Introduction

(1)
Contributions 3
Chapter 1 4
Introduction 4
1.1 Motivation 4
1.2 Objective 5
1.3 Methodology 5
Chapter 2 6
Payment Method and Financing Method 6
2.1 Payment terms and trade finance 6
2.1.1 Prepayments/ cash in advance 8
2.1.2 Letter of credit 9
2.1.3 Drafts / Bills of exchange 10
2.1.4 Consignments 13
2.1.5 Open accounts 14
2.2 Trade financing 15
Chapter 3 17
Data Representation on Payment Methods in Use 17
3.1 Payment Methods based on Destination 17
3.2 Payment Methods based on Industry 18
3.3 Payment Methods based on Revenue 20
Chapter 4 22
Data Representation on Financing Methods in Use 22
4.1 Financing Methods based on Destination 22
4.2 Financing Methods based on Industry 23
4.3 Financing Methods based on Revenue 23
Chapter 5 24
Data Representation of Primary Data 24
5.1 Selection of Industries 24
5.2 Major Payment Methods used by Firms 25
5.3 Major Financing Methods used by Firms 26
Chapter 6 27
Conclusion 27
6.1 Popular Payment Method 27
6.2 Popular Financing Method 28
6.3 Working Capital Management 28

(2)
Annexure A 29
Questionnaire 29

(3)
Contributions
KUNTAL GHOSH (20)
Planned the organisation of entire project. Collected the secondary data as the starting point of
the project. Prepared the questionnaire for the exporters based on the questionnaire.
Approached to exporters of “Global Change Research”, “Club International” and “BB Trexim”
to understand the payment method and financing schemes used by them as per the given
questionnaire. Remained instrumental for completion of the project.
RATNESH KUMAR (16)
Ratnesh had provided support for completing the report. He had also contributed by collecting
data from “DHL India”.
MANI SHANKAR SAHA (23)
Provided data for the following companies – “Graphite India Limited” and “Siemens Limited”.
ROHIT NAHAR (19)
Provided data for “Indian Chemical Company”.
SATISH JAISWAL (21)
Provided data for “Kamrup Tea Company”.
SWAROOP GHOSH (22)
Provided data for “Gontermann Piepers India Ltd”.
RAKTIM MITRA (18)

(4)
In this chapter the background of this study is explained. This is coupled with the relevant
studies that we have performed in order to throw light on the practices known or used by the
exporters originated from our soil.
1.1 Motivation
There are three legs of study for international business –
1. International Trade Logistics
2. International Trade Documentation
3. Financing in International Trade
International trade will also follow the nuances of theories of international trade. So study of
these essential concepts would be a prior requirement. But when we talk about business and
especially operating in land of overseas counterpart it is of utmost importance for an exporter
to know all these operational backbone of international trade. Financing in international trade
can be consider the most important leg.
There is a reason for believing in the fact that financing in international trade is the most
important leg. Let us elaborate further with example. Barring some extraordinary organisations
started operations by exporting there is a sequence of business process. First a company starts
producing for the domestic market. It increases its capacity with the growing demand. It then
increases its efficiency and in the process it becomes bigger in size. Now to keep its capacity
fully utilised or to increase the revenue generated out of the country the organisations started
exporting in the basic form. Further increase in efficiency can cause outward FDI but we are
not concentrating on this at this moment. If an organisation follows this path of growth, it would
increase its knowledge on endogenous factors of growth for the organisation and all exogenous
factors learnt by the organisation would be specific to the home country only.
So for sending goods to overseas buyers bring a whole lot of challenges for the organisation.
Now methods or documentations used in international trade logistics and documentation would
be verified pretty early part of the exportation process. So, the organisation starts learning them
offhand. But financing and particularly realisation of payment comes very late. An exporter
can ship the good with an expectation that the payment will be made. Remember, no buyer can
really feel confident of paying in advance for the new exporter. So arrangement of working
capital has become an important concern for the exporters.
These facts have motivated us to explore the essential ingredients of exporters to save
themselves from grotesquely behaving into the international business and make things right in
right time!
1
Introduction

