Introduction
Export pricing is the most important factor in for promoting export and facing international trade competition. It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses. However, there is no fixed formula for successful export pricing and is differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency.
Like any business transaction, risk is also associated with good to be exported in an overseas market. Export is risk in international trade is quite different from risks involve in domestic trade. So, it becomes important to all the risks related to export in international trade with an extra measure and with a proper risk management.
The various types of export risks involve in an international trade are as follow:
Credit Risk
Sometimes because of large distance, it becomes difficult for an exporter to verify the creditworthiness and reputation of an importer or buyer. Any false buyer can increase the risk of non-payment, late payment or even straightforward fraud. So, it is necessary for an exporter to determine the creditworthiness of the foreign buyer. An exporter can seek the help of commercial firms that can provide assistance in credit-checking of foreign companies.
Poor Quality Risk
Exported goods can be rejected by an importer on the basis of poor quality. So it is always recommended to properly check the goods to be exported. Sometimes buyer or importer raises the quality issue just to put pressure on an exporter in order to try and negotiate a lower price. So, it is better to allow an inspection procedure by an independent inspection company before shipment. Such an inspection protects both the importer and the exporter. Inspection is normally done at the request of importer and the costs for the inspection are borne by the importer or it may be negotiated that they be included in the contract price.
Alternatively, it may be a good idea to ship one or two samples of the goods being produced to the importer by an international courier company. The final product produced to the same standards is always difficult to reduce.
Transportation Risks
With the movement of goods from one continent to another, or even within the same continent, goods face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all.
Logistic Risk
The exporter must understand all aspects of international logistics, in particular the contract of carriage. This contract is drawn up between a shipper and a carrier (transport operator). For this an exporter may refer to Incoterms 2000, ICC publication.
Legal Risks
International laws and regulations change frequently. Therefore, it is important for an exporter to drafts a contract in conjunction with a legal firm, thereby ensuring that the exporter's interests are taken care of.
Political Risk
Political risk arises due to the changes in the government policies or instability in the government sector. So it is important for an exporter to be constantly aware of the policies of foreign governments so that they can change their marketing tactics accordingly and take the necessary steps to prevent loss of business and investment.
Unforeseen Risks
Unforeseen risk such as terrorist attack or a natural disaster like an earthquake may cause damage to exported products. It is therefore important that an exporter ensures a force majeure clause in the export contract.
Exchange Rate Risks
Exchange rate risk is occurs due to the uncertainty in the future value of a currency. Exchange risk can be avoided by adopting Hedging scheme.
Export Risk Management Plan
Risk management is a process of thinking analytically about all potential undesirable outcomes before they happen and setting up measures that will avoid them. There are six basic elements of the risk management process:
• Establishing the context
• Identifying the risks
• Assessing probability and possible consequences of risks
• Developing strategies to mitigate these risks
• Monitoring and reviewing the outcomes
• Communicating and consulting with the parties involved
A risk management plan helps an exporter to broaden the risk profile for foreign market. For a small export business, an exporter must keep his risk management analysis clear and simple.
Saturday 13 November 2010
Foreign Direct Investment
Foreign Direct Investment
is investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset
Types of FDI
There are two types of FDI:
Greenfield investment : It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries.
Mergers and Acquisition : It occurs when a transfer of existing assets from local firms takes place.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
Arms and ammunition.
Atomic Energy.
Railway Transport.
Coal and lignite.
Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc
Investment in India
Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy.
FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.
is investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset
Types of FDI
There are two types of FDI:
Greenfield investment : It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries.
Mergers and Acquisition : It occurs when a transfer of existing assets from local firms takes place.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
Arms and ammunition.
Atomic Energy.
Railway Transport.
Coal and lignite.
Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc
Investment in India
Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy.
FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.
Monday 8 November 2010
DOCUMENTARY COLLECTIONS
Documentary collection is the collection by a bank of funds due from a buyer against the delivery of documents. The bank, acting as agent for the seller (exporter), presents documents to
the buyer (importer) through that party's bank and in exchange receives payment of the amount owed, or obtains acceptance of a time draft for payment at a future date.
The liability of the bank under a documentary collection is primarily restricted to following the seller's instructions in forwarding and releasing documents against payment or acceptance.
How is Documentary Collection different from an L/C or Open Account?
Unlike a letter of credit, the bank does not assume any liability to pay if the buyer does not want or is unable to pay. Compared to open account sales, the documentary collection offers more
security to the seller, but less than a letter of credit
When should a Documentary Collection be used?
Numerous criteria are applied by businesses when determining which payment instrument to offer as a term of sale. However, in general, a documentary collection would be appropriate
where:
1) The seller and the buyer know each other to be reliable.
2) There is no doubt about the buyer's willingness or ability to pay.
3) The political and economic conditions of the buyer's country are stable.
4) The importer's country does not have restrictive foreign exchange controls.
What are the advantages of a Documentary Collection?
1) Simple and inexpensive handling compared to letters of credit.
2) Often faster receipt of payment than open account terms.
3) Seller retains title to the goods until payment or acceptance is made.
What are the disadvantages of Documentary Collection?
If the buyer refuses or is unable to pay, the seller has three options, which could be expensive:
1) Find another buyer.
2) Pay for return transportation
3) Abandon the merchandise.
Who are the parties involved?
1) PRINCIPAL - exporter, seller, remitter, drawer of the draft.
2) REMITTING BANK - exporter's bank handling the collection
3) PRESENTING OR COLLECTING BANK - usually the buyer's bank.
4) DRAWEE - importer, buyer, payee.
What types of Documentary Collections are there?
1) Documents against Payment (D/P) also known as "Sight Draft" or "Cash against Documents” (CAD). The buyer must pay before the collecting bank releases the title documents.
2) Documents against Acceptance (D/A). The buyer accepts a time draft, promising to pay for the goods at a future date. After acceptance, the title documents are released to the buyer.
What are the steps in documentary collection?
1) The buyer (importer) and seller (exporter) agree on the terms of sale, shipping dates, etc., and that payment will be made on a documentary collection basis.
2) The exporter, through a freight forwarder, arranges for the delivery of goods to the port/airport of departure.
3) The forwarder delivers the goods to the point of departure and prepares the necessary documentation based on instructions received from the exporter.
4) Export documents and instructions are delivered to the exporter's bank by either the exporter or the freight forwarder.
5) Following the instructions of the exporter, the bank processes the documents and forwards them to the buyer's bank.
6) The buyer's bank, on receipt of documents, contacts the buyer and requests payment or acceptance of the trade draft.
7) After payment or acceptance of the draft, documents are released to the buyer, who utilizes them to pick up the merchandise.
8) The buyer's bank remits funds to the seller's bank or advises that the draft has been accepted.
