KARACHI, Oct 15: Importers of Pakistani goods in the US, Canada and Europe will force their Pakistani business partners to export them greater quantity of goods on the basis of payment on acceptance of documents (D/A) after December 31 next when all quota barriers will be dismantled and it would be virtually a free for all situation.
The D/A arrangement is said to be the highest risk bearing arrangement as compared to lodging of letter of credit which is relatively safer. The deferred payment (D/P or cash against document) (CAD) also carries the risk but D/A is said to be the most risk bearing arrangement.
Under the payment on acceptance of document arrangements, the exporters ship goods to his buyers. The buyer releases the goods and the exporter depends entirely on his importer for getting his payment. Market analysts say that greatest number of disputes in export trade is in case of payment against document arrangement.
"At present about 20 per cent of Pakistan's export trade is being done on payment on acceptance of document basis," Aniqul Islam, Chief Executive of the DCD-JS Factors Limited said.
He said that after December 31, the importers in the US and Canada will have far greater opportunity to do business on easier terms than now because of the price war like situation in a free for all environment.
Bankers quote the State Bank estimates of $700 million default in the export on D/A basis, but market analysts believe that actual default is much higher because there is no risk cover available.
For long the Export Credit Guarantee Scheme of the Pakistan Insurance Corporation provided the risk cover. About a few years ago Pakistan Export Finance Guarantee Agency (PEFGA) entered the risk covering business with the help of Asian Development Bank.
A multiple factors prevented the PEFGA from going in a big way in this area and recently DCD JS has entered the factoring business area. It is a joint venture arrangement of the DCD Capital LLC USA and Jehangir Siddiqui and company to provide factoring to Pakistani exporters. The DCD LLC USA is affiliated with GMAC Commercial Finance.
Aniq said that factoring provides credit assessment, credit protection, discounting and collection services to the exporters for regular sales on open account system.
At present the factoring services are confined to US-Canada where about 26 per cent of Pakistan export goes. From next year, the Company is entering Europe where 28 per cent of Pakistan's exports are marketed.