my country’s export business uses negotiation letters of credit more often. There are three main methods for export settlement of this type of letter of credit.
1. Settlement of exchange upon receipt
Also known as payment upon receipt. After receiving the documents submitted by the beneficiary, the negotiating bank will send the documents to the foreign paying bank for payment after reviewing and confirming that they are in compliance with the terms of the letter of credit. After the paying bank transfers the payment to the negotiating bank, that is, when the negotiating bank receives the credit notice (Credit Note) from the foreign paying bank’s account, it will convert the payment into RMB according to the foreign exchange rate of the day and transfer it to the designated account of the export enterprise.
2. Regular settlement of exchange
The negotiating bank predetermines a fixed settlement period based on the time required to claim compensation from the foreign paying bank, and agrees with the export enterprise that after the expiration of the period, regardless of whether the payment from the foreign paying bank has been received, it will actively convert the bill amount into RMB and transfer it to the export enterprise.
3. Settlement of exchange upon purchase
Also known as documentary payment. After the negotiating bank has reviewed the documents and found them to be correct, it will purchase the bills and documents of the exporting enterprise according to the terms of the letter of credit. The interest from the negotiation date to the estimated date of receipt of the bill will be deducted from the face value, and the remaining amount will be converted into RMB at the foreign exchange rate on the negotiation date and paid to the exporting enterprise. After the negotiating bank advances funds to the beneficiary to purchase the documentary bill, it becomes the holder of the bill and can demand the bill payment from the paying bank with the bill. The purpose of banks making export documentary advances is to provide financial financing to exporting enterprises, which is beneficial to the capital turnover of exporting enterprises.
Export tax rebate refers to the exemption of taxes that should be paid when the goods are consumed in the country when exported abroad by the exporting country in international trade, or the refund of taxes (including value-added tax and consumption tax) already paid according to the provisions of the country’s tax laws.