Chapter 5

1. Chapter 5 Payment Methods - Letter of Credit 专业PPT/商演示设计制作

2. Review Question 1 : What’s the meaning of collection Question 2 : Types of collection (D/P&D/A)? Question 3 : Procedures under D/P at sight ? Question 4 : Risks under collection (export & importer)?

3. Inter-look of the four methods of payment in I.S -- Payment in advance -- Open account -- Collection -- Letter of credit Why we need the method of L/C ?

4. A L/c is a written undertaking by the issuing bank to the beneficiary, under which the bank will pay a sum certain in money to the beneficiary if the beneficiary of the L/C provides the bank with specified documentswithin a prescribed time period, which all comply with the terms and conditions of the credit. What is a letter of credit

5. Characteristics of a letter of credit -- A written undertaking on the part of the issuing bank -- Independent of the sales contract -- Exclusively dealing with documents Uniform Customs and Practices for Documentary Credit -- UCP600 is the governing rule concerning documentary credit -- any issued L/C should indicate clearly that the said L/C is subject to the uniform customs and practice for documentary credits What is a letter of credit

6. Contents of a L/C • Type of the Credit • --Irrevocable Revocable • Credit Number --It will tie up all the relevant documents • Place and Date of Issue --Place（where the issuing bank is located） • --Date（when the L/C is issued） • Date and Place of Expiry --A definite date，not a period

7. Contents of a L/C • Amount of the credit and Its currency --If the amount is preceded by about, approximately or circa, the credit will allow 10% tolerance • --Be indicated in the ISO Currency Code • Available with ____bank by___ • -- which bank will effect the payment • -- how the payment will be effected • Partial Shipment • -- allowed or not allowed • Transshipment -- allowed or not allowed

8. Contents of a L/C • Insurance • --Depending on the price term • Port of shipment and Port of Discharge • -- The last date for shipment after the phrase: no later • than/last on • Description of goods -- It should be made in a general term • Stipulate Documents • -- Commercial invoice、Transport documents、 • Insurance Documents，Certificate of origin • Certificate of inspection、Packing list

9. Contents of a L/C • Presentation Period • -- After the date of shipment but within the validity of the • credit, the stipulated time can be 14 or 21 • Instructions to the Advising Bank • -- Without adding your confirmation, with adding your • confirmation, adding your confirmation if requested by • the beneficiary • Bank to bank Instructions • Number of pages、 • The signature of the issuing bank

10. Parties to a L/C • Applicant/buyer • -- Liable for payment to the issuing bank provided no • discrepancy between documents and the credit; • -- right to examine the documents and refuse payment; • -- any requirement of the applicant should be satisfied by certain • documents and clearly indicated when making credit • application Issuing application form • Issuing bank/the buyer’s bank • -- By issuing a credit the issuing bank undertakes full • responsibility for payment

11. Parties to a L/C • Beneficiary/seller • -- The right to examine a credit upon receipt of it according to the • sales contract; • -- whether be paid or not solely depends on the fulfillment of • terms and conditions of the credit. • Advising bank • -- Accurately transmit the terms of credit and check the apparent • authenticity of the credit • Reimbursing bank • -- A bank named in credit from which the paying bank, accepting • bank or negotiating bank may request cover after paying or • negotiating the documents. the reimbursing bank shall not • examine the documents

12. Parties to a L/C • Confirming bank • Undertake the same obligations assumed by the issuing • bank; Responsible for a credit independently and pay • without recourse • Negotiating bank • In a negotiation credit, purchases the drafts and documents; • When dishonored by the issuing bank, it has the right of • recourse to the beneficiary; Obtain the reimbursement from • the issuing bank • Paying/accepting bank • Designated by issuing bank to effect payment or acceptance • in most cases to be the advising bank; Once it has made • payment to the beneficiary, it will lose the right of recourse • to the beneficiary; Entitled to obtain reimbursement from the • issuing bank Claim-ing bank

13. Procedures of a L/C 1)contract Buyer/ applicant Seller/ beneficiary 9)pick up goods Shipping company 5) 6)payment 4)advise L/c 2)application and cash deposits 8)examine documents and ask the buyer to redeem 5)examine and prepare documents 3)opens a L/C Advising bank designated bank Issuing bank

14. 1、Sales contract between importer and exporter 2、Importer makes the application form 3、Issuing bank exam the creditworthiness, pass L/C to the exporter’s bank 4、Exporter’s bank pass L/C to the beneficiary 5、Accept L/C or applicant to have it amended, prepared other docs and present to the right bank 6、Check documents 7、Forward docs to reimbursing bank or issuing bank 8、Make reimbursement 9、Issuing bank notify the importer 10、Docs are released to the import against his payment Procedures of a L/C

15. Application and Amendment of L/C • It is a contract between the applicant and the issuing bank • Documentary Credit Application form • Any discrepancies between the L/C and sales contract may lead to the amendment of the credit • Application for Amendment to Letter of credit

16. Types of a L/C • According to the Attachment of Commercial Docs • -- Clean Credit: Payment will be effected only against a draft • without any commercial docs attached • -- Documentary Credit: Payment will be made against title docs • either with a draft or not • According to the Revocability of a credit • -- Irrevocable Credit: it cannot be cancelled or modified without the • express consent from the issuing bank, the confirming bank and • beneficiary. It gives the beneficiary greater assurance of payment • -- Revocable Credit: it can be cancelled or modified at any moment • without the beneficiary’s consent or even without prior notice to the • beneficiary.It involves risks to the beneficiary

17. Types of a L/C • According to the adding of confirmation • -- Confirmed irrevocable credit: gives the beneficiary a double • assurance of payment. Used when the seller does not have • confidence that the issuing bank can effectively guarantee payment . • -- Silent confirmation: Based on a separate arrangement between the • beneficiary and the “confirming” bank. The bank will not be • considered the confirming bank by the issuing bank and acquiring no • right of claiming reimbursement from the issuing bank. • According to the Availability of payment • -- Irrevocable documentary sight payment credit • -- Irrevocable documentary deferred payment credit • -- Irrevocable documentary acceptance payment credit • -- Irrevocable documentary negotiation payment credit

18. Types of a L/C • According to the time of credit Availability • -- Sight or Demand credit. • -- Time or usance credit • Transferable L/C -- A credit under which the beneficiary (first beneficiary) may request the bank authorized to pay, incur a deferred payment undertaking, accept or negotiate (the “transferring bank”), or in the case of a freely negotiable credit, the bank specifically authorised in the credit as a transferring bank, to make the credit available in whole or in part to one or more other beneficiary (second beneficiary)

19. Types of a L/C • Back to Back L/C -- The beneficiary of an irrevocable credit (primary credit) may use the credit as security to open a separate credit (back-to-back credit /subsidiary credit) Buyer/Original applicant Real supplier New beneficiary Buyer/Original applicant Issuing bank Issuing bank Advising bank Advising bank Issuing bank Advising bank /transferring bank Manufacturer Real supplier Original beneficiary /new applicant First beneficiary

20. Preview • Compare the three main methods under international settlement? • Analysis the risks associated with exporters • And importer?

21. Thank You