9) On receipt of good funds, seller's bank credits the account of the exporter.
the buyer (importer) through that party's bank and in exchange receives payment of the amount owed, or obtains acceptance of a time draft for payment at a future date.
The liability of the bank under a documentary collection is primarily restricted to following the seller's instructions in forwarding and releasing documents against payment or acceptance.
How is Documentary Collection different from an L/C or Open Account?
Unlike a letter of credit, the bank does not assume any liability to pay if the buyer does not want or is unable to pay. Compared to open account sales, the documentary collection offers more
security to the seller, but less than a letter of credit
When should a Documentary Collection be used?
Numerous criteria are applied by businesses when determining which payment instrument to offer as a term of sale. However, in general, a documentary collection would be appropriate
where:
1) The seller and the buyer know each other to be reliable.
2) There is no doubt about the buyer's willingness or ability to pay.
3) The political and economic conditions of the buyer's country are stable.
4) The importer's country does not have restrictive foreign exchange controls.
What are the advantages of a Documentary Collection?
1) Simple and inexpensive handling compared to letters of credit.
2) Often faster receipt of payment than open account terms.
3) Seller retains title to the goods until payment or acceptance is made.
What are the disadvantages of Documentary Collection?
If the buyer refuses or is unable to pay, the seller has three options, which could be expensive:
1) Find another buyer.
2) Pay for return transportation
3) Abandon the merchandise.
Who are the parties involved?
1) PRINCIPAL - exporter, seller, remitter, drawer of the draft.
2) REMITTING BANK - exporter's bank handling the collection
3) PRESENTING OR COLLECTING BANK - usually the buyer's bank.
4) DRAWEE - importer, buyer, payee.
What types of Documentary Collections are there?
1) Documents against Payment (D/P) also known as "Sight Draft" or "Cash against Documents” (CAD). The buyer must pay before the collecting bank releases the title documents.
2) Documents against Acceptance (D/A). The buyer accepts a time draft, promising to pay for the goods at a future date. After acceptance, the title documents are released to the buyer.
What are the steps in documentary collection?
1) The buyer (importer) and seller (exporter) agree on the terms of sale, shipping dates, etc., and that payment will be made on a documentary collection basis.
2) The exporter, through a freight forwarder, arranges for the delivery of goods to the port/airport of departure.
3) The forwarder delivers the goods to the point of departure and prepares the necessary documentation based on instructions received from the exporter.
4) Export documents and instructions are delivered to the exporter's bank by either the exporter or the freight forwarder.
5) Following the instructions of the exporter, the bank processes the documents and forwards them to the buyer's bank.
6) The buyer's bank, on receipt of documents, contacts the buyer and requests payment or acceptance of the trade draft.
7) After payment or acceptance of the draft, documents are released to the buyer, who utilizes them to pick up the merchandise.
8) The buyer's bank remits funds to the seller's bank or advises that the draft has been accepted.
9) On receipt of good funds, seller's bank credits the account of the exporter.
Saturday 6 November 2010
A little about Bank Guarantees ( BG )/ Standby Letter of Credit (SBLC)
Introduction
A Bank Guarantee (more properly called a Banker’s Guarantee) is a banking arrangement whereby a bank substitutes its creditworthiness for that of its customer.
Unlike an L/C which is intended to be paid, a BG is a contingent obligation. “Contingent” means “depending on the happening of an event, which may or may not occur” and 99% of the time it is not paid because the event does not happen.
The terms SBLC and BG are interchangeable, both do the same work and both serve the same purpose. The difference between a BG and a SBLC is legal, a BG is a simple obligation subject to civil law whereas a SBLC is issued subject to UCP 500 and ISP 98, both well-accepted banking protocols. Both SBLCs or BGs can be issued and sent by Swift, telex, courier, mail, messenger or
pigeon. The mode of transmission does not matter.
What Is A Bank Guarantee?
A bank guarantee is a written obligation, or guarantee, from an issuing bank promising to pay a set sum of money to a beneficiary who is doing business with a client of the bank’s, in the event that the bank’s client defaults on the payment contractually promised to the beneficiary
TYPES OF GUARANTEES
Tender/Bid Guarantee
In practice tender guarantees or bid bonds are often used by a party to safeguard its interest in the event that the party submitting the tender withdraws prior to entering into a legally binding contract. If a party that has submitted a tender later withdraws it from the buyer this could cost the buyer dearly in terms of time and costs in retendering.
Advance Payment Guarantee
If the seller has requested an advance payment, then the buyer can request a bank guarantee to cover the advance payment in the event that the seller fails to fulfill its obligations as stipulated in the contract. This is rarely needed in sugar trading, as payment is usually made by a letter of credit, under which payment is only made to the seller in the event that the conditions of the contract are fulfilled.
Performance Guarantee
A performance bond guarantee is a bank guarantee which is issued by the seller and given to the buyer. If the seller fails to meet the terms of the contract, then the buyer is entitled to claim payment on the bank guarantee, which is normally around ten percent of the total value stipulated on the contract. It is standard practice for the seller to issue the buyer a performance bond guarantee.
Payment Guarantee
A payment guarantee is simply an assurance provided by the buyer to the seller that payment will be made upon shipping of goods. This is the most common form of bank guarantee usage in the global sugar trading industry, and buyers can expect most sellers to request a bank guarantee for the purpose of securing payment in the case of the buyer defaulting on the contract.
Retention Guarantee
supports an obligation to account for retention money made by the beneficiary to the principal/applicant. Retention guarantee may increase in accordance with the successive releases of the retention money. It is advisable that the Retention Guarantees/Standby explicitly stipulates that it does not take effect until the retention money has been received by the principal/applicants account at the issuing bank.
Warranty Guarantee
support remedies and any defects, which become apparent after delivery of the goods or after provisional or substantial completion of the plant.
Loan Guarantee
A loan guarantee is a promise by a person or an entity to assume a debt obligation in the event of non payment by the borrower. The person or entity that guarantees the loan is referred to as the guarantor.
A Bank Guarantee (more properly called a Banker’s Guarantee) is a banking arrangement whereby a bank substitutes its creditworthiness for that of its customer.
Unlike an L/C which is intended to be paid, a BG is a contingent obligation. “Contingent” means “depending on the happening of an event, which may or may not occur” and 99% of the time it is not paid because the event does not happen.
The terms SBLC and BG are interchangeable, both do the same work and both serve the same purpose. The difference between a BG and a SBLC is legal, a BG is a simple obligation subject to civil law whereas a SBLC is issued subject to UCP 500 and ISP 98, both well-accepted banking protocols. Both SBLCs or BGs can be issued and sent by Swift, telex, courier, mail, messenger or
pigeon. The mode of transmission does not matter.
