I (Meaning and importance of Exports) Unit Structure

(a) Documents against Payment (D/A) 
 
 
The documents are released to the importer against 
payment this method indicates that the payment is made against 
sight draft. Necessary arrangements will have to be made to store 
the goods, if a delay in payment
(b) Documents Against Acceptance (D/A) 
 
The documents are released against acceptance of the time 
draft i.e. credit is allowed for a certain period, say 90 days. 
However, the exporter need not wait for payment till the bill is met 
on due date, as he can discount the bill the negotiating bank and 
can avail of funds immediately after shipment of goods. 
5. Letter of Credit (L/C) 
When the exporter draws a bill of exchange on the importer 
he faces the risk of violation of the contract by the importer. A 
superior method of settlement of debt for the exporter is that if he 
exports the goods as per the contract and produces evidence to 
that effect, he would receive payment without default. 
Letter of credit is an authorization issued by the opening 
bank to the negotiation banks that if the exporter presents the 
relevant set of documents, make the payment. 
Letter of credit defined as “an undertaking by importer‟s bank 
stating that payment will be made to the exporter if the required 
documents are presented to the bank within the validity of the letter 
of credit”. 
CHECK YOUR PROGRESS 
1. Define the following terms: 

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a. Letter of credit 
b. Open account 
c. Forfeiting scheme 
11.11 FACTORS DETERMINING PAYMENT TERMS 
The following factors may affect the methods of payment or 
payment terms subject to conditions of RBI. 
1) Nature of Product 
 
 
The terms of credit or the method of payment depends upon 
the nature of goods. For example, perishable goods would not 
justify a longer credit term. In case of capital goods the exporter 
may allow “deferred payment terms”.