Bank of America Solutions for Importers OF Bank of aMERICA America MERRILL merrill YNCHLlynchSOLUTION Solution FOR SS for IMPORTER exporterS S 11 Bank of America Solutions for Importers

Bank of america merrill lynch SolutionS for importerS 11B a n k o f a m e ri c a m e rri l l ly n c h S o l u t i o n S f o r e x p o r t e rS

Bank of America Solutions for ImportersAn Importer’s Guide to Global Trade Services

2Bank of america merrill lynch SolutionS for importerS

An Importer’s Guide to Global Trade Services

2 Introduction to Global Trade Services2 Overview of Trade Services

3 Understanding Your Payment Options

5 Trade Solutions

9 Risks

15 Working With Your Bank16 Services to meet the diverse needs of the importer

22 Import LCs Defined27 Frequently Asked Questions

29 Parties and Roles in Commercial LC Transactions

30 Mitigating the Risk of Fraud in the Trade Arena

31 AML Policies and Office of Foreign Assets Control (OFAC) Compliance at Bank of America Merrill Lynch

33 20 Most Important Characteristics of an Import LC

34 Understand and Control Your Import LCs

35 Opening a Commercial LC

42 Understanding the commercial LC application

45 A Discussion of UCP 600

55 S.W.I.F.T. Samples and Comments on Specific Fields

57 Comments on Specific Fields in Preceding Sample

62 Purchase Order-to-Pay Service

66 A Closer Look at Letter of Credit Documents66 What are some of the typical documents required in an LC?

78 Frequently Asked Questions

79 A Discussion of ISBP for the Examination of Documents under Documentary Credits

81 Documentary Collection for Importers84 Cash Flow

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Table of Contents

3Bank of america merrill lynch SolutionS for importerS

The material presented in this guide is for informational purposes only, and is not intended as an exhaustive treatise on international banking, nor is it intended to explore all the possible risks involved in using import letters of credit or other services mentioned.

Table of Contents

88 Bankers’ Acceptances Under Import LCs 91 Bankers’ Acceptance Cash Flow

93 Obtaining Your Merchandise

95 Incoterms—International Shipping/Trade Terms

100 Standby LCs and Special Purpose LCs 100 Standby LCs

103 Special Purpose LCs

106 International Cash Management and Foreign Exchange Services106 International Treasury Management Services

109 Foreign Exchange Services

110 CashPro FX

111 Seminars and Workshops

112 Accounting Considerations

114 International Trade Glossary120 Table of Weights and Measures

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Bank of america merrill lynch SolutionS for importerS

Chapter 01Introduction to Global Trade Services

Bank of america merrill lynch SolutionS for importerS 2

Overview of Trade ServicesWhat do we mean by trade services? Trade is a broad term covering a variety of transactions linked to the export and import of goods. Traditional trade

services include letters of credit (LCs), international collections and bankers’ acceptances.

What is the history of trade? The economic history of man has led us from self-sufficiency to division of labor, from provision of bare necessities

to satisfaction of sophisticated needs. The primitive caveman attended only to his own needs, but civilization soon

progressed to a stage in which each individual specialized in what he could do best and exchanged his surplus output

for that of his neighbor. This was the beginning of trade.

When small city-states developed into nations, the need for trade increased. No nation could supply all of its needs

with its own resources. Consequently, these small city-states had to begin trading with one another. What may

have started as barter led to the development of currency, silver and gold coins, and eventually to paper notes and

negotiable instruments such as LCs.

As far back as the fifteenth century B.C., Phoenician traders carried LCs to foreign ports in the form of clay tablets,

stamped with the seals of prominent merchants. During the Middle Ages, LCs were written on sheepskins and used

extensively by traders such as Marco Polo.

Today business is conducted not only domestically but also abroad. As the search for new markets and lower cost

labor has led to international commerce, so it has led to finding alternative ways to do financial business overseas.

The buyers and sellers in international trade are confronted with diverse geographic, social, economic and political

conditions. The dynamic interplay of these forces requires the trading partners to assess the risks of the transaction

and to decide how the risks may be reduced or eliminated.

What is the primary role of a bank in international trade? The primary role of a bank is to provide risk reduction alternatives to both the buyer and the seller. This booklet will

attempt to examine the many facets of international trade from an importer’s, or buyer’s, point of view.

What happens in a trade transaction? A seller approaches or is approached by a potential buyer. Trade transactions begin with the negotiation of a contract

between a buyer and a seller and end with the exchange of goods or services for monetary payment.