What Is A Bank Guarantee?
A bank guarantee is a written obligation, or guarantee, from an issuing bank promising to pay a set sum of money to a beneficiary who is doing business with a client of the bank’s, in the event that the bank’s client defaults on the payment contractually promised to the beneficiary
TYPES OF GUARANTEES
Tender/Bid Guarantee
In practice tender guarantees or bid bonds are often used by a party to safeguard its interest in the event that the party submitting the tender withdraws prior to entering into a legally binding contract. If a party that has submitted a tender later withdraws it from the buyer this could cost the buyer dearly in terms of time and costs in retendering.
Advance Payment Guarantee
If the seller has requested an advance payment, then the buyer can request a bank guarantee to cover the advance payment in the event that the seller fails to fulfill its obligations as stipulated in the contract. This is rarely needed in sugar trading, as payment is usually made by a letter of credit, under which payment is only made to the seller in the event that the conditions of the contract are fulfilled.
Performance Guarantee
A performance bond guarantee is a bank guarantee which is issued by the seller and given to the buyer. If the seller fails to meet the terms of the contract, then the buyer is entitled to claim payment on the bank guarantee, which is normally around ten percent of the total value stipulated on the contract. It is standard practice for the seller to issue the buyer a performance bond guarantee.
Payment Guarantee
A payment guarantee is simply an assurance provided by the buyer to the seller that payment will be made upon shipping of goods. This is the most common form of bank guarantee usage in the global sugar trading industry, and buyers can expect most sellers to request a bank guarantee for the purpose of securing payment in the case of the buyer defaulting on the contract.
Retention Guarantee
supports an obligation to account for retention money made by the beneficiary to the principal/applicant. Retention guarantee may increase in accordance with the successive releases of the retention money. It is advisable that the Retention Guarantees/Standby explicitly stipulates that it does not take effect until the retention money has been received by the principal/applicants account at the issuing bank.
Warranty Guarantee
support remedies and any defects, which become apparent after delivery of the goods or after provisional or substantial completion of the plant.
Loan Guarantee
A loan guarantee is a promise by a person or an entity to assume a debt obligation in the event of non payment by the borrower. The person or entity that guarantees the loan is referred to as the guarantor.
Thursday 7 October 2010
FAQ’S On BILL OF EXCHANGE
1. COULD YOU BRIEFLY EXPLAIN BILL OF EXCHANGE?
It is an instrument unconditional order signed by the maker directing certain party to make the payment of certain amount to certain party or the bearer of the instrument.
Essential Elements of Bill
1. Date
2. Time 3
3. Amount
4. Parties
5. Stamp
6. Far value received ( Consideration )
7. Acceptance
* It is of two types: 1 order 2. Bearer
* it is of two types : 1 real 2. Accommodation
* it is of two types : 1 date of payment fixed 2. Sight bill
2. WHAT ARE THE MAIN FEATURES OF A BILL OF EXCHANGE?
A) ”Bill of Exchange” included in the current text (applicable also under H)
B) Drawer´s name = Name and address of the issuer of the Bill of Exchange i.e. the Seller.
C) Drawee’s name = Name and address of the paying part.
D) The amount expressed in letters.
E) The amount expressed in figures.
F) Date of issue = the date of the issuance of the Bill of Exchange.
G) Maturity = The maturity date of the Bill of Exchange. Upon immediate payment , write ”At sight”. Upon payment at a pre-determined date, write maturity yyyy-mm-dd ” ” at a pre-determined date after shipment, e.g. 60 days after B/L date, write”60 days date” in G) and under F) date of shipment When a Bill of Exchange matures at a pre-determined period after acceptance, e.g. 60 days sight the acceptance shall include maturity date.
H) Payee = the party receiving payment at maturity. In this field usually is written ”ourselves” and the issuer of the Bill of Exchange makes an endorsement on the reverse of the Bill of Exchange. The endorsement is consisting of the firm’s stamp alt. the company’s written name plus a signature of the person authorised to sign the Bill of Exchange.
If required in a Letter of Credit or otherwise that a First and Second of Exchange should be presented, write on the first “First (Second unpaid)” and on the second “Second (First unpaid)”
I) Field for additional information if applicable, e.g. Letter of Credit No.
J) Drawer´s signature = The Seller’s firm stamp+ signature alt. the company’s written name plus the signature of the person authorised to sign the Bill of Exchange.
K) When the drawee has accepted the Bill of Exchange he is called acceptor.
L) It could be payable at a the domicile of a third party, e.g. a bank, whose address should be stated.
M) Place of payment is the domicile of the drawee provided that M) is not evidencing otherwise
3. WHICH INTERNATIONAL CONVENTIONS ARE USUALLY GOVERNING BILLS OF EXCHANGE?
Usually the Geneva or UK Convention.
4. WHAT HAPPENS IF THE ACCEPTOR DOESN’T PAY TIMELY?
Default of payment must be evidenced by an authentic act (protest for non-acceptance or non-payment), usually carried out by a Notary Public at the place where payment of the Bill of Exchange should have been done. The bona-fide holder (a holder in good faith) of the Bill of Exchange should approach the Notary Public. A summary protocol is established upon protesting. This may be utilized by the Bill of Exchange holder facilitating summary proceedings. A protest is made official at the place where payment should have been made.
5. CAN YOU EXPLAIN “ENDORSEMENT”?
Endorsement is a legal term for the physical handing over of the instrument. The person handing over it (the endorser) to a succeding party can either endorse to a named party or make it payble to the bearer – that is the person duly holding the Bill of exchange.
6. CAN INTEREST BE SPECIFIED IN A BILL OF EXCHANGE
When a bill of exchange is payable at sight, or at a fixed period after sight, the drawer may stipulate that the sum payable shall bear interest. The rate of interest must be specified in the Bill of Exchange, in default of such specification the stipulation shall be deemed not to be written.
7. FROM WHICH DATE RUNS THE INTEREST IN A BILL OF EXCHANGE?
From the date of the Bill of Exchange issuance, unless some other date is specified.
It is an instrument unconditional order signed by the maker directing certain party to make the payment of certain amount to certain party or the bearer of the instrument.
Essential Elements of Bill
1. Date
2. Time 3
3. Amount
4. Parties
5. Stamp
6. Far value received ( Consideration )
7. Acceptance
* It is of two types: 1 order 2. Bearer
* it is of two types : 1 real 2. Accommodation
* it is of two types : 1 date of payment fixed 2. Sight bill
2. WHAT ARE THE MAIN FEATURES OF A BILL OF EXCHANGE?
A) ”Bill of Exchange” included in the current text (applicable also under H)
B) Drawer´s name = Name and address of the issuer of the Bill of Exchange i.e. the Seller.
