Documentations and Forms

Documents Required

with Letters of CreditIN AS MUCH AS THE LETTER OF CREDIT IS A CONTRACTUAL

OBLIGATION AND SINCE THE EXPORTER (BENEFICIARY) MUST MEET

THE CONDITIONS SPECIFIED THEREIN, THE FOLLOWING DOCUMENTS

ARE NORMALLY REQUIRED TO ACCOMPANY LETTERS OF CREDIT.

Commercial Invoice

The commercial invoice describes the

merchandise, the identifying marks for

shipment, the unit price and the total

amount, and such other details.

Insurance Certificate

This is a certification by an insurance

company to the effect that the goods are

insured in accordance with the terms of

sale.

Consular Invoice

This is similar to the commercial invoice

except that it is issued by consular

establishments.

Forwarding Receipts

These receipts would indicate the position of the goods

for shipment. These may be composed of the bills of

lading as evidences that the merchandise is already in

the hands of the transporter for shipment. The bill of

lading may evidence shipment by mail, by air cargo, by

express or freight, and most often by ship. They may

also either be “on board” or “endorsed” bills of lading.

Export License

A license is issued when the exports

are restricted or by quotas.

Import License

This is similar to the export license,

except that it would indicate import

controls perhaps through a system of

priorities.

Exchange License

When there are restrictions in the

movement of foreign exchange, such

license would be necessary to

accompany the letter of credit.

Acceptance Credit

Acceptance Credit

Banker’s acceptances are also popular, if not more

desirable sometimes, than letters of credit. These are

also used for financing imports and exports. It might

do well to look into the differences between the two

types of credit.

Acceptance Credit

An acceptance is the annotating of a bank’s or a

merchant’s acquiescence to the performance of the

obligation usually the payment of a duly accepted

draft. When a bank, a trust company, or a person

authorized to do so accepts the obligation – it is

termed a banker’s acceptance; and when a merchant

does the same, it is termed as trade acceptance.

Acceptance Credit

Acceptances are used widely in trade transactions and

they represent a means by which the seller may

immediately obtain cash although he sells his goods

ion credit. The underlying principle is much the same

as the letter of credit, which is the substitution of the

bank’s credit. But, where the substitution is for the

buyer in the letter of credit, in an acceptance, the

credit substituted is that of the seller.

Acceptance Credit

Acceptance also strengthens the position of the holder

or a time draft because he is assured that the

acceptor will honor the same at maturity. Since the

time element is in effect advanced due to the

acceptance being negotiated prior to maturity, it

benefits the persons engaged in arbitrage and foreign

exchange.

Bank’s Position Before and After

Acceptance

In assuming the obligation to honor the drafts at

maturity, the banks add to the acceptability of the

draft or bill of exchange.

The most fundamental distinction between the

position of the bank as an issuer of a letter of credit

and the bank as an acceptor of a draft drawn under

the terms of a letter of credit is that the letter of credit

is not negotiated whereas the acceptance is fully

negotiable.

There might be some exceptions to permit the

negotiability of the letter of credit but in an

acceptance, it becomes not only implied but effective.

The letter of credit partakes of the nature of the

contractual relationship between the bank and the

person to whom it is directed. For this reason, there

might still be room for interpretation.

An acceptance, on the other hand, is a negotiable

instrument, which in the hands of a holder in due

course, is precisely in the same category as a

promissory note which has been negotiated. In such a

case, there seems to be no room for interpretation on

avoidance of the liability.

Creation of Acceptance Credit

As in all cases regarding credit transactions, the

Bangko Sentral has its own regulations as far as

the “power to accept” by the banks is concerned.

Such limitation is contained in the New Central

Bank Act.

Some of the most common sources of drafts for acceptance are as follows:

1. Importation and exportation of goods;

2. Domestic shipment of goods;

3. Drafts secured by documents conveying or securing titles to readily marketable staples; and

4. Drafts drawn by foreign banks or bankers for the purpose of furnishing dollar exchange. The draft, of course, is either “time date” or “time sight” bills.