Why do you need Bank of America Merrill Lynch Global Trade Services? As noted above, trade can be domestic or international. Clients utilize Bank of America Merrill Lynch Global Trade

Services specifically to overcome the risks of doing business abroad, where the cultures, regulations and payment

conventions may differ significantly from those in the United States. In the United States, you could potentially perform

your own analysis on your potential sellers and, with a sense of security, close a deal. In this case, your bank would

get involved only in the collection and/or disbursement of funds. Overseas, you need greater protection when dealing

with sellers who are less well known and where you could potentially have limited legal ability to collect for any loss

Chapter 01

Introduction to Global Trade Services


Chapter 01


suffered. Hence, a bank provides upfront financial protection in the form of LCs, as well as offers guidance and

support in the use of other forms of payment.

Bank of America Merrill Lynch works to provide value-added world-class business services. We provide a consultative

approach to trade services in which our clients draw from the solid base of experience and expertise of a dedicated

staff eager to propose new ideas. .

Understanding Your Payment OptionsHow will you pay for your shipment?Nations, companies and individuals have engaged in trade for centuries and, from the beginning, have searched for

the best means of securing payment. Today, an importer has four basic alternatives for providing payment to sellers of

imported goods. Each method addresses certain levels of risk for the buyer and the seller.

Open Account:� The seller ships the goods in advance of payment or according to the negotiated terms. In this

instance, the seller relies on the buyer’s good faith that the payment will be made after he has received the goods.

Traditionally, if open account or cash in advance are agreed upon as the payment method, documentation covering the

shipment of merchandise is handled outside of banking channels. The banking system at one time was only involved in

the remittance of funds.

Banks are now involved in the facilitation of open account payments, using varying degrees of conditional checking

of original purchase orders against invoices. Bank of America Merrill Lynch offers a Purchase Order-to-Pay service,

with three levels of data matching. Please see Chapter 4 of this guide for details. If payment is to be made using a

collection or LC, a bank normally adds its service and documentary expertise on behalf of either the buyer, the seller

or both. In all cases, the actual movement of funds is done via one of our traditional cash management products such

as direct debit or credit to an account, wire transfer or check.

Collection:� There are two types of Collections: clean and documentary.

•Clean:� A clean collection refers to the absence of supporting documentation. A check or a draft is presented for

payment under a clean collection.

– Check:� Payment by check is typical for domestic open account transactions, but less appropriate for

international transactions. In an international transaction, overseas sellers must give checks to their banks for

collection and conversion to their home currency, a process that can take three to six weeks. A more satisfactory

method therefore is the wire transfer; buyers instruct their banks to arrange for the seller’s bank account to be

credited directly.

– Draft:� A draft is an instrument much like an ordinary check in appearance which, in this circumstance, is used as

a formal demand for payment. It is also known as a bill of exchange.

•Documentary:� A documentary collection provides a buyer and seller with a measure of protection whereby a

bank intermediates to exchange payment for documents of title to the goods. The collecting bank releases the

documents, which normally allows the buyer to take delivery of the goods. The bank then either wires the buyer’s

payment to the remitting/seller’s bank for credit to the seller’s account or creates an acceptance (please refer

to Chapter 7 for an explanation of acceptances) covering the transaction. There are two forms of documentary

collections: regular and direct.

– Regular:� After making a shipment, sellers present the shipping documents to their banks, who in turn send them

to the buyers’ banks for payment or acceptance.


Chapter 01


– Direct:� The sellers/exporters deliver the documents with a collection letter to the foreign collecting banks

themselves and send copies of the collection letter to their banks for follow-up (tracing and payment

settlement). The collection letter or form is provided to the seller by the seller’s bank and bears the seller’s

bank letterhead and the collection reference number.

LC:� This is a trade finance instrument issued by a buyer’s bank in favor of a beneficiary/ seller, which substitutes

the bank’s credit-worthiness for that of the buyer. In a narrow sense, it is a specialized instrument used to guarantee

payment for a shipment of goods or services from one party to another. An LC is payable against conforming

documents.

Cash in Advance:� The buyer pays in advance of shipment of goods or according to the terms, such as cash on

delivery. As an importer, you most likely will not agree to this option, as you will be out the cash before receipt of the

goods.

What types of agreements are made between the buyer and the seller?The sales contract is an agreement between the buyer and the seller in which the various terms, conditions and

details of the transaction are specified. Given the complexities of international trade, it is important that the sales

contract state, in terms clear to all parties, the requirements involved in the transaction.

In the simplest form, the sales contract is an accepted order to buy or offer to sell that arises from correspondence

between the buyer and seller. The agreement may be made verbally or in writing. The buyer may initiate the

correspondence by inquiring as to the price and terms of sale for specific merchandise or by simply placing an order

for the merchandise when the price and terms have previously been established.

