Methods of Payment

For export transactions, the choice of method of payment depends on two factors: the existing relationship between the exporter (seller) and the importer (buyer) and the mutual agreement on the terms and conditions of the sale.

Cash in Advance

Cash in Advance (C.I.A.) is practiced only to a limited extent due to existing Bangko Sentral ng Pilipinas (BSP) regulations on acquiring foreign currency.  Typically, buyers with existing foreign currency accounts with banks operating in the Philippines may consider doing a C.I.A. wherein cash payment is remitted even before the goods are shipped.  On the part of the seller, C.I.A. is ideal for goods that are custom-made, such as specialized equipment.

For first-time transactions between the exporter and the importer, or in situations in which the two have not fully established their business relationship, a Letter of Credit (L/C) is a common and secure method of payment.  Under this mechanism, the buyer establishes credit with his/her local bank of choice and describes in full detail the terms of the sale (i.e., description of items, price, documentary requirements, etc.).  The L/C is opened on account of the buyer in favor of the seller.  Essentially, the L/C serves as a demand draft, a promise to pay on the part of the importer with the support of the bank responsible for issuing the payment to the exporter.  Once the exporter is in full compliance with all the requirements, payment is made into an effect within a specified time frame, typically 30 or 60 days or whatever has been agreed upon.  Any discrepancies regarding the L/C may result in delays, additional documentary stamp tax or even non-payment.  Bank charges apply when securing the L/C. A confirmed irrevocable, documentary L/C “confirmed by a U.S. bank” is recommended.

In cases where the buyer and seller have already established a relatively favorable business relationship, or where mutual trust already exists, other modes of payment may be considered including:

• Documents Against Acceptance (D/A):  The exporter extends credit to the importer for a certain period. Terms vary, usually 30 to 60 days after the bill of lading date or the invoice date, depending on what was agreed upon. The seller retains the title documents and forwards them to a collecting bank with instructions to release said documents to the buyer only if the buyer issues a time draft or presents an acceptable bill of exchange.

• Documents against Payment (D/P):  The documents transferring the title to the goods are not released to the buyer by the collecting bank unless the bank receives payment from the buyer.

• Open Account (O/A):  When there is a high level of trust and the buyer is of reputable standing with the seller, documents transferring title to the goods are sent directly to the buyer (instead of the collecting bank, as in the case of D/A) without guarantee of payment.  The buyer remits payment upon maturity; terms vary from 30 days to 180 days, depending on the agreement.  Subsidiaries of multinational companies operating in the Philippines (especially those in the oil and pharmaceutical sectors) are prime users of O/A.

• Direct Remittance:  As with O/A significant mutual trust is required. Instead of a term transaction, the seller requires the buyer to pay immediately upon receipt of the document transferring the title to the goods.

Credit Rating Agency

Philippine Rating Services Corporation, or PhilRatings, provides credit ratings on Philippine corporate and debt issues (i.e., commercial papers, bonds, or asset-backed securities).  The company is accredited as a domestic credit rating agency (CRA) by the BSP and the Philippine Securities and Exchange Commission (SEC).  Press releases on new and monitoring ratings are regularly posted on the PhilRatings website.  Annual subscriptions to PhilRatings’ regular publications are also available.

Collection Agencies

In cases of non-payment or delinquent accounts, the use of collection agencies may be considered.  There are several collection agencies operating in the Philippines, typically on a “no collect, no pay” arrangement for collection cases that have not yet been elevated to the courts.  A typical collection time frame ranges from 30 to 90 days (longer if it is outside the Metropolitan Manila area), wherein the collection agent issues a demand letter signed by a lawyer.  Some agents offer collection services only, while others can help facilitate filing a case in court in instances where the respondent cannot comply with the demand letter.  Service fees vary depending on the nature and value of the transaction, but agents typically charge a percentage of the amount collected (current rates range from 20% to 40%).  If the case is filed in court, legal and other fees will apply.  It is best to seek local legal representation on non-payment cases, especially those involving significant amounts.

Primary credit or charge cards used

Most Philippine merchants accept Visa, MasterCard, American Express, Diners Club, Discover credit cards.  For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.

Banking Systems  

Since 1997, the Bangko Sentral ng Pilipinas (BSP) has implemented various banking system reforms to enhance governance standards and risk management systems, tighten disclosure and reporting requirements, increase minimum capitalization levels, and improve compliance frameworks and systemic oversight.  Beginning in 2001, the BSP adopted the international risk-based capital adequacy and disclosure standards (i.e., the Basel framework).  Commercial banks and their subsidiaries have been required to adopt in phases the enhanced Basel III standards since 2014, while simpler standards (“Basel 1.5”) apply to thrift, rural, and cooperative banks.  The BSP has similarly implemented the international framework for dealing with domestic systemically important banks (D-SIBs; basically, banks considered too big to fail), requiring full compliance to higher capital buffer requirements by January 1, 2019.   