C) Drawee’s name = Name and address of the paying part.
D) The amount expressed in letters.
E) The amount expressed in figures.
F) Date of issue = the date of the issuance of the Bill of Exchange.
G) Maturity = The maturity date of the Bill of Exchange. Upon immediate payment , write ”At sight”. Upon payment at a pre-determined date, write maturity yyyy-mm-dd ” ” at a pre-determined date after shipment, e.g. 60 days after B/L date, write”60 days date” in G) and under F) date of shipment When a Bill of Exchange matures at a pre-determined period after acceptance, e.g. 60 days sight the acceptance shall include maturity date.
H) Payee = the party receiving payment at maturity. In this field usually is written ”ourselves” and the issuer of the Bill of Exchange makes an endorsement on the reverse of the Bill of Exchange. The endorsement is consisting of the firm’s stamp alt. the company’s written name plus a signature of the person authorised to sign the Bill of Exchange.
If required in a Letter of Credit or otherwise that a First and Second of Exchange should be presented, write on the first “First (Second unpaid)” and on the second “Second (First unpaid)”
I) Field for additional information if applicable, e.g. Letter of Credit No.
J) Drawer´s signature = The Seller’s firm stamp+ signature alt. the company’s written name plus the signature of the person authorised to sign the Bill of Exchange.
K) When the drawee has accepted the Bill of Exchange he is called acceptor.
L) It could be payable at a the domicile of a third party, e.g. a bank, whose address should be stated.
M) Place of payment is the domicile of the drawee provided that M) is not evidencing otherwise
3. WHICH INTERNATIONAL CONVENTIONS ARE USUALLY GOVERNING BILLS OF EXCHANGE?
Usually the Geneva or UK Convention.
4. WHAT HAPPENS IF THE ACCEPTOR DOESN’T PAY TIMELY?
Default of payment must be evidenced by an authentic act (protest for non-acceptance or non-payment), usually carried out by a Notary Public at the place where payment of the Bill of Exchange should have been done. The bona-fide holder (a holder in good faith) of the Bill of Exchange should approach the Notary Public. A summary protocol is established upon protesting. This may be utilized by the Bill of Exchange holder facilitating summary proceedings. A protest is made official at the place where payment should have been made.
5. CAN YOU EXPLAIN “ENDORSEMENT”?
Endorsement is a legal term for the physical handing over of the instrument. The person handing over it (the endorser) to a succeding party can either endorse to a named party or make it payble to the bearer – that is the person duly holding the Bill of exchange.
6. CAN INTEREST BE SPECIFIED IN A BILL OF EXCHANGE
When a bill of exchange is payable at sight, or at a fixed period after sight, the drawer may stipulate that the sum payable shall bear interest. The rate of interest must be specified in the Bill of Exchange, in default of such specification the stipulation shall be deemed not to be written.
7. FROM WHICH DATE RUNS THE INTEREST IN A BILL OF EXCHANGE?
From the date of the Bill of Exchange issuance, unless some other date is specified.
Wednesday 6 October 2010
RED CLAUSE Vs. GREEN CLAUSE
RED CLAUSE LETTER OF CREDIT
In the case of a red clause letter of credit (letter of credit with advance payment) the seller can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. The advance is normally paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date.
GREEN CLAUSE LETTER OF CREDIT
In the case of a green clause letter of credit (letter of credit with advance payment) the beneficiary can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. Unlike the red clause letter of credit the advance is not paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date, but an additional document is also always required providing proof that the goods to be shipped have been warehoused.
In the case of a red clause letter of credit (letter of credit with advance payment) the seller can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. The advance is normally paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date.
GREEN CLAUSE LETTER OF CREDIT
In the case of a green clause letter of credit (letter of credit with advance payment) the beneficiary can request the advance payment of an agreed amount (defined in the terms and conditions of the letter of credit) from the correspondent bank. This is basically intended to finance the production or purchase of the goods to be delivered under the letter of credit. Unlike the red clause letter of credit the advance is not paid out against receipt and the written undertaking of the beneficiary to subsequently deliver the transportation documents by an agreed date, but an additional document is also always required providing proof that the goods to be shipped have been warehoused.
Saturday 2 October 2010
TYEPES OF BANKS IN TRADE FINANCE
Advising bank
A bank normally located in the country of residence of an Exporter, used by an Importer's bank to validate the authenticity of a Letter of Credit before the Letter of Credit is passed to the Exporter.
Issuing Bank
Buyer's or importer's bank which establishes (opens) a letter of credit (L/C) in favor of a beneficiary (seller or exporter), forwards it to an advising bank for delivery to the beneficiary, and commits itself to honor demand drafts drawn by the beneficiary against the amount specified in the L/C. Also called opening bank.
Nominated Bank
A bank designated by the issuing bank which is authorized to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the letter of credit (L/C) is known as the nominated bank. The nominated bank can be a party other than the advising bank.
Correspondent Bank
The term correspondent bank or correspondent used in international trade refers to another bank in another country with which the first bank maintains a banking service agreement.
Confirming Bank
A bank which engages to honor a letter of credit issued by another, or engages that such letter of credit will be honored by the issuer or by a third bank.
Paying, Accepting or Negotiating Bank
The nominated bank which:
* makes payment to the sight draft(s) drawn by the beneficiary is known as paying bank,
* accepts the term draft(s) drawn by the beneficiary is known as accepting bank,
* negotiates the draft(s) and/or documents presented by the beneficiary or bona fide holder is known as negotiating bank.
When the bank negotiates the draft(s) and/or documents, that is, the negotiation, it gives value to such draft(s) and/or documents, not just examination of the documents.
Transferring Bank
The paying, accepting or negotiating bank that makes the credit available in whole or in part to one or more second beneficiaries at the request of the first beneficiary is known as the transferring bank.
Reimbursing Bank
Reimbursing bank" means the bank instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.
Collecting bank
In documentary credit, the bank (usually the buyer's bank) that collects cash payment or a time draft from a buyer, in exchange for bill of lading and/or other documents which enable the buyer to take delivery of the shipment. The collecting bank then forwards the payment to the remitting bank (usually the seller's bank) for eventual remittance to the seller.
Remitting Bank
intermediary bank in documentary collections that forwards a seller's shipping documents to the collecting-bank, and the payment in the opposite direction
Presenting BankBank that submits (presents) a financial instrument (check, draft, letter of credit, etc.) to the advising or paying bank to seek a payment
A bank normally located in the country of residence of an Exporter, used by an Importer's bank to validate the authenticity of a Letter of Credit before the Letter of Credit is passed to the Exporter.