The sales contract has four main components:

•Description of the goods

•Price

•Method of payment

• Timing of delivery

Although contracts can be verbal, it is highly recommended that they be formalized in writing in all situations. The

sales contract should clearly specify the documents required for any international transaction. The LC must specify

the documents required for payment under the LC. The seller is responsible for the production and/or procurement of

all documents. Documents required under LCs will be more thoroughly discussed in Chapter 5.

A purchase order is a common vehicle that the buyer uses to place an order for merchandise or services when the

price and terms have previously been established. Unlike a sales contract, it should always be submitted by the

importer or buyer. A purchase order should itemize in precise detail the description of the goods, quantity ordered

with unit description and delivery instructions for each item.

If a purchase order is referred to within the merchandise description of an LC, this can help make the seller

responsible for providing merchandise according to the submitted purchase order. The seller can also be required

to state that merchandise is in accordance with the buyer’s purchase order when submitting documents, thereby

making the seller responsible for the fulfillment of the purchase order. A purchase order can also be used without

an LC for an open account payment. As you will see in Chapter 4 of this guide, Bank of America Merrill Lynch now

provides an electronic solution for importers who wish to utilize open account payments but want the assurance of

“conditions matching” against their purchase order prior to payment.


Chapter 01


How does Bank of America Merrill Lynch support its Global Trade Services clients? Bank of America Merrill Lynch is able to act on many fronts for our clients.

•We act as financial service consultants.

•We provide import and export financial services to our clients.

•We act on clients’ behalf both domestically and overseas via our global branch network.

•We provide various credit services to support clients’ import/export needs.

•We provide economic analyses and forecasts about various countries around the world.

•We listen to our clients’ needs for new technology that will keep them competitive in the world marketplace, and

then we put our experts to work on solutions that meet their needs.

Trade Solutions What international trade services are available with Bank of America Merrill Lynch? As a truly global organization, Bank of America Merrill Lynch is uniquely positioned with trade services and expertise to

serve clients’ needs in markets worldwide to help them seize international opportunities wherever they arise.

Our services range from trade services and lending to liquidity management, payment services, structured trade

finance and foreign exchange services. We deliver what clients’ organizations need to succeed in international

business by offering innovative, tailored solutions, a wealth of trade expertise, the latest in technology and a network

of offices around the world.

With more than 1,000 trade specialists in over 50 offices worldwide and an extensive international correspondent

bank network, we can provide the global reach and regional expertise to help you accomplish your trade goals.

Bank of America Merrill Lynch finances international trade through bankers’ acceptances as well as several types of

LCs. We also offer various open account, collections and reimbursement services.

Open account services As you’ll learn in Chapter 4 of this guide, Bank of America Merrill Lynch and other international banks have been

involved in open account services for years, but at Bank of America Merrill Lynch we’ve recently added an electronic

engine to the process on our TradePro® platform, providing initiation and reporting on open account payments as well.

Additionally, Bank of America Merrill Lynch specialists route international payments as quickly as possible to their

final destination, often by simply crediting one of the many accounts our correspondents keep with us. When you need

documentation sent with your payment, or your supplier prefers checks, our foreign draft service allows you to draw a

check on a local bank in multiple currencies. Our foreign exchange services provide comprehensive foreign currency

payment services, and the ability to purchase competitively-priced spot and forward contracts for payments on import

transactions. Please refer to Chapter 11 of this guide for more information on foreign exchange and international cash

management services offered by Bank of America Merrill Lynch.

Bankers’ acceptances A bankers’ acceptance is a negotiable instrument that is drawn on, and accepted by, a bank to finance a trade-related

transaction. It is often a relatively inexpensive way to finance trade transactions.

Bankers’ acceptances are versatile and can be used for several purposes: acceptances can cover both documentary

LCs (Documentary BAs) and open account transactions (Clean BAs). They can finance imports, exports, and domestic

transactions.

Acceptances offer a source of funds at competitive rates since banks are not required to provide reserves for financing

such transactions. Acceptances are very liquid—they can readily be sold in secondary markets.


Chapter 01


•Non-Discounted Bankers’ Acceptances:� Bank of America Merrill Lynch either creates and accepts or accepts

a time draft drawn on us that relates to a specific financial transaction in which our client is involved. We are

obligated to pay the specified amount on the maturity date of the draft. Our obligation for payment to any holder of

the draft at maturity date is unconditional, independent of the underlying financial transaction.

•Discounted Bankers’ Acceptances:� Bank of America Merrill Lynch creates or accepts, and discounts, a time draft

drawn on us that relates to a specific financial transaction in which our client is involved. The drawer is paid at the

time of acceptance of the draft, less fees and discount charges. The discount rate applied is based on the market

rate that investors in the secondary market are paying for drafts of various tenors and amounts; this rate fluctuates

daily. In recent years the cost of financing on an acceptance basis has generally been lower than prime-rate-based

lending.

