• Exporters and their second-tier suppliers who use imports to manufacture goods for exporters exempt from the rule

The Ministry of Finance published a gazette on Friday providing the legal framework to lift the curtains on imports made via open account payment terms, a method often used by importers to circumvent formal banking channels.

The Central Bank, in a special press release on April 29, said that at least 25% of the country’s imports are through open accounts, while another 12% or more through document conditions against payment (DP) and documents against acceptance (DA).

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

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

According to the gazette published on Friday, the ban on the 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 exempt from the rule. “… open account payment terms or consignment account terms shall only be permitted to (a) exporters, who settle payments for the import of goods, necessary for their exports,

export proceeds to their foreign currency account or foreign currency account,” the gazette said. Further, “(b) local suppliers, who supply goods to such exporters, receive payment in foreign currency and make payment for the importation of goods to be supplied using the foreign currency so received”, both types of aforementioned 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 one of the above accounts to settle the payment.

The endorsed commercial invoice must then be presented to Sri Lanka Customs at the time of clearance of the goods. Meanwhile, other importers who use the DP and DA methods for their imports should be required to make prior arrangements with their banks and obtain endorsement of their pro forma invoices before the date of shipment on board the bill of lading. and this endorsed pro forma invoice will be submitted to the Director General of Sri Lanka Customs at the time of clearance of the goods along with other documents.

“All licensed banks that settle payments under Open Account Payment Terms or Consignment Account Terms shall share a copy of the details of such payment settlement in electronic format with the Director General of Sri Lanka Customs on each declaration Customs (CUSDEC) basis,” the gazette said.

While these measures would pose some difficulties for importers who are used for open accounts, the Central Bank assured that these rules would not be there for too long and would be relaxed when normality returns to the foreign exchange market.