| When an exporter negotiates the payment terms of a commercial contract, they may offer an importer a credit period by means of bills of exchange or promissory notes.
Bills of exchange can be used in most countries in eastern Europe, Asia and Latin America.
The exporter and importer must agree on the rate of interest the importer shall pay, and this can be considered a component of the price. The contract terms that must be determined include the following:
- The interest rate applied to the bills of exchange
- The length of the credit period and the payment dates
- Guarantee of payment of the bills of exchange
National Irish Bank’s role
This type of financing is an arrangement between the exporter and National Irish Bank. National Irish Bank will make a commitment to buy the bills of exchange with an aval or guarantee from an acceptable bank. A guarantee from a private insurance company may also be required.
Expenses
Bills of exchange usually entail the following expenses:
- Margin, management and commitment fees
- Collection commission
- Guarantee premium to a private insurance company, if applicable
Exporters should be aware that they bear an interest rate risk from when the contract is signed with the importer until National Irish Bank finances the bills of exchange. Exporters can also arrange with National Irish Bank to cover this interest rate risk. | | |