Issuing Bank
Buyer's or importer's bank which establishes (opens) a letter of credit (L/C) in favor of a beneficiary (seller or exporter), forwards it to an advising bank for delivery to the beneficiary, and commits itself to honor demand drafts drawn by the beneficiary against the amount specified in the L/C. Also called opening bank.
Nominated Bank
A bank designated by the issuing bank which is authorized to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the letter of credit (L/C) is known as the nominated bank. The nominated bank can be a party other than the advising bank.
Correspondent Bank
The term correspondent bank or correspondent used in international trade refers to another bank in another country with which the first bank maintains a banking service agreement.
Confirming Bank
A bank which engages to honor a letter of credit issued by another, or engages that such letter of credit will be honored by the issuer or by a third bank.
Paying, Accepting or Negotiating Bank
The nominated bank which:
* makes payment to the sight draft(s) drawn by the beneficiary is known as paying bank,
* accepts the term draft(s) drawn by the beneficiary is known as accepting bank,
* negotiates the draft(s) and/or documents presented by the beneficiary or bona fide holder is known as negotiating bank.
When the bank negotiates the draft(s) and/or documents, that is, the negotiation, it gives value to such draft(s) and/or documents, not just examination of the documents.
Transferring Bank
The paying, accepting or negotiating bank that makes the credit available in whole or in part to one or more second beneficiaries at the request of the first beneficiary is known as the transferring bank.
Reimbursing Bank
Reimbursing bank" means the bank instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.
Collecting bank
In documentary credit, the bank (usually the buyer's bank) that collects cash payment or a time draft from a buyer, in exchange for bill of lading and/or other documents which enable the buyer to take delivery of the shipment. The collecting bank then forwards the payment to the remitting bank (usually the seller's bank) for eventual remittance to the seller.
Remitting Bank
intermediary bank in documentary collections that forwards a seller's shipping documents to the collecting-bank, and the payment in the opposite direction
Presenting BankBank that submits (presents) a financial instrument (check, draft, letter of credit, etc.) to the advising or paying bank to seek a payment
Wednesday 1 September 2010
CDCS Questions 3/500
1. What is the instrument to which the Letter of Credit can be historically
Related?
The term ‘Letter of Credit’ was perhaps first used with Traveller’s Letters of Credit
issued by banks in the western world to provide their clients with a means of obtaining cash from banks abroad for use during their foreign travel
2. What two key elements are a prerequisite to trigger the exchange of payment
for goods in the usual Documentary Credit cycle?
Payment is exchanged for documents in the Documentary Credit cycle provided the
stipulated documents are presented and the terms and conditions of the Credit are
complied with.
3. What two key elements provide commonality to the terms?
● Letters of Credit
● Commercial Credit
● Documentary Credit
● Standby Letters of Credit
All four terms generically refer to the same product which undertakes payment to
the Beneficiary on the conditions that the documents stipulated in the Credit are
presented and all terms and conditions of the Credit are complied with.
Related?
The term ‘Letter of Credit’ was perhaps first used with Traveller’s Letters of Credit
issued by banks in the western world to provide their clients with a means of obtaining cash from banks abroad for use during their foreign travel
2. What two key elements are a prerequisite to trigger the exchange of payment
for goods in the usual Documentary Credit cycle?
Payment is exchanged for documents in the Documentary Credit cycle provided the
stipulated documents are presented and the terms and conditions of the Credit are
complied with.
3. What two key elements provide commonality to the terms?
● Letters of Credit
● Commercial Credit
● Documentary Credit
● Standby Letters of Credit
All four terms generically refer to the same product which undertakes payment to
the Beneficiary on the conditions that the documents stipulated in the Credit are
presented and all terms and conditions of the Credit are complied with.
Sunday 29 August 2010
L/C CHECKLIST FOR THE EXPORTER
1) Is the Letter of Credit (L/C) irrevocable and issued subject to current International Chamber of Commerce (I.C.C.) rules?
2) Are you satisfied with the bank and country that issued the L/C or do you need it confirmed (guaranteed by a local bank)?
3) Does the expiry date allow sufficient time to present all the requested documentation to the bank indicated?
4) Is the name and address of your company and that of the buyer correct?
5) Is the amount of the credit as agreed? Has the correct tolerance (if any) been applied?
6) Are the payment/credit terms as agreed?
7) Are the goods, their value, unit prices, weight, quantity, quality described correctly?
8) Are all the transport details, such as place and date of shipment, the destination, method of carriage, Incoterm correct?
9) Does the Letter of Credit contain any spelling mistakes?
10) Is the L/C payable/negotiable in XXX Country at the counters of XXX bank?
11) Can the goods be shipped prior to the latest shipment date or in accordance with the shipping schedule outlined in the Letter of Credit?
12) Can the documents required be obtained and produced in the format required by the Letter of Credit?
13) Is transhipment allowed? Exporters from Ireland should always seek to have transhipment allowed.(land locked country)
14) Is partial shipment allowed, if necessary?
15) Can all the conditions outlined be met?
16) Who pays the various banks’ charges?
2) Are you satisfied with the bank and country that issued the L/C or do you need it confirmed (guaranteed by a local bank)?
3) Does the expiry date allow sufficient time to present all the requested documentation to the bank indicated?
4) Is the name and address of your company and that of the buyer correct?
5) Is the amount of the credit as agreed? Has the correct tolerance (if any) been applied?
6) Are the payment/credit terms as agreed?
7) Are the goods, their value, unit prices, weight, quantity, quality described correctly?
8) Are all the transport details, such as place and date of shipment, the destination, method of carriage, Incoterm correct?
9) Does the Letter of Credit contain any spelling mistakes?
10) Is the L/C payable/negotiable in XXX Country at the counters of XXX bank?
11) Can the goods be shipped prior to the latest shipment date or in accordance with the shipping schedule outlined in the Letter of Credit?
12) Can the documents required be obtained and produced in the format required by the Letter of Credit?
13) Is transhipment allowed? Exporters from Ireland should always seek to have transhipment allowed.(land locked country)
14) Is partial shipment allowed, if necessary?
15) Can all the conditions outlined be met?
16) Who pays the various banks’ charges?
