Methods of payment
METHODS OF PAYMENT
Letters of Credit (LC) are the customary way to finance imports into South Africa. LC's are documents issued by a bank on behalf of an importer in favor of a beneficiary, typically the exporter. The most commonly used documentary credits are: irrevocable credits and confirmed irrevocable credits.
If the exporter is concerned about the reliability of the importer only, he/she should use an irrevocable LC. If the exporter is also concerned about the standing of the issuing bank and/or the standing of the importer's country, he/she should use a confirmed irrevocable credit.
All credits issued are subject to exchange control regulations and when necessary, a South African import permit.
South African exchange control regulations stipulate that payment of imports may be effected only by authorized banks against submission by their customers of documentary proof that the goods were imported into South Africa as evidenced by invoices and shipping documents
stamped by South African customs. An exception is when South African banks have opened documentary import letters of credit in favor of foreign exporters.
Payment can be made via transmission or airmail depending on the reimbursement clauses. The advising bank should, if possible, be the same bank as the exporter's bank.
Quotations and Terms of Payment
Exporters should offer quotations based on the f.o.b. value at the port of export. As a general rule, such quotations should also include a statement of the actual charges for freight and insurance plus any additional charges to the port of delivery. Quotations are usually in terms of the currency of the country of origin. The terms of payment for imported goods vary according to the type of buyer and the buyer's access to capital.
transact business on a sight-draft basis, while small companies tend to operate on documents against acceptable terms. Payment between 80 and 120 days after acceptance is most common, but
terms may vary between 30 and 180 days. For larger orders of capital equipment, longer terms are often required.
It is advisable to ship on a letter of credit, sight letter of credit, or 30-day letter of credit basis that the importer can use as a negotiating instrument to expedite the payment transfer. Payments for shipments made on an open account basis will have a lower priority for foreign exchange, possibly delaying payment to the exporter. The payment transfer can be affected within 24 to 48 hours after the importer presents a valid import permit and proper documents to his or her bank.
Foreign Exchange for Import Purchases
Generally, the South African Reserve Bank’s Exchange Control Department does not provide foreign exchange in payment of imports prior to the date of shipment or dispatch of goods to South Africa. When South African authorized dealers of foreign exchange open documentary import letters of credit in favor of foreign exporters, payment is effected
against presentation by the exporters of invoices and shipping documents to the foreign negotiating bank prior to the arrival of goods in South Africa.
Foreign currency payments for imports may only be made against the following documents:
- Received for shipment bills of lading
- On-board bills of lading
- Air waybills of lading
- Parcel post receipts
- Carriers' receipts or railroad bills of lading giving title to the goods and evidencing dispatch to a port for shipment to South Africa
- Arrival notifications issued by Ellerman and Bucknall (Pty) Limited, Safmarine Limited, and the Transatlantic Shipping Agency (Pty) Limited, and Nedloyd Agency Cies SA (Pty) Limited.
Foreign exchange may be provided for advance payments not exceeding 33 1/3% of the ex-factory cost of capital goods to be imported provided that:
- the South African banker is satisfied from the production of documentary evidence supplied by the overseas manufacturer
that the order would otherwise be refused
- that such payment is normal in the trade concerned, and
- the importer has applied to the South African Reserve Bank and the application is justified. The first shipment from a new supplier, the lack of availability of the imported equipment, or its superior quality to what is available in South Africa, are all examples of conditions for proper justification. Higher payment amounts (millions of Dollars) are less likely to receive pre-payment permission.
Foreign exchange may also be provided on a cash-with-order basis to cover the cost of permissible imports, but authorized dealers must satisfy themselves by the subsequent production of the usual documentary evidence that the exchange provided has been used for the purposes stated and that the goods have been imported into the Republic.
Authorized dealers must in due course insist upon the presentation to them of original bills of entry import or local parcel post
receipts as evidence that goods, in respect of which transfers have been effected in terms of the above rules, have been received in South Africa. Such documents will also be boldly stamped "Exchange Provided." The date of the exchange transaction should be inserted under the stamp and, in the event of a part payment; the amount concerned should be stated. Customers are advised to retain the stamped documents for at least two years for inspection purposes.
The SARB amended the payment procedures for imports consigned by air in March 1992. The new regulations allow the South African importer to obtain foreign exchange to meet import payments for goods consigned by air on a cash-on-delivery basis before the goods are cleared through customs. The documentation required for this transaction is a copy of the respective air waybill bearing an original stamp with the words "For Exchange Control Purposes Only" and dated and signed by a member of the South African Association of Freight
Forwarders.
Inquiries may be addressed to:
South African Association of Freight Forwarders
Private Bag X89, Bryanston 2021
Tel: (27 11) 463-4131/Fax: (27 11) 463-1367