The Trust Receipt

The Trust Receipt

One of the most important documents used in

connection with letter of credit financing is the trust

receipt. This is availed of when the buyer or importer

is momentarily out of cash and arranges to have the

goods released under trust receipt. There is, therefore,

created a fiduciary relationship.

The Trust Receipt

The title of the property is retained by the bank and

the buyer is allowed to dispose of the goods. However,

the buyer obligates himself to turn over the proceeds

of sale to the bank.

Upon full payment of the goods, the importer is

released from his liability under trust receipt.

BSP’s Current Policies

on Letter of CreditIN LINE WITH SECTION 8 OF THE BANGKO SENTRAL’S CIRCULAR

NO. 1389, AS AMENDED, SALE OF FOREIGN EXCHANGE FOR TRADE

TRANSACTIONS MUST BE SUPPORTED BY THE FOLLOWING

MINIMUM DOCUMENTARY REQUIREMENTS

1. Importation under Sight L/C (Reimbursing bank debits the account of the local banks on negotiable date):

a. copy of import L/C;

b. original transmittal letter of foreign negotiating bank to local bank covering the import documents;

c. telex from negotiating bank of cable negotiation done;

d. proof of debit to the local bank’s account abroad;

e. copy of original commercial invoice;

f. copy of original first bill of lading; and

g. copy of report to BSP on L/C opening and L/C negotiation

2. Importation under Sight L/C but with documentary discrepancies, which are sent on collection basis (local bank remits payment to the negotiating bank after obtaining the client’s conforme to the discrepancies.):

a. copy of the import L/C;

b. original transmittal letter of foreign negotiating bank to local bank covering the import documents;

c. copy of authenticated/tested message of outgoing remittance;

d. copy of original commercial invoice;

e. copy of original first bill of lading;

f. copy of report to BSP on L/C opening and L/C negotiation; and

g. proof of debit to the local bank’s account abroad

3. Importation under Usance L/C:

a. copy of import L/C;

b. original transmittal letter of foreign negotiating bank to local bank covering the import documents;

c. copy of the accepted draft;

d. copy of original commercial invoice;

e. copy of original first bill of lading;

f. copy of authenticated/tested message of outgoing remittance;

g. proof of debit to the local bank’s account abroad;

h. copy of report to BSP on L/C opening and L/C negotiation

4. Importations under OA/DA:

a. for DA – accepted draft;

b. copy of original commercial invoice;

c. copy of original first bill of lading;

d. copy of BSP registration of OA/DA;

e. original transmittal letter of foreign bank to local bank covering the import documents

for DA transactions;

f. copy of report to BSP on OA/DA transactions booked;

g. copy of authenticated/tested message of outgoing remittance; and

h. proof of debit to the local bank’s account abroad

5. Importations under DP:

a. original transmittal letter of foreign collecting bank to local bank covering the import documents;

b. copy of original commercial invoice;

c. copy of original first bill of lading;

d. copy of authenticated/tested message of outgoing remittance; and

e. proof of debit to the local bank’s account abroad

6. Importations under Direct Remittance (pre-payments not allowed):

a. copy of original commercial invoice;

b. copy of original first bill of lading (foreign exchange sale should not be beyond 15 calendar days from BL date);

c. copy of authenticated/tested message of outgoing remittance; and

d. proof of debit to the local bank’s account abroad

Remittance of payment to the beneficiary should be

made immediately after sale of foreign exchange.

The bank must indicate the amount of foreign

exchange sold below the phrase “FX SOLD” which

should be stamped on the face of all original copies of

the negotiable bill of lading and duly signed by the

bank’s authorized signatory.

In addition, importer-client and bank must accomplish

and submit notarized certifications, in the attached

format, signed by the importer-client’s responsible

officer and the bank’s officer with the rank of at least

vice-president, respectively.

Where the importer buys foreign exchange as

payment for importations made through another

(opening/booking) bank, the importer-client must

submit to its foreign exchange selling bank(s) a

notarized application to purchase foreign exchange

together with the requirements provided under

Circular Letter dated 31 March 1998.