(5)
1.2 Objective
Objective of our study was –
1. To find out the financial products and services used by exporters
2. To find out the financing methods used by exporters
3. To find out the working capital management done by exporters
During the process we have evolved some of derived objectives as well –
1. To find out pattern of payment methods by different types of exporters
2. To find out pattern of financing methods by different types of exporters
1.3 Methodology
To understand the usage of various payment method and financing method, we have divided
the data into two parts – primary data collection and secondary data collection. First we have
collected data from secondary source. Afterwards, descriptive analysis has been done on them.
At this point of time it is giving a fair chance of preparing the questionnaire as mentioned in
annexure A. Based on the questions interview was conducted mainly on the exporters.
With those input from secondary data sources, we have created a questionnaire to interview
the exporters designated to each team member. We shall collate data and see the meaningful
information or any pattern available or not.
During the course of studying the payment and export financing methods, we have actually try
to also find out that how secondary data is following the primary data. Moreover, secondary
data is from pan-India whereas primary data is collected from Kolkata only. However, there
could be other exporting units of the concerned firms elsewhere in India as well. But the criteria
of selection of firms would follow –
- export unit be present in Kolkata and major decision can be taken from Kolkata unit

(6)
In this chapter we shall focus on understanding the payment method and financing method
from the existing literature available to us.
2.1 Payment terms and trade finance
International trade is all about movement of goods and services/documents or funds. But there
are two major risks are involved in it.
(1) Counter party risk
(2) Country risk
With the use of proper payment methods, the counter party risk can be easily mitigate.
In any international trade transaction, credit is provided by either
¤ the supplier (exporter),
¤ the buyer (importer),
¤ one or more financial institutions, or
¤ any combination of the above.
The form of credit whereby the supplier funds the entire trade cycle is known as supplier credit.
Payment methods have direct implication on working capital cycle. While choosing the
appropriate payment terms, it would be highly recommended to go through closely the working
capital cycle of the exporter. Generally the working capital looks like below in figure 2.1.1.
2
Payment Method and Financing Method

(7)
Figure 2.1.1 Working Capital Cycle
There are 5 types of payment terms used in the international trade. These payment terms can
be used either alone or with the combination of more than one.
1) Prepayments
2) Letter of credit
3) Drafts / bill of exchange
4) Consignments
5) Open Account
FG
Shipment
Purchase
RM
WIP
Figure 2.1.2 Risk of Exporter

(8)
Let us go through each of the payment terms and understand the advantage/ disadvantage and
risk exposure from the point of view importer and exporter.
2.1.1 Prepayments/ cash in advance
Prepayments payment method, the exporter can eliminate credit risk or the risk of non-payment
since payment is received prior to the transfer of ownership of the goods. Goods will not be
shipper until the buyer has paid the seller. There is flip side of this, because for buyer point of
view it is less attractive payment methods as it will create the cash flow problems for the buyers.
Also from exporter points of view it makes them less competitive.
Table 2.1-1 Characteristics of Cash-in-Advance
Applicability Recommended for use in high-risk trade relationships or export markets,
and appropriate for small export transactions
Risk Exporter is exposed to virtually no risk as the burden of risk is placed
almost completely on the importer
Merit  Payment before shipment
 Eliminates risk of non-payment
Demerit  May lose customers to competitors over payment terms
 No additional earnings through financing operations
Key Points
 Full or significant partial payment is required, usually via credit card or bank or wire
transfer or escrow service, before the ownership of the goods is transferred.
 Cash-in-advance, especially a wire transfer, is the most secure and least risky method
of international trading for exporters and, consequently, the least secure and an
unattractive method for importers. However, both the credit risk and the competitive
landscape must be considered.
 Insisting on cash-in-advance could, ultimately, cause exporters to lose customers to
competitors who are willing offer more favourable payment terms to foreign buyers.
 Creditworthy foreign buyers, who prefer greater security and better cash utilization,
may find cash-in-advance unacceptable and simply walk away from the deal.
When to Use Cash-in-Advance Terms
 The importer is a new customer and/or has a less-established operating history.