LCsAn LC is an instrument issued by a bank by which the bank substitutes its obligation to pay the seller for the obligation

of the buyer, on specified terms. LCs have many variations.

•Standby LCs:� “Standby LC” is a term used for the type of LC that functions like a guarantee. Standby LCs usually

provide a type of monetary assurance to compensate a beneficiary in the event of noncompliance by the applicant

with the terms of a contract. They are often used instead of cash deposits or as performance or bid bonds in

international and domestic transactions. Like other LCs, standby LCs provide a bank’s name and credit support for

a specific transaction. In a standby LC, the beneficiary looks first to the account party for payment before seeking

payment from the bank. Standby LCs can cover either financial, performance or trade-related transactions.

•Financial standby LCs:� We issue a standby LC for our client or add our confirmation to a standby LC issued by

a correspondent bank. Financial obligations involve repayment of funds borrowed or advanced in the event the

applicant fails to do so. In effect, we substitute our own credit standing for that of our client (or our correspondent

bank) and provide additional assurance that payment will be made in the event of default.

•Performance standby LCs In this type of obligation, we provide assurances of compensatory payment to the

beneficiary in the event that the applicant does not perform the contractual agreement the applicant has entered

into with the beneficiary. We add our credit standing to that of our client (or our correspondent bank) and provide

additional assurance that payment will be made in the event of default under bid bonds or performance bonds.

•Commercial LCs:� Commercial LCs involve payment in exchange for compliant documents required under an

LC, relative to goods shipped or services performed. The beneficiary obtains payment from the issuing bank or

confirming bank (if any). Import and export LCs are types of commercial LCs.

• Import LCs:� We issue a new documentary LC for our client. By doing so, we substitute our own credit standing for

that of the buyer and provide additional assurance that payment will be made to the seller if terms and conditions

of the LC have been fulfilled.

•Export LCs:� Export LCs, when properly executed, may help protect an exporter’s (beneficiary’s) interests against

the risk of losing title to the goods until they are paid. Bank of America Merrill Lynch assists with the structuring of

LCs, arranges for their confirmation and identifies discrepancies in documents that may delay payment.

•Confirmed export LCs:� Another bank, usually one of our correspondents, issues its own LC and asks us to

authenticate it, add our confirmation to it and advise it to the beneficiary. When we confirm another bank’s LC, we

add our credit standing to that of the issuing bank and guarantee that payment will be made to the seller if terms

and conditions of the LC have been fulfilled.

•Unconfirmed Export LCs:� A bank, usually the applicant’s bank in the country of the applicant of the LC, issues its

own LC and asks us to authenticate it and advise it to the beneficiary without adding our own confirmation.


Chapter 01


Deferred Payments• Import LC deferred payments:� Deferred payments are created under import LCs that we issue for the applicant, our

client. We are obligated to make payment on the designated maturity date. As no draft, or negotiable instrument,

exists under a deferred payment LC, the beneficiary cannot obtain payment prior to the maturity date. There is no

draft to discount. See this guide’s section on page 88 for more information about drafts.

•Confirmed export deferred payments:� Payments under LCs issued by correspondent banks are postponed

(after presentation of documents) for periods of time as stipulated in the LC. If we add our confirmation to the

correspondent bank’s LC, we are obligated to make payment on the designated maturity date whether or not the

funds have been made available to us by the issuing bank. The advantage of a negotiable instrument in the form of

a draft does not exist and, therefore, the beneficiary cannot obtain payment prior to the maturing date, as there is

no draft to discount. See this guide’s section on page 88 for more information about drafts.

•Unconfirmed export deferred payments:� As in the case of unconfirmed LCs, we will pay only when and if funds have

been made available to us by the issuing bank. The advantage of a negotiable instrument in the form of a draft

does not exist and, therefore, the beneficiary cannot obtain payment prior to the maturing date, as there is no draft

to discount. See this guide’s chapter on page 88 for more information about drafts.

Reimbursements•Unconfirmed reimbursements:� An issuing bank authorizes Bank of America Merrill Lynch to debit its account and

to pay claims made by paying, accepting or negotiating banks. We will make such payments only if the issuing bank

has sufficient funds on deposit with us to cover the claim.

•Confirmed reimbursements:� An issuing bank asks Bank of America Merrill Lynch to confirm its obligations under an

LC it has issued and authorizes us to debit its account and to pay claims made by paying, accepting or negotiating

banks. By adding our confirmation, we add our bank’s creditworthiness to that of the issuing/authorizing bank and

are obligated to make payment whether or not the issuing/authorizing bank has sufficient funds on deposit with us

to cover the claim.

