Philippines - Commercial Guide
Trade Financing

Discusses the most common methods of payment, such as open account, letter of credit, cash in advance, documentary collections, factoring, etc. Includes credit-rating and collection agencies in this country. Includes primary credit or charge cards used in this country.

Last published date: 2020-07-20

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.

For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide available at www.Export.gov/TradeFinanceGuide.” 

Cash in Advance

Cash In Advance (C.I.A.) is practiced only to a limited extent due to existing Philippine BSP (Central Bank) 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 of time. 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, the pioneer credit rating agency in the Philippines (since 1985), 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 (http://www.philratings.com.ph/). 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 percent to 40 percent). 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 available at www.Export.gov/TradeFinanceGuide.

 

Banking Systems: 
 

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
 

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 corporates/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 or not 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, including operational relief measures related to the COVID-19 pandemic. More detailed information is available at:
http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT.pdf
http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT-faas.zip
http://www.bsp.gov.ph/downloads/Regulations/attachments/2005/c471.pdf
http://www.bsp.gov.ph/downloads/regulations/atachments/2009/c652.pdf
http://www.bsp.gov.ph/downloads/regulations/attachments/2017/c942.pdf
http://www.bsp.gov.ph/downloads/Publications/FAQs/faqfxreg.pdf

 

Contact: 
Mr. Thomas Benjamin B. Marcelo
Senior Director
International Operations Department
Bangko Sentral ng Pilipinas 
Rm. 301, 5-Storey Building
Mabini St., Malate, Manila tbmarcelo@bsp.gov.ph / iod-ipds@bsp.gov.ph

 

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.
 

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 corporates/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 or not 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, including operational relief measures related to the COVID-19 pandemic. More detailed information is available at:
http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT.pdf
http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT-faas.zip
http://www.bsp.gov.ph/downloads/Regulations/attachments/2005/c471.pdf
http://www.bsp.gov.ph/downloads/regulations/atachments/2009/c652.pdf
http://www.bsp.gov.ph/downloads/regulations/attachments/2017/c942.pdf
http://www.bsp.gov.ph/downloads/Publications/FAQs/faqfxreg.pdf

 

Contact: 
Mr. Thomas Benjamin B. Marcelo
Senior Director
International Operations Department
Bangko Sentral ng Pilipinas 
Rm. 301, 5-Storey Building
Mabini St., Malate, Manila tbmarcelo@bsp.gov.ph / iod-ipds@bsp.gov.ph