Apparel Online India Magazine March 1st Issue 2019 | Page 40

Doing an
in-house analysis
to identify areas
where loss of
money occurs
will help in
eliminating such
cost in future.
APL Logistics’
team of retail
experts can help
the retailers find
better ways to do
business through
their ‘Vendor
Managed
Inventory’ tool.
are plenty of factors that are driving this wave of change
including requirements from compliance regulators,
quality consistency and assurance required by clients,
statutory penalties on non-compliant warehousing
facilities, economies of scale being achieved with
the help of larger warehouses, safety and security of
goods, efficiency in operations, quick turnaround times,
need for efficient warehousing designs along with the
emergence of e-commerce and other multinational
businesses that prefer to occupy only compliant
facilities. The shift was further accentuated due to the
implementation of the Goods and Services Tax (GST)
in India.
GST, touted as the biggest tax reform in the history of
independent India, became a reality in 2017. The tax
replaced several central level taxes such as excise duty,
countervailing duty and service tax and state level taxes
including Value-Added Tax, Octroi and entry tax, local
body tax, luxury tax, etc. which meant that the same
product was sold at different prices in different states,
thus making the inter-state trading of goods in India
a cumbersome task. Thus implementing GST helped
many businesses to flourish as the delivery time reduced
commendably, thereby streamlining the supply chain.
For instance, in the pre-GST era, travel time between
Delhi-Chennai was around 5-6 days and post-GST, it
has come down to 3-4 days. Trucks are able to cover
longer distances every day with an improved turnaround
time ensuring that the transporters can carry out their
business with a smaller fleet.
PAYMENTS AND BANK GUARANTEE
Positive shift in
warehousing
was accentuated
due to the
implementation
of the Goods
and Services Tax
(GST) in India.
One thing is sure
that payments
in import-
export business
are huge and
sometimes create
insecurity among
the buyers and
exporters.
For making the payment to the exporter, importer can
choose from the various modes of making a payment.
The most uncomplicated and inexpensive method of
making a payment is a clean payment method. In this, the
role of bank is limited to clearing accounts as required.
All shipping documents including title documents are
handled directly between the trading partners. Moreover,
in this case, the buyer has the flexibility to make advance
payment that is even before the goods have arrived. This
method is generally chosen when the trading partners
have been in business and have trust. However, in this
case, all of the risk is on the importer side. The second
method is the open account method, in which the payment
is made once the goods have been received. In this case,
the exporter side has all the risk, while the importer
gets advantage due to the delayed use of company’s
cash resources and is also not responsible for the risk
associated with goods.
These cases definitely remove the complications and
the involvement of a third-party in the process. Yet it
is always beneficial to go for a more secured way of
payment. The payment can be done with the involvement
of bank also through the document collection method
in which the sales transaction is settled by the bank
through the exchange of documents. Exporters give the
banks necessary instructions concerning the release of
these documents to the importers. The buyers may obtain
possession of goods and clear them through customs,
if the buyer has the original bill of lading, certificate of
origin, etc. However, these documents are only given to
40 Apparel Online India | MARCH 1-15, 2019 | www.apparelresources.com
the buyers after payment has been made (‘Documents
against Payment’) or payment undertaking has been
given – the buyer has accepted a bill of exchange issued
by the seller, payable at a certain date in the future
(maturity date) (‘Documents against Acceptance’).
Documentary collections make easy import-export
operations within low cost. But it does not provide same
level of protection as the letter of credit (LC) does not
involve any kind of bank guarantee like LC. LC is the
most well-known method of payment in international
trade. Under an import LC, importer’s bank guarantees
to the supplier that the bank will pay mentioned amount
in the agreement, once the supplier or exporter meets
the terms and conditions of the LC. In this method
of payment, bank plays an intermediary role to help
complete the trade transaction. The bank deals only in
documents and does not inspect the goods themselves.
Letters of Credit are issued subject to the Uniforms
Customs & Practice for Documentary Credits (UCPDC).
This set of rules is produced by the International
Chamber of Commerce (ICC).
One thing is sure that payments in import-export
business are huge and sometimes create insecurity
among the buyers and exporters. However, one
solution to this is the Bank Guarantee (BG) that
provides trading partners with the surety regarding
the payment terms. They give protection to almost
every phase of the transaction between the buyer
and the seller. However, these do not ensure that
both parties fulfil their contractual obligation, such
as payment or deliveries; they do ensure that the
compensation is paid when the situation warrants it.
Although BG and LC are almost the same thing, as
they intent to create confidence in the transaction.
The difference that lies between them is that an LC
ensures that a transaction goes ahead, whereas a BG
reduces any loss that may occur if the transaction
does not go ahead. The type of guarantee that the
bank provides is advanced payment guarantee. In
this case, the advanced payment can be returned
by the bank in case the seller does not perform the
contractual obligation.
The LC mode generally ensures the performance of a
commercial contract. The type of guarantee that LC
provides is loan guarantee. This type of guarantee is
given by a bank to the creditor to pay the amount of
loan body and interests in case of non-fulfillment by the
borrower. Performance guarantee ensures the full and
due performance of the contract in line with the original
contract. This is one of the most common types of bank
guarantee, which is used to secure the completion of the
contractual responsibilities of delivery of goods and acts
as a security of penalty payment, by the supplier in case
of no delivery of goods. Deferred Payment Guarantee
is a promise for a payment which has been postponed.
Shipping Guarantee is a written guarantee, which
shows joint liability. Furthermore, it will be presented
by the importer to the carrier in the event of goods
arriving before the documents. Trade Credit Guarantee
covers the providers of a good/service against the risk
of non (or late) payment.