(9)
 The importer’s creditworthiness is doubtful, unsatisfactory, or unverifiable.
 The political and commercial risks of the importer’s home country are very high.
 The exporter’s product is unique, not available elsewhere, or in heavy demand.
 The exporter operates an Internet-based business where the acceptance of credit card
payments is a must to remain competitive.
2.1.2 Letter of credit
Letters of credit are issued by a bank on behalf of the importer promising to pay the exporter
upon presentation of the shipping documents. This is one of the most versatile and secure
instruments available to international traders. An LC is useful when reliable credit information
about a foreign buyer is difficult to obtain or if the foreign buyer’s credit is unacceptable, but
the exporter is satisfied with the creditworthiness of the importer’s bank. This method also
protects the importer since the documents required to trigger payment provide evidence that
goods have been shipped as agreed.
 Time of payment : When shipment is made
 Goods available to buyers : After payment
Table 2.1-2 Characteristics of a Letter of Credit
Applicability Recommended for use in higher-risk situations or new or
less-established trade relationships when the exporter is
satisfied with the creditworthiness of the buyer’s bank
Risk Risk is spread between exporter and importer, provided
that all terms and conditions as specified in the LC are
adhered to
Pros  Payment made after shipment
 A variety of payment, financing and risk mitigation
options available
Cons  Labor intensive process
 Relatively expensive method in terms of transaction
costs

(10)
Key Points
 An LC, also referred to as a documentary credit, is a contractual agreement whereby
the issuing bank (importer’s bank), acting on behalf of its customer (the importer or
buyer), promises to make payment to the beneficiary or exporter against the receipt of
“complying” stipulated documents. The issuing bank will typically use intermediary
banks to facilitate the transaction and make payment to the exporter.
 The LC is a separate contract from the sales contract on which it is based; therefore,
the banks are not concerned with the quality of the underlying goods or whether each
party fulfils the terms of the sales contract.
 The bank’s obligation to pay is solely conditioned upon the seller’s compliance with
the terms and conditions of the LC. In LC transactions, banks deal in documents only,
not goods.
 LCs can be arranged easily for one-time transactions between the exporter and
importer or used for an ongoing series of transactions.
 Unless the conditions of the LC state otherwise, it is always irrevocable, which means
the document may not be changed or cancelled unless the importer, banks, and
exporter agree.
2.1.3 Drafts / Bills of exchange
It is the unconditional promises draw by exporter/ buyer to pay the face amount of the drafts.
Banks are the party from both exporter and importer ends.
It is having two types
(a) Sight drafts (documents against payment)
(b) Time drafts (documents against acceptance)

(11)
Table 2.1-3 Characteristics of Bills of exchange
Applicability Recommend for use in established trade relationships, in stable
export markets and for transactions involving ocean shipments
Risk Riskier for the exporter, though D/C terms are more convenience and
cheaper than an LC to the importer
Pros  Bank assistance in obtaining payment
 The process is simple, fast, and less costly than LCs
Cons  Banks’ role is limited and they do not guarantee payment
 Banks do not verify the accuracy of the documents
Key Points
 D/Cs are less complicated and less expensive than LCs.
 Under a D/C transaction, the importer is not obligated to pay for goods before shipment.
 If structured properly, the exporter retains control over the goods until the importer
either pays the draft amount at sight or accepts the draft to incur a legal obligation to
pay at a specified later date.
 Although the goods can be controlled under ocean shipments, they are more difficult to
control under air and overland shipments, which allow the foreign buyer to receive the
goods with or without payment unless the exporter employs agents in the importing
country to take delivery until goods are paid for.
 The exporter’s bank (remitting bank) and the importer’s bank (collecting bank) play an
essential role in D/Cs.
 Although the banks control the flow of documents, they neither verify the documents
nor take any risks. They can, however, influence the mutually satisfactory settlement
of a D/C transaction.
When to Use Bills of exchanges
With D/Cs, the exporter has little recourse against the importer in case of non-payment. Thus,
D/Cs should be used only under the following conditions:
 The exporter and importer have a well-established relationship.
 The exporter is confident that the importing country is politically and economically
stable.
 An open account sale is considered too risky, and an LC is unacceptable to the importer.

