|Unit 4.4- Funds Remittance|
A check is a negotiable instrument issued against deposited funds to pay a specified amount of money to a specific person/company upon demand. This method of fund remittance is normally utilized for an international transaction when a local country representative will pick up a check or the check is given directly to the international manager by the buyer. Checks can be drawn on banks located in any country depending on where a buyer holds accounts. A check drawn on a bank in a seller’s country is less risky since the seller can verify availability of funds. The most risk is found with a company check drawn on a bank outside the seller’s country.
In order for the seller to receive funds, a check must be deposited/cashed. If the check is deposited in a seller’s account and the check is drawn on an overseas bank, the funds will not be available to the seller until the check is sent overseas for clearance and the funds are transferred to the seller’s bank. The relationship between the banks involved, the countries involved, and the currency of the check will determine how long it will take and the fees that will be charged.
Some examples follow:
- Bill of Exchange-- an order by one person for a second person to pay a third. The tenor is the period of time from issue of the bill of exchange until maturity.
- Clean-- without supporting documentation
- Documentary-- with supporting documentation
- Sight-- on demand, calling for payment as soon as presented to the drawee
- Term/time/usance-- payable at a fixed future date or at a determinable future date
- Draft-- an instrument signed by a drawer to a drawee requesting payment at a future time to a third party, often the drawer.