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The importer can often purchase goods at a more attractive price if he can arrange to pay for them abroad. The seller is thereby relieved of all transportation and financing risks. Many importers, therefore, have found it to their advantage to buy and pay for their imports abroad, and assume responsibility for their transportation to the United States, eliminating broker's and middlemen's fees and commissions. There are various methods whereby payment abroad for imports can be arranged. If the importer has a branch office abroad, he can transmit a bank draft for the amount of a given shipment. This draft, while purchased with dollars, will make available to the branch office abroad sufficient foreign currency to meet the invoices of the foreign shipper. This method, however, ties up the importer's funds.

IMPORT CREDIT APPLICATION Where the importer is purchasing direct, moreover, or through agents, he


not care to entrust them with funds unless he has some assurance that these will be properly used for the purposes intended. He may, therefore, set up an import credit with his

American bank in favor of the foreign seller. In his application, he should designate the documents which the foreign seller is to attach to all drafts drawn against the credit, specifying (1) the number of copies of bills of lading, and to whose order, (2) marine insurance certificate, (3) warrisk insurance certificate, (4) invoice (including packing lists), (5) United States consular invoice, (6) inspection certificates (to cover amount, quality, or to comply with United States Pure Food or Quarantine Regulations). He may also specify the duration of the credit, the tenor of the drafts to be drawn against the credit, on whom they shall be drawn, the percentage of the invoice value for which they shall be drawn, and when the shipments are to be made against the credit. If the documents specified are in accordance with the sales contract, the foreign seller need only carry out the terms of the contract, present the documents specified to the correspondent bank abroad, through which he received the notice of the credit opened by the American bank, and receive payment.


The commercial letter of credit is a recognized medium for financing imports into the United States (see appendix G). Its advantage to the importer is that he can make a purchase on a cash basis, without putting up funds immediately, and is assured that the foreign seller will comply with the terms of sale before he receives payment.

The formalities in securing an import letter of credit are similar to those necessary in the case of an export letter of credit. The same classifications also apply. (For a description of revocable and irrevocable confirmed and unconfirmed letters of credit, etc., see pp. 123–124.) Import drafts carrying the acceptance of a bank or other institution are as readily disposed of on the discount market as any other type of acceptance.


When a bank has accepted a foreign seller's draft under an import letter of credit, which it opened in behalf of an American importer, it immediately advises the latter. If the credit is on a sight basis (D/P-documents against payment), the importer must pay the amount of the draft in cash before he can take possession of the goods, unless he has made arrangements for a loan for the amount from the bank. If the credit is on a time basis, the importer ordinarily cannot get the goods unless he gives the bank a trust receipt therefor.12 In the latter case, he gives an undertaking that he will pay over to the accepting bank the proceeds of the goods as sold, but not later than

he maturity of the draft. Liquidation may be effected prior to such maturing, in which case an interest allowance covering the unexpired time is made.

FOREIGN CURRENCY COMMITMENTS When goods are purchased in a foreign currency, it is usually advisable, as already noted, for the buyer to cover himself against exchange loss by making a forward contract for the necessary foreign exchange.

In general, the “mechanics” of import financing, the documents used, their advantages, etc., are the same as in export financing, described elsewhere in this volume.


Where cash is not sent abroad, or an import credit is not opened by an importer, he usually stipulates that the foreign seller draw on him either at sight or so many days after date and that the documents carrying title to the goods are to be released either against payment of the draft (D/P) or against his acceptance of it (D/A). This leaves the final payment to be made in the United States. Many foreign sellers will

refuse to ship.under this method of financing because of the disputes that are likely to arise. The importer may find the drafts or shipping documents not drawn according to specifications; there may be discrepancies in the descriptions, price, or quality of the goods; specified articles may be missing; the shipment may be unduly delayed. Many of these disputes seldom arise when the importer opens an import credit and specifies exactly how the shipment is to be made and the documents drawn. The correspondent bank abroad is then to all intents and purposes delegated as an agent of the American importer, and sees that his wishes are fully complied with.

REVOLVING LETTER OF CREDIT Many importers of standard-grade commodities bought more or less regularly, or seasonablly in large volume, maintain buyers or agents abroad upon whom they do not care to place financial responsibility. Where a buyer or agent is making regular purchases abroad for his principal in the United States, the latter may open in his favor a revolving letter of credit. Such a credit enables the buyer to draw exactly as specified in a regular letter of credit, but the credit is automatically renewed for the amount of each draft drawn against it, as soon as the stipulated documents are presented to the correspondent bank abroad. This obviates the opening of innumerable separate credits by the American importer each time he instructs his agent to buy and yet assures him that all requirements as to quality, price, etc., will be met by his buyer or agent before the invoices are paid by the correspondent. His buyer is always “in funds” to the extent of the revolving credit and can immediately fill buying orders from his principal without special authorization or the delay involved in opening straight credits.

22 For a fuller description of trust receipts, see p. 120.


The character of the commodity may often dictate not only the method of purchasing abroad but also the method of financing the import shipment. Raw materials for industry, capable of standard grade classification, which constitute the bulk of our imports, are thus financed by import letters of credit, either straight or revolving. Manufactured specialties bought by sample may be financed by straight drafts because the importer wishes to inspect the goods delivered here before he pays or accepts the draft. Other commodities bought by traveling buyers or agents in the more remote places, such as carpet wools in Iran (Persia), are financed by bank drafts made payable to a financial agent at some central point against which the traveling buyer may draw.

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