(12)
Documents against Payment Collection
With a D/P collection, the exporter ships the goods and then gives the documents to his bank,
which will forward the documents to the importer’s collecting bank, along with instructions on
how to collect the money from the importer. In this arrangement, the collecting bank releases
the documents to the importer only on payment for the goods. Once payment is received, the
collecting bank transmits the funds to the remitting bank for payment to the exporter.
Table 2.1-4 Characteristics of Documents against Payment Collection
Time of Payment After shipment, but before documents are released
Transfer of Goods After payment is made at sight
Exporter Risk If draft is unpaid, goods may need to be disposed of r may
be delivered without payment if documents do not control
possession
Risk to importer Relies on exporter to ship goods as described in documents
Documents against Acceptance Collection
With a D/A collection, the exporter extends credit to the importer by using a time draft. The
documents are released to the importer to claim the goods upon his signed acceptance of the
time draft. By accepting the draft, the importer becomes legally obligated to pay at a specific
date. At maturity, the collecting bank contacts the importer for payment. Upon receipt of
payment, the collecting bank transmits the funds to the remitting bank for payment to the
exporter.
Table 2.1-5 Characteristics of Documents against Acceptance Collection
Time of Payment On maturity of draft at a specified future date
Transfer of Goods Before payment, but upon acceptance of draft
Exporter Risk Has no control over goods after acceptance and may not
get paid at due date
Importer Risk Relies on exporter to ship goods as described in documents

(13)
2.1.4 Consignments
The exporter retains actual title to the goods that are shipped to the importer. A consignment
is the method of payment in which payment is sent to the exporter only after the goods have
been sold by the foreign distributor to the end customer. An international consignment
transaction is based on a contractual arrangement in which the foreign distributor receives,
manages, and sells the goods for the exporter who retains title to the goods until they are sold.
Payment to the exporter is required only for those items sold. One of the common uses of
consignment in exporting is the sale of heavy machinery and equipment because the foreign
distributor generally needs floor models and inventory for sale.
Table 2.1-6 Characteristics of Consignment
Applicability Recommended for use in competitive environments to enter new
markets and increase sales in partnership with a reliable and
trustworthy foreign distributor
Risk Significant risk to the exporter because payment is required only
after the goods have been sold to the end customer
Pros  Help enhance export competitiveness on the basis of
greater availability and faster delivery of goods
 Help reduce the direct costs of storing and managing
inventory
Cons  Exporter is not guaranteed payment
 Additional costs associated with risk mitigation measures
Key Points
 Payment is sent to the exporter only after the goods have been sold by the foreign
distributor.
 Exporting on consignment can help exporters enter new markets and increase sales in
competitive environments on the basis of better availability and faster delivery of
goods.
 Consignment can also help exporters reduce the direct costs of storing and managing
inventory, thereby making it possible to keep selling prices in the local market
competitive.
 Partnership with a reputable and trustworthy foreign distributor or a third-party logistics
provider is a must for success.
 The importing country should be commercially and politically secure.

(14)
 Appropriate insurance should be in place to mitigate the risk of non-payment as well as
to cover consigned goods in transit or in possession of a foreign distributor.
 Export working capital financing can help exporters of consigned goods have access to
financing and credit while waiting for payment from the foreign distributor.
2.1.5 Open accounts
The exporter ships the merchandise and expects the buyer to remit payment according to the
agreed-upon terms. Obviously, this option is advantageous to the importer in terms of cash
flow and cost, but it is consequently a risky option for an exporter. Because of intense
competition in export markets, foreign buyers often press exporters for open account terms. In
addition, the extension of credit by the seller to the buyer is more common abroad. Therefore,
exporters who are reluctant to extend credit may lose a sale to their competitors. However,
though open account terms will definitely enhance export competitiveness, exporters should
thoroughly examine the political, economic, and commercial risks as well as cultural influences
to ensure that payment will be received in full and on time.
Table 2.1-7 Characteristics of an Open Account Transaction
Applicability Recommended for use (a) in low-risk trading relationships or
markets and (b) in competitive markets to win customers with the
use of one or more appropriate trade finance techniques
Risk Substantial risk to the exporter because the buyer could default on
payment obligation after shipment of the goods
Pros  Boost competitiveness in the global market
 Help establish and maintain a successful trade relationship
Cons  Significant exposure to the risk of non-payment
 Additional costs associated with risk mitigation measures
Key Points
 The goods, along with all the necessary documents, are shipped directly to the importer
who has agreed to pay the exporter’s invoice at a specified date, which is usually in 30,
60 or 90 days.
 The exporter should be absolutely confident that the importer will accept shipment and
pay at the agreed time and that the importing country is commercially and politically
secure.

