Professional Documents
Culture Documents
Letters of Credit
Agenda
Topics to be covered
Basic terms of Trade
Letters of Credit
INCOTERMS
Applications
2
Terms of Trade
Cash in Advance
Letter of Credit
Collection
Open Account
3
Buyer Takes ?
? ? Seller Takes
All the Risk All the Risk
5
Policy Issues
2) Set Policies for Each Method
a. Cash in advance – wire transfers Vs. check
b. Open account – discount policy,
controls etc.
c. Documentary Collections – payment at sight
d. Letters of Credit – “Policy Letter”
– L/C Checklist
3) Enforce the Policies That You Set
6
A Foreign Check Does
Not Represent Immediate
Payment
Buyer/Importer Seller/Exporter
11
Parties to a Letter of Credit
PARTY LETTER OF CREDIT TERM
SELLER BENEFICIARY
(EXPORTER) ORGINAL BENEFICIARY
SECOND BENEFICIARY
TRANSFEREE
ASSIGNEE
SHIPPER
DRAWER
BUYER ACCOUNT PARTY
(IMPORTER) APPLICANT
ACCOUNTEE
DRAWEE
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Parties to a Letter of Credit (Cont’d)
PARTY LETTER OF CREDIT TERM
Performance
Bid Bond
Performance Bond
15
Transaction
Cycle
Buyer/ Importer Seller/ Exporter
Applicant - 1 Beneficiary - 4
L/C L/C
Application
L/C
Advising Bank
Issuing Bank Confirming Bank
2 Negotiating Bank -3
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Merchandise
Buyer/ Importer - 8,9b Seller/ Exporter - 5,11
DOCs $ $ DOCs
$
DOCs
Advising Bank
Issuing Bank - 7,9a Confirming Bank
Negotiating Bank - 6,10
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DRAFT
At January 5
Sight 20 00
ABC Exporter 8,020.00
Pay to the order of $
Eight Thousand Twenty Dollars and 00/100
Dollars
Drawn under Documentary Credit No. M0491110NS00616, of the
Standard Chartered Bank, Seoul, Korea, dated September 17, 1999
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Endorse the back!
•Common Documents
Draft
Transport Document (b/l)
Commercial invoice
Insurance policy or certificate
Packing list
Certificate of origin, weight
Beneficiary statements
19
When you receive an L/C
CHECK IT CAREFULLY!!!
Review it ASAP
L/C mirror sales contract
Can you perform
Can you provide ALL the documents
20
Critical Things to Look For
Latest shipment date
Expiry date
Partial shipments
Merchandise description
Can you provide documents required
21
Domestic International
Known bank Unknown bank (??)
Known country risk Country stability
Known customs and Currency stability
language Foreign laws and
usages
22
Confirmation
Out of Busin
ess
Issuing Confirming
Bank Bank
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Credit Issues
As Applicant
your Credit Worthiness
your Collateral
As Beneficiary
probably none
24
Cost Issues
As Beneficiary
minimal cost usually
if confirmed, expect to pay
As Applicant
based on your credit and/or collateral
use of other bank services
25
Where to get more information
ICC Uniform Customs and Practice for
Documentary Credits (UCP 500)
ICC Guide to Documentary Credit
Operations for the UCP 500
INCOTERMS 1990
International Standby Practices 1998
(http://www.iccwbo.org)
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