Air release Bank of America Merrill Lynch issues our indemnity on behalf of and for the account of our client in favor of an airline

for the purpose of authorizing the carrier to release a shipment of goods when the air waybill has been consigned

to the bank. In return for our issuing the indemnification on our client’s behalf, our client must provide us with an

indemnity in our favor. This arrangement pertains to import LCs and incoming collections.

Shipside bonds/steamship guarantees Bank of America Merrill Lynch issues our indemnity on behalf of and for the account of our client in favor of an ocean

carrier for the purpose of authorizing the carrier to release a shipment of goods without the normally required shipping

documents. In return for our issuing the indemnification on our client’s behalf, our client must provide us with an

indemnity in our favor. This arrangement also pertains to import LCs.


Chapter 01


Collections • Incoming clean domestic collections:� Bank of America Merrill Lynch receives a clean collection from a domestic

bank. We will serve as collecting bank and communicate with the drawee, usually our client, to facilitate payment

to the remitting bank.

• Incoming clean international collections:� Bank of America Merrill Lynch receives a clean collection from a foreign

bank. We will serve as collecting bank and communicate with drawee, usually our client, to facilitate payment to

the remitting bank.

•Outgoing clean domestic collections:� Bank of America Merrill Lynch opens/sends a request for payment to a

domestic collecting bank at the request of our client. When paid by the collecting bank, we will remit funds to the

drawer (our client).

•Outgoing clean international collections:� Bank of America Merrill Lynch opens/sends a request for payment to a

foreign collecting bank at the request of our client. When payment is received from collecting bank, we will remit

funds to the drawer (our client).

•Oncoming documentary collections:� Bank of America Merrill Lynch receives a documentary collection from

another bank. We will serve as the collecting bank and communicate with the drawee, usually our client, to

facilitate payment to the remitting bank.

•Outgoing documentary collections:� Bank of America Merrill Lynch opens/sends a request for payment of

documents to a collecting bank at the request of our client. When paid by the collecting bank we will remit funds

to the drawer (our client).

•Export bills collections:� Bank of America Merrill Lynch creates a collection instrument for tracking and receiving

funds due a correspondent bank in exchange for documents sent to a third bank. Delivery of documents may be

an integral part of the service.

Trade acceptances A trade acceptance is a time draft that is accepted for payment by a party other than a bank—usually the buyer. This

could apply to any of the types of collections, as defined above.


Chapter 01


RisksTrade involves buyers and sellers seeking to exchange goods or services despite their differences in language,

national custom, credit procedures and accounting practices. Merchants have always had, and continue to seek, ways

of minimizing the risk of non shipment and/or risk of nonpayment. Following is a chart comparing the payment terms.

Table 1.1:� Comparison of payment terms with relative risk*

Method of PaymentGoods Available to Buyer

Timing of Payment to Seller Risk to Buyer Risk to Seller

Sight LC Upon settlement of LC unless goods consigned direct to buyer

When documents have been presented and found to comply with LC terms (normally after shipment)

Has assurance of shipment but relies on seller to ship goods as described in the documents

Very little or none based on conditions in the LC and provided no discrepancies between documents and LC

Time (Usage) LC Upon the bank releasing documents of title, unless goods consigned direct to buyer

Upon maturity of payment terms, or upon discounting of a bankers’ acceptance

Actual payment (regardless of product quality) is due after possession of goods

Very little or none, based on conditions in the LC and provided no discrepancies between documents and LC

Sight Draft for Collection DP1

After payment unless goods consigned direct to buyer

Upon presentation of draft and documents to buyer

Has assurance of shipment but relies on seller to ship goods as described in the documents

Possible nonpayment by buyer

Time Draft for Collection DP2

Upon acceptance of time draft, unless goods consigned direct to buyer

Upon maturity of time draft trade acceptance

Buyer undertook obligation to pay when accepted time draft; relies upon seller to ship goods as described

Possible nonpayment by buyer at maturity of trade acceptance (buyer has possession of the goods)

Open Account Upon delivery Upon payment of invoice None Full reliance on buyer to pay invoice as agreed

* None of these payment methods protect against fraud. This chart is provided for information and illustration only. It does not purport to encompass all of the possible risks to a buyer or seller involved in any given trade transaction.

1 DP1 Also known as Documents Against Payment or Cash Against Documents (CAD).2 DP2 Also known as Documents Against Acceptance, Time Draft, and Trade Acceptance.


Chapter 01


What are some of the decision factors used in determining payment terms? When do the goods pass from the seller to the buyer and when does payment occur? Can you, as a buyer, trust the

seller to deliver promptly with the correct goods if you have already paid for the merchandise (cash in advance terms)?

Are you willing to pay promptly if goods are shipped first (open account terms)? The answer to these questions will

depend on how well the parties know each other. This knowledge can be gained through experience or research.

Alternatively, intermediaries can be used to mitigate the risks; this has been the traditional role of banks.