(15)
 Open account terms may help win customers in competitive markets and may be used
with one or more of the appropriate trade finance techniques that mitigate the risk of
non-payment.
2.2 Trade financing
Below are the popular trades financing method being used widely.
 Accounts Receivable Financing
 Factoring (Cross-Border Factoring)
 Letters of Credit (L/C)
 Banker’s Acceptance (BA)
 Working Capital Financing
 Medium-Term Capital Goods Financing (Forfaiting)
 Countertrade
Account Receivable financing: It is used to take shot term credit against account receivables
which was generated due to trade export. This type of credit is generally taken by exporter
when they have immediate requirement of the funds. Bank issued the credit to the exporter
after securing the account receivables which was generated from the trade export.
Factoring (Cross-Border Factoring): It is widely used instrument in the developed country.
Basically in this exporter which has an arrangement with the factoring agency (called The
Factor) would sell its receivables to them. The factor will finance to the exporter and collect
the money from buyer.
Two types of terms and condition may have with the factor and buyer
1) Without Recourse : All collection responsibility to factor
2) With Recourse : Exporter and buyer mutually bear the collection risk
Sometimes accounts receivable related reporting is also done by the factor.
Letter of credit: One of the popular trade financing method is letter of credit. Letter of credit
is being issued by the importer bank (called issuing bank) on the instruction by the importer.
In the letter of credit there are terms and condition present which exporter need to present as
documentary proof. This terms and condition basically comes from the sale-purchase contract
between exporter and the importer. The importer pays the issuing bank the amount of the L/C
plus associated fees.
The required documents typically include a draft (sight or time), a commercial invoice, and a
bill of lading (receipt for shipment).
Once the letter of credit is with the exporter then for financing the trade exporter may avail the
export credit for funding the pre-shipment credit (packing credit) and the post shipment credit.

(16)
As per master circular of RBI, bank can issue the loan to the exporter on the base rate to the
maximum of 30 days.
Letter of credit is governed by the ICC rule UCP 600 and any dispute between exporter and
importer is being handled by the online arbitration of the ICC.
Bankers’ Acceptance: When letter of credit is being issued in DA terms or time draft that is
drawn on and accepted by a bank (the importer’s bank). The accepting bank is obliged to pay
the holder of the draft at maturity.
If the exporter does not want to wait for payment, it can request that the BA be sold in the
money market. Trade financing is provided by the holder of the BA. The bank accepting the
drafts charges an all-in-rate (interest rate) that consists of the discount rate plus the acceptance
commission. In general, all-in-rates are lower than bank loan rates. They usually fall between
the rates of short-term Treasury bills and commercial papers.
Working Capital Financing: Banks may provide short-term loans that finance the working
capital cycle, from the purchase of inventory until the eventual conversion to cash.
Medium-Term Capital Goods Financing (Forfaiting): The importer issues a promissory
note to the exporter to pay for its imported capital goods over a period that generally ranges
from three to seven years. The exporter then sells the note, without recourse, to a bank (the
forfaiting bank).
Countertrade: These are foreign trade transactions in which the sale of goods to one country
is linked to the purchase or exchange of goods from that same country. Common countertrade
types include barter, compensation (product buy-back), and counter purchase. The primary
participants are governments and MNCs. ESCROW account is one of the obligations to
perform the counter trade.

