October 28, 2021
Direct supplier payments and how they work
As one of South Africa’s leading specialist foreign exchange providers, we have gained valuable expert knowledge and experience when it comes to importing goods to South Africa. Here are some important facts and valuable insights for you and your business to help you stay compliant and optimize the import process.
The South African Reserve Bank’s exchange control regulations govern what is required for each payment, how payments should be made and how long the goods should take to reach South Africa.
When an importer purchases foreign currency from an Authorised Dealer to pay their supplier, the funds are usually paid away two working days from the date of instruction, being the Value Date. This is the international standard.
On the Value Date, specific supporting documentation must be submitted to verify that the payment is within the exchange control rulings.
When goods are imported, there are a few types of payments that importers can make:
1. Advanced Payment (Bop Code 101)
Pro Forma invoice is provided and the invoice must state that it is an advanced payment. Once the goods have arrived the rest of the documentation must be submitted to the authorised dealer that the importer has used for the international payment.
2. Payment on Bill of Lading (BOP Code 101/1)
Commercial Invoice is provided with the final amount to be paid and the bill of lading is included which confirms that the goods have been shipped from the supplier.
3. Payment on Delivery (BOP Code 103/1)
Commercial Invoice, bill of lading, SAD500 and bill of entry is provided as the goods have been shipped and have arrived in South Africa.
It is important to know that you can never pay away more than the value that your supplier has put on the invoice and you can only pay to a beneficiary with the same name as the company that invoiced you, as the importer.
Tip – always verify the bank details on the invoice with your supplier over the phone. It is very common for emails to be intercepted and for the bank details to be changed or for fraudulent invoices to be generated. This would cause the importer to pay funds to the wrong (fraudulent) bank account.
For additional security, Currency Partners will always do a verification call to our client (the importer) to verify a beneficiary being paid for the first time before completing the payment.
Some importers make use of hedging products to assist them in fixing their profit margins and certainty on the pricing of a specific order. This is most commonly done using a forward exchange contract (FEC). Other hedging products include options and futures.
An FEC allows you to book the exchange rate today for a future date. According to the exchange control rulings, you can purchase an FEC for up to 6 months and, with SARB approval, this can be extended to 12 months.
If an importer has an order for a specific customer, they want to be able to quote their customer a sales price and ensure that the fluctuating value of the Rand does not impact the quote by the time the goods have been received and need to be sold.
With an FEC, you can secure your exchange rate on the order to know exactly what the goods are going to cost you and consequently quote your customer with certainty, thereby locking in your profit on the order.
Often FEC’s require 10% cash collateral upon the purchase of the foreign currency unless a facility has been put in place.
At Currency Partners, we help our business clients by finding the right solution for their business while saving them money on the exchange rates and can free up valuable working capital by decreasing the amount of cash collateral required to hedge your orders and providing trade finance solutions to help you grow your business.
To speak to an expert in our specialist business team, email email@example.com or call us on +27 21 203 0081.
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