Monday 23 August 2010
THE MOST COMMON LC FIELDS
27: Sequence of total
40 A: Form of documentary credit
20: Documentary credit Number
31 C: Date of Issue
40 E: Applicable Rules
31 B: Date and Place of expiry
50: Applicant
59: Beneficiary
32 B: Currency Code, Amount
39 A: Percentage Credit Amount Tolerance
41 D: Available With… By..
42 C: Drafts at
42 D: Drawee
43 P: Partial Shipments
43 T: Transshipments
44 A: Place of Receipt / Taking charge
44 E: Port of Loading / Airport of Departure
44 F: Port of Discharge / Airport of Destination
44 B: Place of Final Destination
44 C: Latest Date of Shipment
45 A: Description of Goods/ or Services
46 A: Documents Required
47 A: Additional Conditions
71 B: Charges
48: Period for Preventions
49: Confirmation Instructions
53 A: Reimbursing Bank
78 A: Instructions to the Paying/ Accepting/ Negotiating Bank
72: Sender to Receiver Information
Friday 20 August 2010
MUST READ ARTICLES FOR ADVISING DESK
ARTICLE 7 ISSUING BANK UNDERTAKING
a. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honour if the credit is available by:
i. sight payment, deferred payment or acceptance with the issuing bank;
ii. sight payment with a nominated bank and that nominated bank does not pay;
iii. deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;
iv. acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
v. negotiation with a nominated bank and that nominated bank does not negotiate.
b. An issuing bank is irrevocably bound to honour as of the time it issues the credit.
c. An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank's undertaking to the beneficiary.
ARTICLE 8 CONFIRMING BANK UNDERTAKING
a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must:
i. honour, if the credit is available by
a. sight payment, deferred payment or acceptance with the confirming bank;
b. sight payment with another nominated bank and that nominated bank does not pay;
c. deferred payment with another nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;
d. acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
e. negotiation with another nominated bank and that nominated bank does not negotiate.
ii. negotiate, without recourse, if the credit is available by negotiation with the confirming bank.
b. A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit.
c. A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity. A confirming bank's undertaking to reimburse another nominated bank is independent of the confirming bank's undertaking to the beneficiary.
d. If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation.
ARTICLE 9 ADVISING OF CREDITS AND AMENDMENTS
a. A credit and any amendment may be advised to a beneficiary through an advising bank. An advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.
b. By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.
c. An advising bank may utilize the services of another bank ("second advising bank") to advise the credit and any amendment to the beneficiary. By advising the credit or amendment, the second advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amendment received.
d. A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.
e. If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform, without delay, the bank from which the credit, amendment or advice has been received.
f. If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from which the instructions appear to have been received. If the advising bank or second advising bank elects nonetheless to advise the credit or amendment, it must inform the beneficiary or second advising bank that it has not been able to satisfy itself as to the apparent authenticity of the credit, the amendment or the advice.
ARTICLE 10 AMENDMENTS
a. Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.
b. An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment. A confirming bank may, however, choose to advise an amendment without extending its confirmation and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.
c. The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended.
d. A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection.
e. Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.
f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.
ARTICLE 38 TRANSFERABLE CREDITS
a. A bank is under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank.
b. For the purpose of this article:
Transferable credit means a credit that specifically states it is "transferable". A transferable credit may be made available in whole or in part to another beneficiary ("second beneficiary") at the request of the beneficiary ("first beneficiary").
Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.
Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.
c. Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees, costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.
d. A credit may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed.
A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary.
e. Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearly indicate those conditions.
f. If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.
g. The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:
- the amount of the credit,
- any unit price stated therein,
- the expiry date,
- the period for presentation, or
- the latest shipment date or given period for shipment,
any or all of which may be reduced or curtailed.
The percentage for which insurance cover must be effected may be increased to provide the amount of cover stipulated in the credit or these articles.
The name of the first beneficiary may be substituted for that of the applicant in the credit.
If the name of the applicant is specifically required by the credit to appear in any document other than the invoice, such requirement must be reflected in the transferred credit.
h. The first beneficiary has the right to substitute its own invoice and draft, if any, for those of a second beneficiary for an amount not in excess of that stipulated in the credit, and upon such substitution the first beneficiary can draw under the credit for the difference, if any, between its invoice and the invoice of a second beneficiary.
i. If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.
j. The first beneficiary may, in its request for transfer, indicate that honour or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the credit. This is without prejudice to the right of the first beneficiary in accordance with sub-article 38 (h).
k. Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank.
ARTICLE 39: ASSIGNMENT OF PROCEEDS
The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law. This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit
a. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honour if the credit is available by:
i. sight payment, deferred payment or acceptance with the issuing bank;
ii. sight payment with a nominated bank and that nominated bank does not pay;
iii. deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;
iv. acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
v. negotiation with a nominated bank and that nominated bank does not negotiate.
b. An issuing bank is irrevocably bound to honour as of the time it issues the credit.
c. An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank's undertaking to the beneficiary.
ARTICLE 8 CONFIRMING BANK UNDERTAKING
a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must:
i. honour, if the credit is available by
a. sight payment, deferred payment or acceptance with the confirming bank;
b. sight payment with another nominated bank and that nominated bank does not pay;
c. deferred payment with another nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;
d. acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
e. negotiation with another nominated bank and that nominated bank does not negotiate.
ii. negotiate, without recourse, if the credit is available by negotiation with the confirming bank.
b. A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit.
c. A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity. A confirming bank's undertaking to reimburse another nominated bank is independent of the confirming bank's undertaking to the beneficiary.
d. If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation.
ARTICLE 9 ADVISING OF CREDITS AND AMENDMENTS
a. A credit and any amendment may be advised to a beneficiary through an advising bank. An advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.
b. By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.
c. An advising bank may utilize the services of another bank ("second advising bank") to advise the credit and any amendment to the beneficiary. By advising the credit or amendment, the second advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amendment received.
d. A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.
e. If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform, without delay, the bank from which the credit, amendment or advice has been received.
f. If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from which the instructions appear to have been received. If the advising bank or second advising bank elects nonetheless to advise the credit or amendment, it must inform the beneficiary or second advising bank that it has not been able to satisfy itself as to the apparent authenticity of the credit, the amendment or the advice.
ARTICLE 10 AMENDMENTS
a. Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.
b. An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment. A confirming bank may, however, choose to advise an amendment without extending its confirmation and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.
c. The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended.
d. A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection.
e. Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.
f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.
ARTICLE 38 TRANSFERABLE CREDITS
a. A bank is under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank.
b. For the purpose of this article:
Transferable credit means a credit that specifically states it is "transferable". A transferable credit may be made available in whole or in part to another beneficiary ("second beneficiary") at the request of the beneficiary ("first beneficiary").
Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.
Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.
c. Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees, costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.
d. A credit may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed.
A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary.
e. Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearly indicate those conditions.
f. If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.
g. The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:
- the amount of the credit,
- any unit price stated therein,
- the expiry date,
- the period for presentation, or
- the latest shipment date or given period for shipment,
any or all of which may be reduced or curtailed.
The percentage for which insurance cover must be effected may be increased to provide the amount of cover stipulated in the credit or these articles.
The name of the first beneficiary may be substituted for that of the applicant in the credit.