(17)
We shall discuss the pattern of payment methods used by Indian exporters within an industry,
or regular method of payment usually preferred based on the destinations or sales volume. The
report in this chapter had been made based on the secondary data that has been collected.
3.1 Payment Methods based on Destination
An exporting firm from India sends their goods to foreign soil for the countries or region like
USA, Europe, South America, African nations, Bangladesh, South East Asian countries etc.
We have grouped the nations in the following economic classifications of nations (shown in
table 3.1-1).
Table 3.1-1 Type of Nation
Developed Nation 0
Developing Nation 1
Least Developed
Nation
2
Following figure shows that the share of Indian export to such type of nations.
Figure 3.1.1 Share of Export on Different Type of Nations
Developed
Nation, 65%
Developing
Nation, 19%
Least
Developed
Nation, 16%
DESTINATION
3
Data Representation on Payment Methods in Use

(18)
Following table is showing that the percentage of exporters using what type of payment
methods while exporting their goods and services to the countries belonging to the economic
group as mentioned in Table 3.1-2.
Table 3.1-3 Payment Methods for Different Nations
Prepayment Letter of
Credit
Draft Consignment Open
Account
Developed Nation 0% 39% 19% 0% 6%
Developing
Nation
0% 16% 0% 0% 5%
Least Developed
Nation
6% 3% 3% 0% 3%
3.2 Payment Methods based on Industry
There are six major industries that we have collected data from. These are mentioned in the
following table.
Table 3.2-1 Types of Industry Selected
Manufacturing 0
Electrical 1
Construction 2
Financial services 3
Non-financial
services
4
Mine 5

(19)
The distribution of exporting firms among these sectors are as follows.
Following table is showing the percentages of payment methods used by exporting firms falling
in a particular industry or sector.
Table 3.2-2 Distribution of Payment Methods According to Industry
Prepayment Letter of
Credit
Draft Consignment Open
Account
Manufacturing 6% 36% 13% 0% 9%
Electrical 0% 0% 0% 0% 3%
Construction 0% 6% 3% 0% 2%
Financial services 0% 7% 0% 0% 0%
Non-financial
services
0% 6% 0% 0% 0%
Mine 0% 3% 6% 0% 0%
Manufacturing
61%
Electrical
3%
Construction
10%
Financial services
10%
Non-financial
services
6%
Mine
10%
EXPORT SHARE

(20)
3.3 Payment Methods based on Revenue
We have classified the firms based on their sales volume or annual revenue as per the following
table.
Table 3.3-1 Classification based on Revenue
Low < ₹ 100 Crore
Medium Upto ₹ 1000 Crore
High > ₹ 1000 Crore
From the collected data we have found that following is the distribution of firms in the category
as described in table 3.3-1.
Figure 3.3.1 Distribution of Exporters based on Revenue
Low
42%
Medium
32%
High
26%
PERCENTAGE OF FIRM AS PER
SIZE

(21)
Following table will show what would be the distribution of firms classified by their size in
terms of revenue using different payment methods.
Table 3.3-2 Distribution of Payment Methods based on Size of Firms
Prepayment LC Draft Consignment Open
Account
Low 0% 2% 0% 0% 14%
Medium 0% 3% 4% 0% 0%
High 6% 53% 18% 0% 0%

(22)
We shall discuss the pattern of financing methods used by Indian exporters within an industry,
or regular method of financing usually preferred based on the destinations or sales volume.
The report in this chapter had been made based on the secondary data that has been collected.
4.1 Financing Methods based on Destination
There could be some confidence on the nation as a whole with which an Indian export company
is dealing with. Following table is depicting the fact in percentage terms the number of
exporting firms engaged in what kind of financing methods while working with the economic
classification of the countries. Destination country would also be matter of interest for banks
and other financial institutions funding that export.
Table 4.1-1 Distribution of Financing Methods based on Type of Nation
Account
Receivable
Factoring LC BA Working
Capital
Finance
DevelopedNation 3% 16% 32% 13% 0%
Developing
Nation
0% 3% 13% 0% 3%
Least Developed
Nation
10% 0% 0% 0% 7%
4
Data Representation on Financing Methods in Use

(23)
4.2 Financing Methods based on Industry
From the given set of secondary data we shall find out in the following table the percentage
distribution of financing methods across different industries.
Table 4.2-1 Distribution of Financing Methods across Industries
Account
Receivable
Capital
Finance
Manufacturing 10% 3% 35% 5% 13%
Electrical 3% 0% 0% 0% 0%
Construction 0% 3% 0% 0% 3%
Financial services 0% 0% 10% 0% 0%
Non-financial
services
0% 0% 0% 0% 0%
Mine 0% 13% 0% 8% 0%
4.3 Financing Methods based on Revenue
Companies had already been classified according to table 3.3-1 in different revenue groups –
low, medium and high. Refer to table 4.3-1 for distribution of financing methods across
different groups of revenue group.
Table 4.3-1 Distribution of Financing Methods across Different Revenue Group
Account
Receivable
Capital
Finance
Low 9% 0% 2% 0% 0%
Medium 1% 3% 8% 0% 3%
High 3% 16% 35% 13% 8%

