Updated: Jul 25
Export Payment Realisation - Guidelines, Consequences, Mitigation Plan & Recovery
Exporting goods and services opens up opportunities for businesses to expand globally. However, ensuring timely payment realisation is crucial for the success of export transactions. In India, the Reserve Bank of India (RBI) has laid down guidelines to streamline and regulate the process of export payment realisation.
The Reserve Bank of India (RBI) plays a crucial role in regulating and controlling the flow of foreign exchange in India. One of the important aspects of this regulation is the guidelines provided by the RBI on export payment realisation. These guidelines aim to ensure that exporters receive timely and full payment for their exported goods or services.
Export payment realisation refers to the process of converting export proceeds into the home currency of the exporter. It is an essential step for any exporter as it directly impacts their cash flows and profitability. The RBI, through its guidelines, has established a framework to monitor and facilitate the realisation of export payments.
The guidelines set by the
RBI require all exporters to adhere to certain norms and procedures when it comes to receiving payment for their exports. These guidelines are designed to streamline the payment process, minimise delays, and ensure transparency in international trade transactions.
This article explores the RBI guidelines on export payment realisation and delves into the consequences faced by exporters if they are unable to realise their export payments.
Main Aspects of RBI Guidelines
The guidelines set by the RBI require all exporters to adhere to certain norms and procedures when it comes to receiving payment for their exports. These guidelines are aimed at ensuring compliance with the Foreign Exchange Management Act (FEMA), 1999 and facilitating the smooth functioning of the foreign exchange market. These guidelines are designed to streamline the payment process, minimise delays, and ensure transparency in international trade transactions.
The main aspects of the RBI guidelines on export payment realisation are as follows:
1) Exporters have to declare the full value of their exports on the Export Declaration Form (EDF) or the Shipping Bill, as applicable, and submit it to the authorised dealer (AD) bank along with other documents such as shipping bill, invoice, packing list, transport documents, etc.
2) Exporters have to realise and repatriate the full value of their exports within a specified period from the date of shipment, which is normally nine (09) months for goods and services, except for certain categories such as software, which have a shorter period of three (03) months.
3) Exporters have to submit a proof of export, shipping documents including foreign inward remittance certificate (FIRC), to the AD bank within 21 days from the date of shipment. Exporters need to obtain Bank Realisation Certificate (BRC) from AD bank.
4) Exporters have to submit a statement of export outstanding (XOS) to the AD bank every quarter, indicating the details of export bills that are overdue for realisation.
5) Exporters have to comply with the provisions of FEMA and other applicable laws and regulations in respect of their export transactions and foreign exchange dealings.
The RBI monitors the compliance of exporters with these guidelines through various channels, such as online reporting systems, periodic inspections, audits, etc. The RBI also takes appropriate action against exporters who fail to realise their export proceeds or repatriate their foreign exchange within the stipulated time frame.
Repatriation of Foreign Exchange
To repatriate foreign exchange, exporters have to follow these steps:
1) The exporter has to approach their AD bank and submit an application for repatriation along with the necessary documents, such as Invoice, Packing List, Shipping Bill or Bill of Export, Transport Documents, FIRC, XOS, etc.
2) The AD bank will verify the documents and check whether the exporter has complied with all the RBI guidelines and FEMA provisions.
3) The AD bank will then send these documents to the importer's bank and demand payment as per the agreed payment norms. In case full advance payment is received, the AD Bank will settle the transaction.
4) The AD bank will then convert the foreign currency into Indian rupees at the prevailing exchange rate and credit it to the exporter's account.
5) The AD bank will also report the repatriation transaction to the RBI through an online system.
The consequences of non-realisation or delayed realisation
The consequences of non-realisation or delayed realisation of export proceeds or non-repatriation or delayed repatriation of foreign exchange by exporters are as follows:
1) Delayed or non-realisation of export payments can lead to a significant financial burden on the exporter. They may face liquidity issues, impacting their ability to fund their operations, pay suppliers, or meet other financial obligations.
2) Exporters heavily rely on timely payments to sustain their business operations. If the payment realisation is delayed, it can disrupt the supply chain, affect production schedules, and impact the overall efficiency of the exporter's operations.
3) In case of non-realisation of export payments within the stipulated time frame, the exporter may incur additional costs such as interest charges, legal fees, and penalties. These costs can further erode the profitability of the exporter.
4) The exporter may be liable for penal action under FEMA, which may include imposition of penalty, confiscation of goods or currency, prosecution, etc. For example, if an exporter fails to realise their export proceeds within nine months from the date of shipment, they may be liable for a penalty up to three times the amount involved in such contravention.
5) The exporter may be denied access to credit facilities from banks and financial institutions for their export activities.
6) The exporter may face difficulties in obtaining or renewing their Importer-Exporter Code (IEC) or other licenses or registrations required for their export business.
7) The exporter may lose their eligibility for various incentives and benefits available for exporters under various schemes and policies of the government.
8) Failing to realise export payments can harm the exporter's reputation and strain relationships with both domestic and international stakeholders. It may lead to a loss of trust from buyers, financiers, and other partners, making it difficult for the exporter to secure future business opportunities.
To mitigate these consequences and ensure timely export payment realisation, the RBI has implemented various measures. These include regular monitoring of export transactions, stringent documentation requirements, and facilitation of electronic payment systems. The RBI also provides assistance and guidance through its authorised dealers to resolve any issues faced by exporters in realising their export payments.
Recovery from Buyer
There are a number of other factors that can contribute to non-payment of export proceeds, such as:
Poor documentation: If the exporter does not provide the buyer with the necessary documentation, the buyer may be unable to pay for the goods or services that they have imported.
Late delivery: If the exporter delivers the goods or services late, the buyer may be less likely to pay for them.
Defective goods: If the goods or services that the exporter delivers are defective, the buyer may not be able to pay for them.
Exporters can help to reduce the risk of non-payment by taking steps to ensure that their documentation is accurate and complete, that they deliver the goods or services on time, and that the goods or services are of high quality.
Indian Government has Laid Down Mechanism
It is expected from exporters need to project a good image of the country abroad to promote exports. Maintaining an enduring relationship with foreign buyers is of utmost importance, and complaints or trade disputes, whenever they arise, need to be settled amicably as soon as possible. In an endeavour to resolve such complaints or trade disputes and to create confidence in the business environment of the country, a mechanism is being laid down by Indian Government to address such complaints and disputes in an amicable way.
Export payment realisation is a crucial aspect of international trade, and adherence to RBI guidelines is imperative for exporters operating in India. Failure to realise export payments can have severe consequences on the financial health and reputation of exporters. By understanding the RBI guidelines, the consequences faced by exporters for non-realisation of payments, and implementing best practices, exporters can safeguard their interests and ensure the smooth flow of international trade transactions. It is vital for exporters to proactively manage their export payment processes to minimise risks and maximise profitability in the global marketplace.
The exporter should seek the assistance of a subject matter expert to avoid delayed payments and ensure smooth flow of international trade transactions.
Disclaimer: This blog is for informational purposes only and should not be construed as legal or financial advice. The information contained in this blog is not intended to be a substitute for professional advice. You should always consult with a qualified professional before making any financial decisions. The author of this blog makes no representations as to the accuracy or completeness of the information contained herein. The information in this blog is subject to change without notice. The author of this blog is not liable for any losses or damages that may arise from the use of this blog.