The choice of method of payment (means by which the buyer will pay the seller) takes into account several factors:

•Physical location of buyer and seller

•Extent of competition from other sellers

• Level of personal knowledge or prior experience between the buyer and seller

•Availability of other buyers

•Accounting, payment and regulatory restrictions between countries

•Reputation of buyer and seller

•Creditworthiness of buyer and seller

•Customary practices in the individual country or industry

•Dollar amount of transaction

•Urgency to receive payment

What are the risks associated with making the payment? The importation of goods from foreign markets involves greater risks for you as an importer than those associated with

domestic trade. While in domestic trade, you may be willing to pay “cash in advance” due to good credit information,

reliable bank checks, easy communication and an understandable legal system. You will often require greater

protection in international trade.

The documentary collection and the LC are two such alternatives to open account and cash-in-advance methods

of payment. Both of these alternative methods of payment protect the buyer and the seller from losses in varying

degrees and offer both the buyer and the seller varying degrees of convenience in making payments. In general, the

greater the protection for the buyer, the less convenient and the more costly the payment terms are for the seller.

One of the most important determinants of the payment method to be utilized in any particular transaction is the level

of risk in the transaction. You, as buyer, must always weigh the risks and the amount of protection desired against

being noncompetitive within your market. During the negotiation process, both sides must:

•Analyze the major risks they encounter in international trade transactions

•Review alternative payment methods, the levels of protection and the types of financing provided with each one

•Understand the various factors that must be considered in the formulation of a sales contract

•Understand international credit policy as related to the transaction


Chapter 01


What overriding risks are always factors to consider? •Commercial risk

As a buyer, you are primarily concerned with whether sellers can and will ship the goods. You need to determine

if sellers have the ability to produce or obtain the goods, as well as whether they will ship the products in a timely

fashion. Not only do you need to know if they will ship, you are also vitally interested in knowing if the goods will be

of the quality and quantity ordered and expected. To help mitigate commercial risk, you can investigate your sellers’

trade references from other buyers (whose names you have requested from the supplier) and/or through local

World Trade Centers or Chambers of Commerce.

•Political and economic risk

You should also familiarize yourself with information concerning the economic and political stability of the country

in which you’re doing business. This information should also include current and future trends of the country’s

economy, political situation and the possibility of the implementation of exchange controls. Bank of America

Merrill Lynch economists follow the economic and political situations in most countries very closely and can be

an excellent source for this type of information. Other sources are foreign country consulate offices and various

publications produced by Dun and Bradstreet International, the U.S. Department of Commerce International Trade

Administration, Moody’s, local Chambers of Commerce or World Trade Centers.

Economic and political risks you might want to be aware of are: cancellation of export licenses due to currency freezes,

hostile laws and court systems, civil war, boycotts and sanctions, confiscation of merchandise, currency devaluation,

liquidity problems and implementation of exchange controls.

Risks associated with various trade payments? Cash in advance is the riskiest to the buyer. Open Account is riskiest to the seller. You must weigh the pros and cons

of using the various payment methods against the risks. The chart below should help to visualize the risks.

Payment Method Risk

Open Account

Documentary Collection

Letter of Credit

Cash in Advance

Risk to Seller Risk to Buyer

RISkIEST

RISkIEST


Chapter 01


How do you determine the appropriate payment option?In addition to the very important payment and shipment risks, the following chart gives some guidelines on

determining which payment options may be appropriate for a particular trade transaction. Please note that the

key determinants are: relationship, type of goods (stock or custom), political and economic environments, and the

importance of timely cash flow and delivery.

Table 1.2:� Payment Options

Cash in Advance LC Documentary Collections Open Account

Relationship New New Established Established

Type of Goods Custom made Custom made Stock items Stock items

Political Unstable Unstable Stable Stable

Economic Unstable Unstable Stable Stable

Timing of Cash Flow and Delivery

Yes Yes No No

What are the advantages of LCs to the buyer (importer)? Buyers can benefit in the following ways:

•Buyers usually do not have to tie up working capital prior to actual shipment of merchandise.

• LCs allow for flexibility in documentary requirements.

•Buyers are provided additional assurance that their bank will pay the seller only when the seller’s documents are in

strict compliance with the terms and conditions of the LC.

• LCs offer the opportunity to receive extended payment terms from the seller, by arranging for an LC that is payable

at a future date.

• LCs provide the ability to delay payment until documents are received.

• This type of payment mechanism enhances the buyer’s ability to plan sales and distribution because latest

shipping date is known.

•Barring supplier fraud, payment is limited to what was ordered.

•Bank of America Merrill Lynch can issue LCs denominated in foreign currency, which enables the buyer to comply

with seller’s request for payment in foreign currency.


