Reimbursement Instructions in International Trade

Making Reimbursement Instructions

In international trade, reimbursement instructions are typically generated when a seller requires payment for goods shipped or services rendered. These instructions are formalized in several steps:

1. Contract Agreement: Both parties agree on terms, including payment methods and reimbursement procedures.
2. Document Preparation: The seller prepares shipping and payment documents, such as commercial invoices, bills of lading, and letter of credit (LC) documents if applicable.
3. Instructions Issuance: The seller issues reimbursement instructions to the payer or financial institution involved. This may be linked to an LC where the buyer’s bank will make the payment upon presentation of specified documents.
4. Verification and Approval: The bank verifies the documents according to the terms agreed upon in the contract and the LC.
5. Payment Execution: Upon successful verification, the bank processes the payment to the seller or their bank.

Methods of Reimbursement

1. Letter of Credit (LC): The most common method; the buyer’s bank guarantees payment upon presentation of specified documents by the seller.
2. Documentary Collections: The bank forwards documents to the buyer’s bank, which releases them to the buyer upon payment or acceptance of a draft.
3. Bank Transfer: Direct transfers between the buyer’s and seller’s banks, based on previously agreed terms.

SWIFT Messages Used

SWIFT (Society for Worldwide Interbank Financial Telecommunication) messages are standardized formats for international communication between banks. Here are some relevant SWIFT message types:

1. MT 700 – Issue of a Documentary Credit: Used when a bank issues a letter of credit.
   • Example:

     :27: 1/1
     :31C: 230223
     :40A: ABCDUS33
     :50: NAME OF THE APPLICANT
     :59: NAME OF THE BENEFICIARY
     :32B: USD10000
     

     
     
2. MT 728 – Advice of a Reimbursement Claim: Used to inform that a reimbursement is claimed under a specific letter of credit.
   • Example:

     :20: 123456789
     :21: REIMBURSEMENT ADVICE
     :32B: USD2500
     :50: BENEFICIARY NAME
     :59: APPLICANT NAME
     

     
     
3. MT 740 – Request for Payment: Used to request payment related to a reimbursement.
   • Example:

     :20: 987654321
     :32A: 230224
     :50: APPLICANT NAME
     :59: BENEFICIARY NAME
     :72: ADDITIONAL INSTRUCTIONS
     

     
     

These messages ensure smooth communication between involved financial institutions and facilitate the reimbursement process in international trade.