Finance Ministry strikes on imports via open accounts

• Exporters and their second tier suppliers who use imports to make goods for exporters exempted from the rule

The Finance Ministry on Friday issued a gazette providing the legal framework to bring curtains down on imports carried out via open account payment terms, a method often used by importers to bypass the formal banking channels. 

The Central Bank in a special presser called on April 29 said that at least 25 percent of the country’s imports take place via Open Accounts while another 12 percent or more via documents against payment (DP) terms and documents against acceptance (DA) terms. 

Sri Lanka spends roughly US$ 2 billion on imports every month.

In contrast, letters of credit (LC) ensure that the movement of funds happens only through banking channels. 
The dollar hungry nation is trying to use every method at its disposal to discourage forex outflows.Importers who use the open account system are said to be using unofficial channels outside the banking system to settle their payments. 

According to the gazette issued on Friday, the ban on open account system would come into effect from May 20. 
But exporters and their second tier suppliers who use imports to make goods for exporters are exempted from the rule.“….the Open Account Payment Terms or Consignment Account Terms shall only be allowed to (a) exporters, who are settling the payments for importation of goods, which are necessary for their exports, 

from the export proceeds in their Business Foreign Currency Account or Offshore Foreign Currency Account,” the gazette said. Further, “(b) local suppliers, who supply goods for those exporters, receiving payments in the foreign currency and making payment for importation of goods for supply using the foreign currency so received to,” the aforementioned two types of accounts. 

Even the importers stipulated above are required to obtain an endorsement on the commercial invoice from their banks stating that they have foreign currency in either of the above accounts to settle the payment. 

The endorsed commercial invoice then should be submitted to the Sri Lanka Customs at the time of clearing the goods.  Meanwhile, other importers who use DP and DA methods for their imports must be required to make prior arrangements with their banks and obtain endorsement on their pro forma invoices prior to the shipped on board date of Bill of Lading and such endorsed pro forma invoice shall be submitted to the Director General of Sri Lanka Customs at the time of clearance of goods along with other documents. 

“Any licensed banks, which are settling any payments under the Open Account Payment terms or Consignment Account terms shall share a copy of details of such settlement of payment in the electronic format to the Director General of Sri Lanka Customs on every Customs declaration (CUSDEC) basis,” the gazette said. 

While these measures would mete out certain difficulties to importers who are used for open accounts, the Central Bank assured that these rules won’t be there for too long and would be relaxed when normalcy returns to the foreign exchange market.