Chapter 01


What are the risks of LCs to the buyer? LCs deal only in documents, not in goods. The major risk may be that the merchandise may not be as it is represented

in the documentation.

What are the advantages of LCs to the seller (exporter)? Sellers can benefit in the following ways:

•Minimized credit risk by shifting risk from the buyer to the buyer’s bank

•Reduced commercial/political risk by shifting it from the buyer to the buyer’s bank

•Assurance of prompt payment by reducing the risk that payment for the goods might be delayed or otherwise

jeopardized by political or foreign exchange problems in the buyer’s country

• Improved ability to obtain bank financing in certain markets

What are the risks to the seller? The seller’s documentation must be in strict compliance with the terms and conditions of the LC to help ensure

payment.

What about the risk of fraud? Since the beginning of time, buyers with specific needs have been approached by sellers who claim to be able to fulfill

those needs, but have no intention of doing so.

As markets in certain countries tighten and economies in these countries suffer, fraudulent schemes will be

increasing. These schemes will proliferate particularly in countries with few or no exchange controls, weak legal

systems and an inability to use their resources in the global mainstream. Please refer to pages 30–32 of this guide

for information about Bank of America Merrill Lynch’s procedures and policies that attempt to prevent fraud, money

laundering and other illegal activities. .


Chapter 02Working with Your Bank


As an importer, you know that sourcing products globally can lower costs, broaden product lines and diversify sources

of supply. You also know the challenge of getting the right product to the right place at the right time. Different time

zones, languages and business practices can hinder communication. Lengthy shipping times and customs clearances

can complicate inventory management. And the payment terms demanded by overseas suppliers can tie up your credit

and slow down the flow of documents needed to clear merchandise through customs. You need specialized banking

services to help overcome these obstacles. You need a bank with seasoned experts in international trade and a family

of specialized banking services tailored to the unique needs of the importer.

You need Bank of America Merrill Lynch Import Services Bank of America Merrill Lynch Import Services offers you a comprehensive array of services; services that can help

you receive products quicker, reduce the amount of credit you have to tie up, and ease your administrative burdens.

Our network of correspondent banks is extensive, allowing us to work directly with your supplier’s banks. With this

worldwide network of correspondent banks, Bank of America Merrill Lynch can help you access almost any market.

Payment options to meet your needs Bank of America Merrill Lynch stands ready to assist you with a full range of payment options. Our international trade

specialists can assist you in selecting the option that best fits the needs of both you and your vendors. Whether you

are buying on open account, with cash against documents or on an LC basis, we have the resources and the expertise

you need. And we deliver our services in almost any currency you might choose. Our specialists are dedicated to

handling your transactions as efficiently and as smoothly as possible.

Accessible expertise Bank of America Merrill Lynch has more than 1,000 experienced international trade specialists dedicated solely to the

management and growth of our clients’ international business. Strategically located from coast to coast in the United

States and in various foreign locations, we travel extensively to keep in touch with clients. Our expertise in structuring

import transactions offers you the kind of knowledge and experience you need.

Chapter 02

Working With Your Bank


Chapter 02


Innovative services developed as needs change Bank of America Merrill Lynch has developed a forward-looking suite of electronic banking services, allowing importers

to initiate transactions and receive reports via the internet with the use of TradePro. By fully integrating electronic

applications into our global issuance system, we can issue your LCs faster and more accurately. Take advantage of the

trade module, Trade Pro, to:

• Increase processing efficiency and decrease processing errors

•Easily share trade data critical to business partners both within other areas of your organization and with outside

partners such as freight forwarders and customs brokers

•Have better and faster access to your global trade activity and information

•Enjoy round-the-clock access to your trade information no matter where you’re located.

As a premier provider of cash management services, Bank of America Merrill Lynch has developed innovative sweep

accounts and automatic investment services to keep your money working longer for you.

An extensive network Our correspondent bank network is able to handle almost any import transaction efficiently. Over the past thirty years

we have carefully developed and cultivated an extensive network of correspondents worldwide. Our network allows us

to deal directly with your vendors’ banks, saving you time and money. Our in-depth knowledge of overseas markets and

business practices can be invaluable to importers seeking to structure unusual transactions.

Services to meet the diverse needs of the importer Open account Lowering fees and streamlining financial supply chain processes are a top priority for most buyers. At the same time,

ensuring vendors have financing options similar to those associated with traditional LCs is an important consideration.

Bank of America Merrill Lynch is committed to developing solutions to assist buyers in optimizing and integrating

their supply chains. Our open account payment solutions help clients re-engineer their trading processes and unlock

substantial amounts of working capital for their company and their trading partners.