The New Central Bank Act or the amended BSP charter was signed into law in February 2019, bolstering the monetary authority’s capability to promote price and financial stability.  The amendments include the increase in capitalization, stronger supervisory and enforcement powers, enhancement of financial system liquidity management tools, including the restoration of BSP’s authority to issue its own debt papers, and allowing the orderly resolution of troubled banks.

Consistent with the Philippines’ commitment under the Paris Agreement to reduce by 75% its carbon emission by 2030, the BSP has issued the Sustainable Finance Framework in 2020.  The framework, which provides a three-year transition period, sets out regulations for the integration of sustainability principles in the corporate governance, risk management framework, strategic objectives, and operations of banks.  In October 2021, the BSP launched the Environmental and Social Risk Management Framework (ESRMF), which detailed the supervisory expectations on financial institutions’ management of climate-related risks.        

The BSP has also put in place a framework for establishing digital banks, in line with its 2020-2023 Digital Transformations Roadmap aiming to convert at least 50% of payments into digital and onboard 70% of adults to the financial system.  It granted a digital banking license to six domestic and foreign players, before temporarily closing the application in August 2021 to monitor the existing players’ financial inclusion and banking system impacts.  Additionally, it issued in June 2021 the Open Finance Framework, which promotes consent-driven portability, interoperability, and collaborative partnerships between BSP-supervised financial institutions and fintech players. 

In December 2019, the BSP released the regulatory guidelines for Islamic Banks, in accordance with the new Islamic Banking Law.  The new rules outlined the licensing framework and discussed Sharia governance principles for the country’s sole existing player, as well as other potential new entrants.   

Twelve new foreign banks have been approved to enter the Philippine market since the enactment of a July 2014 law liberalizing foreign participation in the banking sector, bringing the total number of foreign banks in the country to 29.  The BSP is anticipating an increase in the number of foreign players in the banking sector, due to the rollout of digital, sustainable finance, and Islamic banking frameworks.  The BSP envisions foreign banks as one of its partners in promoting investments in infrastructure and sustainable projects, notably in renewable energy, low carbon transport, sustainable water management, and sustainable waste management sectors.  Separately, the BSP, under the ASEAN Banking Integration Framework, has concluded bilateral negotiations with the central bank of Malaysia for the entry of Qualified ASEAN banks, while it has signed letters of intent with Thailand and Indonesian authorities.  As of end-June 2022, the banking sector consisted of 47 universal and commercial banks, 43 thrift banks, and 407 rural and cooperative banks, with combined resources of approximately $394.5 billion (PhP20.8 trillion).  Although fewer in number, commercial banks dominate the banking sector and account for around 92.8% of the banking system’s total resources.  Twenty commercial banks (referred to as universal banks) have an expanded commercial banking license, which allows them to perform the functions of an investment house (such as securities underwriting) and invest in non-allied undertakings, in addition to regular commercial banking activities.  Of the 29 foreign banks operating in the Philippines, 24 are branches and five are majority foreign controlled, domestically incorporated subsidiaries.  Additionally, there is one offshore banking unit (OBUs), as well as 11 foreign bank representative offices, one of which is a U.S. bank (The Bank of New York Mellon, as of June 2022).

The largest sectors comprising outstanding loans of the banking system as of the end of 2021 were real estate activities (21%), wholesale and retail trade (11.8%), household/consumers (10.9%), manufacturing (10.6%), and electricity and gas sector (10%).  Outstanding loans from banks’ foreign currency deposit units stood at about $15.7 billion as of end-December 2021, mainly to resident borrowers such as power generation companies (26.8%), merchandise and service exporters (22.5%), and public utility firms (10.4%).  

The BSP is required by law to conduct regular examinations of its supervised financial institutions once every 12 months.  Special examinations require the affirmative vote of at least five of the seven members of the BSP Monetary Board, the central bank’s highest policy making body.  In addition, the BSP requires that bank financial statements be audited by BSP-accredited external auditors.  External auditors are required to bring to the authorities’ attention any adverse audit findings and any material developments affecting the condition of its audited financial institutions.  To promote independent and transparent auditing, the external auditor and/or auditing firms should be changed, or the lead and concurring partner rotated, at least every five years.  A bank’s senior management should also disclose to the BSP any significant risks/issues that may affect the bank, including changes in management.

The deposit insurance scheme – administered by the Philippine Deposit Insurance Corporation (PDIC) – is patterned after the U.S. Federal Deposit Insurance Corporation (FDIC).  The PDIC has a permanent insurance fund (PIF) of about $60 million (PhP3 billion), augmented by premiums paid by member banks (currently one-fifth of one percent per annum of the deposit base).  The PDIC’s insurance coverage per depositor is approximately $10,000 (PhP 500,000).  Revisions to the PDIC charter in 2004, 2009 and 2016 enhanced the PDIC’s receivership, liquidation, and resolution powers.  Among others, the most recent amendments allow earlier intervention in problem banks before closure; simplify the payout of insurance coverage to affected depositors; and provide a more seamless transition from closure to liquidation.  The Philippine Senate in February 2022 passed the proposed amendments to the PDIC charter, which if signed into law will raise the maximum deposit insurance coverage through inflation indexation and in consideration of other economic factors.  More detailed regulations governing the operations of banks and other BSP-supervised financial institutions are available at https://www.bsp.gov.ph/SitePages/Regulations/RegulationsList.aspx?TabId=1.

