South Africa - International Franchise Association

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Return to table of contents Chapter 7: Trade and Project Financing • How Do I Get Paid? (Methods of Payments) • How Does The Banking System Operate? • Foreign Exchange Controls • U.S. Banks and Local Correspondent Banks • Project Financing • Web Resources How Do I Get Paid? (Methods of Payments) Return to top South African importers utilize most of the standard payment methods available in international commerce. The most commonly used are: • Cash in Advance: the buyer pays for goods in advance and money is transferred from the buyer’s account to the seller’s account in the currency of the Pro Forma Invoice. (Lowest Risk). • Letters of Credit (LC), also known as Commercial or Documentary Credits: this form protects both buyer and seller against non-payment and is issued by a bank on behalf of an importer in favor of a beneficiary, typically the exporter. • Irrevocable LC: if the exporter is concerned about the reliability of the importer only, he/she should use an irrevocable LC. • Confirmed irrevocable credit: 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. Other methods of payment include the following: • Bank Collections and Bills of Exchange: whereby the exporter initiates through the banking system the collection of money owed to him by the buyer (Medium Risk). • Open Account: the seller relies entirely on the buyer/importer to make payment as stipulated under a contract of sale, usually after a part of the consignment has been sold (High Risk). • Sales on Consignment: the seller sends goods prior to payment, but retains ownership of the goods until the buyer sells the goods to the end-user. The buyer is then expected to pay for the goods (Highest Risk).
For most payment processes, two reliable methods are used: Telegraphic Transfers (TT’s) or S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunication). In South Africa, all credits issued are subject to exchange control regulations, and in limited cases, 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, inter alia, when South African banks have opened documentary import letters of credit in favor of foreign exporters. Payment in those instances may be effected against presentation by the exporter of invoices and shipping documents to the foreign negotiating bank before the goods have arrived in South Africa (but after they have left the United States). If credit is available, payment will take place upon presentation of documents. American 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. Large organizations such as the government or mining companies tend to 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. 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. How Does the Banking System Operate Return to top South Africa's well-developed banking system resembles Britain's system rather than that of the United States. It consists of three key elements: • the South African Reserve Bank (the country's central bank), • private sector banks (commercial banks, merchant banks, and general banks), and • mutual banks. South African banks hold the first six places among the top 100 banks on the continent of Africa. Four large banks dominate, with Standard Bank of South Africa, Nedcor, ABSA (Amalgamated Bank of South Africa, now owned by Barclays PLC), and FirstRand Bank collectively accounting for around 85 percent of banking services in South Africa. A new banking entity, Capitec has made significant inroads into the unbanked and entry-level banking segment. In total, there are approximately 70 foreign banks operating in South Africa, either via representative offices, branches, subsidiaries or joint ventures with local companies. These are listed here: http://www.resbank.co.za/RegulationAndSupervision/BankSupervision/Pages/SouthAfricanR
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Doing Business in South Africa- 201
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South Africa is well integrated int
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• Telecommunications Equipment; a
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DRC Congo Gabon Gambia Guinea Lesot
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Close Corporations: Close corporati
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local, provincial, and national —
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BEE Codes of Good Practice and othe
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distributors who sell to wholesaler
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Trade Promotion and Advertising Ret
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U.S. trademark and patent registrat
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• For more information about regi
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electricity producers in the world.
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Meanwhile, a significant pipeline o
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The U.S. Commercial Service in Joha
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The Department of Communications So
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Opportunities Return to top • mar
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power generation constraints in Sou
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Other matters that are enjoying clo
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Page 47 and 48: Date: October, 2013 Venue: NASREC,
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