has been a fairly general impression that in foreign trade open-account transactions are seldom used. Yet 52 per cent of the exporters of manufactured goods, to whom we have been referring, reported that they were exporting to some markets on open account where risks and exchange conditions were good. Such terms are frequently used by exporters of manufactures except those shipping special made-to-order merchandise. In contrast, dealers in raw or semiprocessed products export on open account only infrequently, and even manufacturers quickly turn to other terms when risks are not superlatively good or when exchange restrictions are prevalent.
The American manufacturer finds open-account sales satisfactory when selling to two sorts of importers in foreign markets free of exchange restrictions. One is a branch plant or sales office owned by or very closely affiliated with the American firm; the other is a valued independent importer of unimpeachable reputation. Many American companies have their own organizations in the larger foreign markets. The simplest export procedure in these cases is to ship goods and forward documents direct to the subsidiary or affiliate. Periodically, either the foreign office will remit dollar exchange to the head office in the United States, or the latter will draw foreigncurrency sight drafts on the former and sell them in the American money market for dollars.
If the foreign importer is an independent firm, the open-account procedure is only slightly more complex. Arrangements will have been made previously as to the credit terms, and at the end of the specified time, say 90 days, the importer will remit in either his own currency or in dollars, as directed. If he must remit in dollars, he bears an exchange risk for 90 days which he may or may not cover. Or the importer may be instructed to deposit the amount due in his local currency (the American exporter bearing the exchange risk) in a specified local bank, to the account either of the American exporter or of his bank, and to notify the exporter of the deposit. The exporter may then hold these foreign-currency deposits or, more probably, may convert them into dollars. This latter may be done by selling the deposits to an American bank in return for dollars at the current exchange rate.
Export on consignment and commission is somewhat akin to open-account exporting but is very much less prevalent. In open-account exporting, except that no draft is drawn at the time of shipment, the terms agreed upon between exporter and importer are usually no less precise than in exporting on draft basis; that is, there will be an agreed price per unit of product and an agreed date on which payment will be made by the importer. In contrast, when goods are exported on consignment, it is understood that they will be sold by the consignee either for the best price obtainable in his market or for the best price obtainable above a minimum set by the exporter. Remittance is made only when the goods are sold. For example, one exporter ships goods on consignment to distributors in the leading cities of South Africa. The merchandise is insured for his account and the distributors give a monthly accounting of the results of sales. The exporter may then solve the remittance problem precisely as in the case of open-account transactions. In consignment exporting, however, it should be noted that the exporter must bear the risk of exchange; that is, merchandise consigned to South Africa will be sold in South African pounds and the consignee will remit only as many dollars as those pounds will buy. Open-account exports, on the other hand, may be expressed in terms of either currency, exporter's or importer's.
In consignment, even more than in open-account exporting, the exporter must have complete confidence in the foreign consignee or agent, since, with no agreed price (although, as already noted, the exporter may set a minimum price), the agent must be depended upon to sell the goods as promptly and at the best price as possible. In neither case, of course, does the exporter have the control over the goods which shipment on draft or bank-credit basis gives him. The importer abroad can obtain the goods without payment and without accepting a draft.
If an American exporter sells on consignment, the foreign importer to whom he consigns may be a commission house. Similarly, there are in the United States firms who both import and export on commission. Their import activities--much the more important--will be discussed a few pages hence. Their exporting is seldom on open account and never on consignment; rather it is either on draft or bank-credit basis.
A commission house will execute almost any sort of export order, from a complete brewery for China to a load of cork helmets for equatorial Africa. On receiving an order, the commission house buys in the open market or on bids, at the best price obtainable. It then ships on a strictly c.i.f. (cost, insurance, freight) basis for the account of the foreign client, adding a commission. The commission house will receive payment in any of several ways. Under present conditions, it will probably expect to draw a sight draft either under letter of credit provided by the client abroad or directly on the client. In some cases the commission house will be importing on commission for the same client, holding the proceeds on deposit. If so, this deposit may be debited to pay for the exports.
In both open-account and consignment exporting no draft is drawn before shipment. The goods go forward on the exporter's confidence that the importer will remit as per agreement. This lack of a credit instrument, which the importer must either pay (if a sight draft) or accept (if a time draft), may be a serious drawback. It deprives the exporter of a draft which he may borrow against if he needs funds. It deprives the importer of the most acceptable evidence of a need for foreign exchange in countries where exchange restrictions are severe. It provides greater temptation to the importer to delay remittance. For all these reasons we must expect to find exporters using such terms only: (1) when their own working capital is adequate; (2) when the good faith of the importer is beyond question; (3) when exchange restrictions are unimportant.
No comments:
Post a Comment