(24)
In this chapter we shall represent the data obtained from our survey we did with different
exporters. We would classify the primary data according to industry and would see whether
our primary survey is following the trend of secondary data.
5.1 Selection of Industries
Before collection of data we did not target any particular industry because we realised that
collecting data based on industries would be time taking. Hence, as per the collected data we
have put them into industries based on their product and operations.
Table 5.1-1 Companies and Industry in Primary Survey
Company Name Product Industry Importing
Countries
BB Trexim Hand Gloves Manufacturing Europe, USA
Club International Bags Manufacturing Worldwide
DHL India Ltd. Courier service Non-financial services Domestic
Global Change
Research
Project appraisal Non-financial services Europe
Graphite India
Limited
Synthetic Graphite
and Carbon
Manufacturing, Mining USA, Latin-
America,
Europe, South-
East Asia, South
Asia
Indian Chemical
Company
Industrial chemical Manufacturing Domestic
Kamrup Tea
Company
Tea, Cashew nuts,
coffee, bags, seeds
etc.
Manufacturing of
agricultural products
Mainly in
Europe, South
Asia
Siemens Ltd Multiple products Manufacturing Worldwide
Note: Companies in italics have engagement in international trade as an importer
5
Data Representation of Primary Data

(25)
5.2 Major Payment Methods used by Firms
We shall represent the data of payment methods used by the firms in the survey in table 5.2-1.
This information would be useful in identifying what are the methods actually being
encouraged among exporters in India.
Table 5.2-1 Payment Methods of Surveyed Firms
Firm Size* Prepayment LC Drafts Open A/c Others
BB Trexim Medium 10% 80% 10% (DA
only)
Nil Nil
Club
International
Large 20% 60% 20% Nil Nil
DHL India
Ltd.
Large 40% 20% Nil Nil 40%
Global
Change
Research
Small 80% Nil Nil 20%
(Payment
against
invoice
after 30
days)
Nil
Graphite
India
Limited
Large 6% 25% 43% 26% Nil
Indian
Chemical
Company
Medium 34% Nil Nil 66% Nil
Kamrup Tea
Company
Medium Nil Nil 100% Nil Nil
Siemens
Ltd.
Large 7% 26% 41% 26% Nil
*size: as per table 3.3-1

(26)
5.3 Major Financing Methods used by Firms
We shall represent the data of financing methods used by the firms in the survey in table 5.3-
1. This information would be useful in identifying what are the methods actually being
encouraged among exporters in India.
Table 5.3-1 Financing Methods of Surveyed Firms
Firm Account
Receivable
Capital
Financing
Medium
Term
Capital
Goods
Financing
BB Trexim 40% 20% 40% Nil Nil Nil
Club
International
Nil Nil 100% Nil Nil Nil
DHL India
Ltd.
Nil Nil Nil Nil Nil Nil
Global
Change
Research
Graphite
India
Limited
15% Nil 85% Nil Nil Nil
Indian
Chemical
Company
Kamrup Tea
Company
20% Nil 20% Nil 60% Nil
Siemens
Ltd.
15% 15% 70% Nil Nil Nil

