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.

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.

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