If the name of the applicant is specifically required by the credit to appear in any document other than the invoice, such requirement must be reflected in the transferred credit.
h. The first beneficiary has the right to substitute its own invoice and draft, if any, for those of a second beneficiary for an amount not in excess of that stipulated in the credit, and upon such substitution the first beneficiary can draw under the credit for the difference, if any, between its invoice and the invoice of a second beneficiary.
i. If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.
j. The first beneficiary may, in its request for transfer, indicate that honour or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the credit. This is without prejudice to the right of the first beneficiary in accordance with sub-article 38 (h).
k. Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank.
ARTICLE 39: ASSIGNMENT OF PROCEEDS
The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law. This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit
Wednesday 18 August 2010
S.W.I.F.T MT 700 Series...
700 Issue of a Documentary Credit
Indicates the terms and conditions of a documentary credit
701 Issue of a Documentary Credit
Continuation of an MT 700 for fields 45a, 46a and 47a
705 Pre-Advice of a Documentary Credit
Provides brief advice of a documentary credit for which full details will follow
707 Amendment to a Documentary Credit
Informs the Receiver of amendments to the terms and conditions of a documentary credit
710 Advice of a Third Bank’s Documentary Credit
Advises the Receiver of the terms and conditions of a documentary credit
711 Advice of a Third Bank’s Documentary Credit
Continuation of an MT 710 for files 45a, 46a and
720 Transfer of a Documentary Credit
Advises the transfer of a documentary credit, or part thereof, to the bank advising the second beneficiary
721 Transfer of a Documentary Credit
Continuation of a MT 720 for files 45a, 46a and 47a
730Acknowledgement
Acknowledges the receipt of a documentary credit message and may indicate that the message has been forwarded according to instructions. It may also be used to account for bank charges or to advise of acceptance or rejection of an amendment of a documentary credit
732 Advice of Discharge
Advises that documents received with discrepancies have been taken up
734 Advice of Refusal
Advises the refusal of documents that are not in accordance with the terms and conditions of a documentary credit
740 Authorisation to Reimburse
Requests the Receiver to honour claims for reimbursement of payment(s) or negotiation(s) under a documentary credit
742 Re-imbursement Claim
Provides a reimbursement claim to the bank authorised to reimburse the Sender or its branch for its payments/negotiations
747 Amendment to an Authorization to Reimburse
Informs the reimbursing bank of amendments to the terms and conditions of a documentary credit, relative to the authorization to reimburse
750 Advice of Discrepancy
Advises of discrepancies and requests authorization to honour documents presented that are not in accordance with the terms and conditions of the documentary credit
752 Authorisation to Pay, Accept or Negotiate
Advises a bank which has requested authorisation to pay, accept, negotiate or incur a deferred payment undertaking that the presentation of the documents may be honoured, notwithstanding the discrepancies, provided they are otherwise in order
754 Advice of Payment/Acceptance/Negotiations
Advises that documents have been presented in accordance with the terms of a documentary credit and are being forwarded as instructed. This message type also handles the payment/negotiation
756 Advice of Re-imbursement or Payment
Advises of the reimbursement or payment for a drawing under a documentary credit in which no specific reimbursement instructions or payment provisions were given
760 Guarantee/Standby LC
Issues or requests the issue of a guarantee or Standby LC
767 Guarantee/ Standby LC Amendment
Amends a guarantee or Standby LC which has been previously issued or requests the amendment of a guarantee which the Sender has previously requested to be issued
Acknowledges the receipt of a guarantee/ Standby LC message and may indicate that action has been taken according to instructions
769 Advice of Reduction or Release
Advises that a bank has been released of its liability for a specified amount under its guarantee
Monday 16 August 2010
INCOTERMS 2000
EXW
EX WORKS (…named place)*
Seller makes goods available to buyer at the sellers premises. Buyer responsible for the rest of the carriage including freight and insurance. Minimum obligation to the seller
FCA
FREE CARRIER (…named place)
The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerized / multi-modal transport.
FAS
FREE ALONGSIDE SHIP (…named port of shipment)*
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this changed in the 2000 version of the Incoterms. Suitable for maritime transport only.
FOB
FREE ON BOARD (…named port of shipment)
Seller delivers goods to the ship. Freight to be paid by buyer insurance and rest of the carriage in his responsibility
CFR
COST AND FREIGHT (…named port of destination)
Seller delivers goods to the ship and also pays the freight till port of discharge. Insurance and rest for the carriage is buyer’s responsibility. This term is only applicable where carriage is by sea or inland waterway transport (also named as CNF)
CIF
COST, INSURANCE AND FREIGHT (…named port of destination)*
Seller deliver goods to the ship, pays the freight till port of discharge also arranges insurance at his cost. Rest of the carriage is buyers responsibility. This term is applicable only applicable where carriage is by sea or inland water way transport
CPT
CARRIAGE PAID TO (…named place of destination)
Seller delivers goods into the custody of carrier and also pays the freight till port of destination. Insurance and rest the carriage is buyer’s responsibility. This term is appropriate for all modes of transport but commonly used for air and multimodal transport
CIP
CARRIAGE AND INSURANCE PAID TO (…named place of destination)*
Seller delivers goods in to custody of carrier, pays the freight till port of destination also arranges insurance at his cost. Rest of the carriage is buyers responsibility. This term is appropriate for all modes of transport but commonly used for air and multimodal transport
DAF
DELIVERED AT FRONTIER (…named place)*
This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.
DES
DELIVERED EX SHIP (…named port of destination)
Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc… are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals - - - and where the seller either owns or has chartered, their own vessel.
DEQ
DELIVERED EX QUAY (…named port of destination)*
This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.
DDU
DELIVERED DUTY UNPAID (…named place of destination)*
This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.
DDP
DELIVERED DUTY PAID (…named place of destination)*
This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". The most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT and excises usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.
EX WORKS (…named place)*
Seller makes goods available to buyer at the sellers premises. Buyer responsible for the rest of the carriage including freight and insurance. Minimum obligation to the seller
FCA
FREE CARRIER (…named place)
The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerized / multi-modal transport.
FAS
FREE ALONGSIDE SHIP (…named port of shipment)*
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this changed in the 2000 version of the Incoterms. Suitable for maritime transport only.