Foreign Exchange Controls

The BSP allows Philippine residents and non-residents to purchase foreign exchange (FX) from authorized agent banks (AABs) and/or banks’ subsidiary/affiliate foreign exchange corporations (AAB-forex corps) and from non-bank entities operating as foreign exchange dealers (FXDs) and/or money changers (MCs) to fund legitimate foreign exchange obligations, subject to the provision of information and/or documents.  The sale of FX by AABs and AAB-forex corps is governed by the Manual of Regulations on Foreign Exchange Transactions, issued under Circular No. 645 in February 2009, as amended.  The sale of FX by FXDs/MCs is governed by Circular No. 471, issued in January 2005, as amended.

The BSP further liberalized its foreign exchange regulations in 2021.  It increased the limit on banks’ net open foreign exchange position (NOP) to 25 percent of the qualifying capital or up to $150 million (whichever is lower) to continually provide ample liquidity in the market and service client demand for foreign exchange.  Furthermore, it approved amendments on foreign currency deposit system regulations, expanding the entities that are authorized to conduct FX transactions, to include digital and Islamic banks, as well as streamlining licensing requirements for banks applying for FCDU authority.  The BSP also streamlined and simplified procedures and documentary requirements for FX transactions by allowing electronic submission and digital signatures to help promote digital payments and e-commerce.  

In May 2022, the BSP also amended rules on cross-border transfer of currencies, allowing international travelers to accomplish currencies declaration form online to offer convenience to declarants, as well as allow a more efficient and timely capture of data.   

FX purchases from AABs and AAB-forex corps for trade and non-trade current account transactions (such as travel, medical and educational expenses, royalties, copyright, patent, franchise, and licensing fees) of up to US$500,000 for individuals and US$1,000,000 for corporate/other entities or their equivalent, in other foreign currencies require only the submission of a BSP-prescribed application form to purchase FX to the foreign-exchange selling institution; amounts in excess also require the submission of supporting documents.

The BSP allows submission of supporting documents through electronic means for: a) registration of private sector foreign loans without public sector guarantee; b) registration of inward investments; c) sale of foreign currency by banks covering FX transactions.

The BSP does not require imports to be registered under any mode of payment but does require banks to report such transactions to the BSP prior to purchase of FX for payment. FX purchases from AABs and AAB-forex corps for import payments may be remitted directly by the FX-selling institution to the non-resident beneficiary’s account or credited to the importer’s foreign currency deposit account (with the same or different AAB) for eventual remittance by the depository AAB to the non-resident beneficiary.

Although there are some exceptions, public sector foreign/foreign currency loans generally require prior BSP approval pursuant to existing laws, including the 1987 Philippine Constitution.  Loan proceeds should be deposited with the BSP pending utilization.

Government-guaranteed foreign/foreign currency borrowings by the private sector also require prior BSP approval.  Purely private sector loans do not require approval but must be reported to the BSP. Private sector borrowing should be registered with the BSP whether these are subject to prior BSP approval to be eligible to source FX for debt servicing from AABs and/or AAB-forex corps.

Registration of foreign investments either with the BSP or custodian banks is optional, unless the foreign exchange which will be used to service the repatriation of capital and/or the remittance of related earnings will be sourced from AABs and AAB-forex corps.  Registration can be filed with the BSP within the one-year prescriptive period, free of charge.

FX purchases from FXDs/MCs for non-trade current account purposes are allowed up to US$10,000 or its equivalent without additional supporting documents other than a BSP-prescribed application form to purchase foreign currency, but not to exceed US$50,000 per month per customer. FX purchases from FXDs/MCs for other than non-trade current account purposes require submission of the BSP-prescribed application form to purchase FX and supporting documents on the underlying transactions, regardless of amount.

Additional information on foreign exchange and remittance policies can be found in Parts 1 and 6 of the Investment Climate Statement in this Country Commercial Guide. More detailed information is available at https://www.bsp.gov.ph/SitePages/Regulations/FxRegulations.aspx.

Contact: 

International Operations Department - Bangko Sentral ng Pilipinas 

E-mail: iod-ipds@bsp.gov.ph

U.S. Banks and Local Correspondent Banks

This information is derived from the State Department’s Office of Investment Affairs’ 2021 Investment Climate Statement.  Any questions on the ICS can be directed to EB-ICS-DL@state.gov.  The commercial banking system includes three U.S. foreign-branch banks: Bank of America, Citibank, and JP Morgan Chase.  The Bank of New York Mellon is the only U.S. bank with a representative office in the country, after Wells Fargo’s exit in June 2021 (although, it has retained its business process outsourcing arm).  Reflecting a long history of economic and political ties, all commercial banks in the Philippines have correspondent U.S. banking relationships.  The best way for a firm to determine whether its U.S. bank has a correspondent bank in the Philippines is by checking with the U.S. bank.

For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.