(27)
From the data we have obtained we shall summarise the outcome of the study. The summary
would be on the products and services being used by the exporters in India. In addition to that
we shall also update the working capital management issues shared by the exporting firms
those who were actually forthcoming while attending the interviews.
6.1 Popular Payment Method
From the data sources we have found that letter of credit is the most popular product being
used both for payment method and for financing method. We have seen that majority of the
firms working with the developed nations are working with LC as payment method. However,
when it turns out to be least developed nation based on the bargaining power of the exporter,
advanced payment is also a well-known practice.
During the interview, it has also been acknowledged by the exporters that they are not confident
even with the letter of credits with the companies in least developed countries. Hence, the
preferable choice would be advanced payment for the exporters. However, if letter of credit is
insisted upon, the confirming bank is essentially chosen to be from some other countries like
Singapore or even UK.
We have also learnt about the open LC. Open letter of credit means a letter of credit that can
be financed on a simple draft without requiring documentary title. The interest of a beneficiary
in an open letter of credit is not attachable as a debt or property since prior to the presentation
of conforming documents, a confirming bank is neither indebted to the beneficiary nor holds
any of its property1. For perishable item and iron ore the practice used in India is LC.
Documentary collection is also useful product. This reduces bank involvement and thus reduces
bank costs. Hence, exporting firms had shown interests of using this product in case the
importers are reliable but open account would be little risky for some reason.
Open account is useful payment method benefiting importers. Data collected on behalf of
importers had also support this. Becoming reliable to the exporters is the key here. Through
long term relationship open account arrangement is achievable and it has been shown by the
Indian importers.
1 Source: http://definitions.uslegal.com/o/open-letter-of-credit/
6
Conclusion

(28)
6.2 Popular Financing Method
Since banks are providing packing credit the most useful form of export financing in India is
invariably obtaining the packing credit especially using the letter of credit or loan against the
accounts receivable. In such case, it has been reported by the exporters that credibility of the
importing firms and countries are also important factors.
Factoring is known to the exporters but this is not so common because of the cost factor. The
cost of factoring is almost 1.5 to 3% per month. For small organisations this would be too high.
Hence, we can also see from the data in chapter 5 that factoring is used by the large firms. This
cost can increase even further for non-payment in time. The cost of such fund would become
further 1 to 2% more over and above the usual cost of this fund.
In the collected data from both the sources – primary and secondary Bankers’ acceptance is not
seen to be popular in India. There is a possibility that since the market is not so much efficient
in India, Indian banks are reluctant to securitise such usance bill.
6.3 Working Capital Management
The whole story of payment method and financing evolves from the working capital cycle.
Now, obviously, efficient working capital management would result into better financial
performance of the company; it also reduces the operation risks generated mainly due to cash
crunch during operation.
The practices used by the Indian exporters (or importers) are as follows.
1. Advance payment. Perked in FD for interest income
2. Payment time negotiated keeping in view of the exchange rate
3. WCM through reserves and internal accruals
4. Mostly through financing from banks by availing various types of Credit lines in
foreign currency or Rupee. Some of them are as follows:
 Cash Credit
 Export Packing Credit
 Rupee Packing Credit
 Buyer’s Credit
 Short term borrowings
5. Advances from customer for very reliable counterpart.

(29)
Questionnaire
Some Information of Company
Name of the Company:
Year of incorporation:
Ownership type: Please tick (Private/Public)
Foreign Ownership: (in percentage terms)
Major Role: Please tick (Exporter/Importer)
Sales figures
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9
Year
10
Payment Methods
Method Percentage of total export
(import)
Reasons
Prepayments (Advance
payment)
Letters of Credit
Drafts (Bill of Exchange)
a. Sight draft
b. Time draft
Consignment
Open account
Any Other method (Please
describe here)
Annexure A
Questionnaire

(30)
Number of Importers (Overseas customers)
Number of Years:
Overall relationship with all customers (Please tick one)
1. Very reliable
2. Reliable
3. Cannot comment
4. Not reliable
5. Not at all reliable
Destination Countries
Working Capital Management
Describe in few words how do you manage working capital (please comment on below box)?

(31)
Trade Financing Methods
Method Percentage of total
financing
Reasons
Account Receivable
Financing
[Bank loan against account
receivable]
Factoring
[Account receivable is sold
to third party and
immediately receive the
fund]
Letters of Credit
[Avail loans by producing
letter of credit]
Banker’s Acceptance
[A time draft amount is
discounted and paid to
exporter]
Working Capital
Financing
[Short term loan from Bank]
Medium Term Capital
Goods Financing
[Importer issues promissory
note to exporter to pay for
its imported capital goods
over a period of 3 to 7 years]
Countertrade
[Exchange of goods]

Introduction

More Related Content

What's hot (20)

Similar to Introduction (20)

Recently uploaded (20)

Introduction