FOB
FREE ON BOARD (…named port of shipment)
Seller delivers goods to the ship. Freight to be paid by buyer insurance and rest of the carriage in his responsibility
CFR
COST AND FREIGHT (…named port of destination)
Seller delivers goods to the ship and also pays the freight till port of discharge. Insurance and rest for the carriage is buyer’s responsibility. This term is only applicable where carriage is by sea or inland waterway transport (also named as CNF)
CIF
COST, INSURANCE AND FREIGHT (…named port of destination)*
Seller deliver goods to the ship, pays the freight till port of discharge also arranges insurance at his cost. Rest of the carriage is buyers responsibility. This term is applicable only applicable where carriage is by sea or inland water way transport
CPT
CARRIAGE PAID TO (…named place of destination)
Seller delivers goods into the custody of carrier and also pays the freight till port of destination. Insurance and rest the carriage is buyer’s responsibility. This term is appropriate for all modes of transport but commonly used for air and multimodal transport
CIP
CARRIAGE AND INSURANCE PAID TO (…named place of destination)*
Seller delivers goods in to custody of carrier, pays the freight till port of destination also arranges insurance at his cost. Rest of the carriage is buyers responsibility. This term is appropriate for all modes of transport but commonly used for air and multimodal transport
DAF
DELIVERED AT FRONTIER (…named place)*
This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.
DES
DELIVERED EX SHIP (…named port of destination)
Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc… are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals - - - and where the seller either owns or has chartered, their own vessel.
DEQ
DELIVERED EX QUAY (…named port of destination)*
This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.
DDU
DELIVERED DUTY UNPAID (…named place of destination)*
This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.
DDP
DELIVERED DUTY PAID (…named place of destination)*
This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". The most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT and excises usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.
Monday 2 August 2010
TYPES OF LETTER OF CREDIT
• Revocable
A revocable letter of credit can be amended or cancelled at any time without the
beneficiary’s agreement (unless documents have been taken up by the nominated
bank). Little protection is offered to the beneficiary with a revocable credit and
they are rarely seen.
• Irrevocable
An irrevocable letter of credit can neither be amended nor cancelled without the
agreement of all parties to the credit. Under UCP500 all letters of credit are
deemed to be irrevocable unless otherwise stated.
• Unconfirmed
An unconfirmed letter of credit is forwarded by the advising bank directly to the
exporter without adding its own undertaking to make payment or accept
responsibility for payment at a future date, but confirming its authenticity.
• Confirmed
A confirmed letter of credit is one in which the advising bank, on the instructions
of the issuing bank, has added a confirmation that payment will be made as long
as compliant documents are presented. This commitment holds even if the
issuing bank or the buyer fail to make payment. The added security of
confirmation needs to be considered in the context of the standing of the issuing
bank and the current political and economic state of the buyer’s country. A bank
will make an additional charge for confirming a letter of credit.
• Standby Letters of Credit
A standby letter of credit is used as support where an alternative, less secure,
method of payment has been agreed. They are also used in the United States of
America in place of bank guarantees. Should the exporter fail to receive payment
from the buyer he may claim under the standby letter of credit. Certain
documents are likely to be required to obtain payment including: the standby
letter of credit itself; a sight draft for the amount due; a copy of the unpaid
invoice; proof of dispatch and a signed declaration from the beneficiary stating
that payment has not been received by the due date and therefore reimbursement
is claimed by letter of credit. The International Chamber of Commerce publishes
rules for operating standby letters of credit – ISP98 International Standby
Practices.
• Revolving Letter of Credit
The revolving credit is used for regular shipments of the same commodity to the
same buyer. It can revolve in relation to time or value. If the credit is time
revolving once utilised it is re-instated for further regular shipments until the
credit is fully drawn. If the credit revolves in relation to value once utilised and
paid the value can be reinstated for further drawings. The credit must state that it
is a revolving letter of credit and it may revolve either automatically or subject to
certain provisions. Revolving letters of credit are useful to avoid the need for
repetitious arrangements for opening or amending letters of credit.
• Back-to-Back Letter of Credit
A back-to-back letter of credit can be used as an alternative to the transferable
letter of credit. Rather than transferring the original letter of credit to the supplier,
once the letter of credit is received by the exporter from the opening bank, that
letter of credit is used as security to establish a second letter of credit drawn on
the exporter in favour of his supplier. Many banks are reluctant to issue back-toback
letters of credit due to the level of risk to which they are exposed – a
transferable credit will not expose them to higher risk than under the original
credit.
A revocable letter of credit can be amended or cancelled at any time without the
beneficiary’s agreement (unless documents have been taken up by the nominated
bank). Little protection is offered to the beneficiary with a revocable credit and
they are rarely seen.
• Irrevocable
An irrevocable letter of credit can neither be amended nor cancelled without the
agreement of all parties to the credit. Under UCP500 all letters of credit are
deemed to be irrevocable unless otherwise stated.
• Unconfirmed
An unconfirmed letter of credit is forwarded by the advising bank directly to the
exporter without adding its own undertaking to make payment or accept
responsibility for payment at a future date, but confirming its authenticity.
• Confirmed
A confirmed letter of credit is one in which the advising bank, on the instructions
of the issuing bank, has added a confirmation that payment will be made as long
as compliant documents are presented. This commitment holds even if the
issuing bank or the buyer fail to make payment. The added security of
confirmation needs to be considered in the context of the standing of the issuing
bank and the current political and economic state of the buyer’s country. A bank
will make an additional charge for confirming a letter of credit.
• Standby Letters of Credit
A standby letter of credit is used as support where an alternative, less secure,
method of payment has been agreed. They are also used in the United States of
America in place of bank guarantees. Should the exporter fail to receive payment
from the buyer he may claim under the standby letter of credit. Certain
documents are likely to be required to obtain payment including: the standby
letter of credit itself; a sight draft for the amount due; a copy of the unpaid
invoice; proof of dispatch and a signed declaration from the beneficiary stating
that payment has not been received by the due date and therefore reimbursement
is claimed by letter of credit. The International Chamber of Commerce publishes
rules for operating standby letters of credit – ISP98 International Standby
Practices.
• Revolving Letter of Credit
The revolving credit is used for regular shipments of the same commodity to the
same buyer. It can revolve in relation to time or value. If the credit is time
revolving once utilised it is re-instated for further regular shipments until the
credit is fully drawn. If the credit revolves in relation to value once utilised and
paid the value can be reinstated for further drawings. The credit must state that it
is a revolving letter of credit and it may revolve either automatically or subject to
certain provisions. Revolving letters of credit are useful to avoid the need for
repetitious arrangements for opening or amending letters of credit.
• Back-to-Back Letter of Credit
A back-to-back letter of credit can be used as an alternative to the transferable
letter of credit. Rather than transferring the original letter of credit to the supplier,
once the letter of credit is received by the exporter from the opening bank, that
letter of credit is used as security to establish a second letter of credit drawn on
the exporter in favour of his supplier. Many banks are reluctant to issue back-toback
letters of credit due to the level of risk to which they are exposed – a
transferable credit will not expose them to higher risk than under the original
credit.
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