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Explore Ethiopia

A Country of Many Contrasts

Important notes

Import and Export Business in Ethiopia: Methods of Payment.

An Ethiopian importer or exporter who is engaged in import or export business in Ethiopia should know what type of import export payments in Ethiopia are possible while doing import or export trade in Ethiopia or with Ethiopian businesses.

Methods of Payment

  • Letter of credit L/C
  • Cash Against Document
  • Telegraphic Transfer
  • Advance Payment

Types of L/C

  • Irrevocable Vs Revocable
  • Confirmed Vs Unconfirmed
  • Straight Vs Negotiable
  • Sight Vs Usance
  • Documents to be included in L/C
  • Transaction Steps of L/C

Letter of credit (L/C)

  • It is a written commitment to pay, by a buyer’s or importer’s bank to the seller’s or exporter’s bank. LC guarantees payment.
  • A supplier or exporter that has sold to an Ethiopian Importer on LC basis should present to the bank these four sets of documents: Original sets of CLEAN Bill of lading, Shipping Document (Airway Bill, Truck way bill or Railway Manifest), Commercial Invoice that’s verified by the chamber of commerce of the supplier’s country, Packing List and Certificate of Origin that’s verified by the chamber of commerce of the supplier’s country. If the goods are imported from China, a CIQ certificate (pre shipment inspection certificate carried out by China AQSIQ) should be presented along with the other four documents.
  • The two most basic types of L/C are Revocable-credit L/C and Irrevocable-credit L/C, which comes in two versions: Confirmed irrevocable letter of credit and Non-confirmed irrevocable L/C.

Cash Against Documents (CAD)

  • A transaction in which the buyer assumes the title for the goods being purchased upon paying the sale price in cash. It’s quicker than LC, but not as safe; Ethiopian exporters are advised to use CAD is they have a very good relationship with the buyer and know that the credentials of the buyer make it trustworthy.
  • A supplier or exporter that has sold to an Ethiopian Importer on CAD basis should present to the bank these four sets of documents: Original sets of CLEAN Bill of lading, Shipping Document (Airway Bill, Truck way bill or Railway Manifest), Commercial Invoice that’s verified by the chamber of commerce of the supplier’s country, Packing List and Certificate of Origin that’s verified by the chamber of commerce of the supplier’s country. If the goods are imported from China, a CIQ certificate (pre shipment inspection certificate carried out by China AQSIQ) should be presented along with the other four documents.

Telegraphic Transfer (TT)

  • It’s a method of payment in which funds are transferred via telegraph or cable. It’s most common in business conducted in developing countries, where other types of infrastructure, such as computerized payments, may not be available; however, in Ethiopia all imports, of which value is more than USD 2000, are required to be done via LC or CAD.

Advance Payment

  • An advance payment, or simply an advance, is the part of a contractually due sum that is paid in advance for goods or services, while the balance included in the invoice will only follow the delivery. It is called a prepaid expense in accrual accounting. In Ethiopia an advance payment of up to USD 5000 may be allowable and can be done through Telegraphic Transfer.

Types of L/C

1. Revocable L/C Vs Irrevocable L/C

Irrevocable L/C

If this type of L/C is once opened, it can not be changed or cancelled or amended without the consent of all parties (including the beneficiary or the seller).

Revocable L/C

A revocable L/C may be amended or cancelled by the Issuing Bank at any moment and without prior notice to the Beneficiary. The cancellation is usually made at the request and on the instructions of the applicant.

2. Confirmed L/C Vs Advised (Unconfirmed L/C)

Confirmed L/C

It is a type of L/C in which the Confirming Bank promises to pay.When an exporter exports to a country with economical or political instability or if the exporter is unfamiliar with the Issuing Bank, the exporter should require that the L/C be confirmed by a first-class bank. If L/C is confirmed, the confirming bank is liable for the payment. The payment is assured even if the importer or the issuing bank defaults. However, under normal circumstances, an unconfirmed LC may be preferred to avoid the charges that would be paid by both the buyer and seller for confirmation.

Advised L/C (Unconfirmed L/C)

Is opened by an issuing bank in which the advising bank does not add its confirmation to the credit. The promise to pay comes from the issuing bank only.

3. Straight L/C Vs Negotiation L/C

Straight L/C

It can only be paid in the country of the Paying Bank.

Negotiation L/C

It can be presented and paid to any bank.

4. Sight L/C Vs Usance L/C

Sight L/C

The Beneficiary is paid as soon as the Paying Bank has determined that all necessary documents are in order.

Usance L/C

Usance time can be between 30 and 180 days after the bill of lading date. This is a form of delayed payment, and should be avoided.

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