Bank of America Merrill Lynch has enhanced its web-based trade activity management system to handle purchase

order advising, tracking and reconciliation for LC and open account payments. Our goal is to integrate LCs,

documentary collections and open account trade payments seamlessly into each customer’s preferred electronic

delivery channel. A complete description of this service is provided in Chapter 4 of this guide.

Documentary collections Many clients find that suppliers who initially ask for cash in advance or an LC may be willing to sell on a documentary

collection basis. Commonly referred to as “cash against documents” or as “sight draft” terms, this payment

mechanism allows foreign vendors to instruct Bank of America Merrill Lynch to retain control of the shipping

documents until payment is made or their draft is accepted. By routing Documentary Collections through Bank of

America Merrill Lynch, vendors have reasonable assurance that a world-class bank is following their instructions. Our

clients benefit by not having to prepay for the product or tie up their credit.

LCs LCs continue to be one of the most common payment options used in international trade, especially for imports from

Asia and Latin America. Bank of America Merrill Lynch has international trade specialists to help you structure your

LCs and a correspondent bank network that can get the LC to your supplier as quickly as possible.

As one of the largest issuers of LCs in the world, Bank of America Merrill Lynch has invested in electronic application

systems that free our clients from retyping any of the standard clauses in their LCs. Using a standard web browser,


Chapter 02


you supply only the details specific to the particular transaction and send the application to us via the internet. Your

web-based electronic applications are fully integrated into our issuance system for truly superior response time

and accuracy. This same system gives you activity and status reports, available on your personal computer at your

convenience.

LCs are primarily oriented toward protecting the interests of beneficiaries. No LC can protect the buyer against fraud.

Protection in any import transaction is contingent upon the performance of the exporter, and there is no substitute

for knowing the reputation of your supplier. However, Bank of America Merrill Lynch’s international trade specialists

can help structure your credits to better protect your interests. When appropriate, performance bonds, inspection

certificates, insurance policies and more specific shipping schedules can be incorporated into your credits, giving you

additional control over the transaction. Our specialists can explain to you when a standby LC might be an appropriate

way to assure payment to a vendor. Whenever you need help in structuring your LCs, you can rely on Bank of America

Merrill Lynch.

Easy L/C® When you’re involved in global trade, the need for LCs isn’t limited by the size of your company. Smaller companies

often have modest credit needs and straightforward shipping arrangements, but they shouldn’t have to navigate the

same complex and time-consuming application, underwriting, and approval processes as larger companies seeking

LCs with more complicated requirements and higher dollar values.

If your import credit needs do not exceed $100,000.00 and you have an account with Bank of America Merrill Lynch,

Easy L/C offers a simplified application form and streamlined approval process, which reduces turnaround time and

can save you money with a low front-end fee.

The application is short and simple to complete. We can even send it to you in electronic format to get your application

off to the fastest start possible. Your LC is generally approved and issued within 24 hours.

Bank of America Merrill Lynch doesn’t require a secured deposit as collateral for your Easy L/C. It’s prepaid from the

cash in your company’s existing Bank of America Merrill Lynch account.

Cash secured LCs Cash secured LCs are secured by funds that you have in an appropriate Bank of America Merrill Lynch deposit account

for the balance and term of the LC. Cash secured transactions are subject to credit approval; collateral advances can

be made on balances on hand, subject to financial information verification.

Bankers’ acceptance financing Whether you buy on open account with documentary collections or through LCs, Bank of America Merrill Lynch can

finance your imports with bankers’ acceptances. These short-term, fixed-rate instruments can significantly lower your

financing costs. As part of LC transactions, bankers’ acceptances can give you extended terms, allowing your vendors

to maintain their cash flow by discounting the instrument at what is normally a very favorable rate. Your vendor can pay

some or all of the financing costs. Borrowing procedures and documentation are simple and straightforward.

Private labeling of LCs Bank of America Merrill Lynch provides private labeling of LCs to qualifying clients. Your company becomes the issuer

of LCs using an existing subsidiary suitable for the purpose or a new “Special Purpose Vehicle” company. Bank of

America Merrill Lynch provides the same level of operational support for these LCs as provided when we are the issuer

of the LCs.

Private labeling would allow you to significantly reduce your reliance on bank credit, lower LC charges, improve service

to your vendors and improve the efficiency of the process through the intelligent use of technology. Our solutions

are designed to give you the choice of how you want to structure the processing of private-labeled LCs, and how you


Chapter 02


would like to structure the financial side of these transactions as well. Additionally, because of our comprehensive and

aggressive vendor financing program in Asia, our local trade officers can meet with your vendors, help them prepare

for your private-labeled LCs, and discuss their financing needs if appropriate.

Soft restriction program Our soft restriction program is designed so that Bank of America Merrill Lynch is involved on both the import and

export side of an LC transaction, thus reducing processing time. When a new commercial LC is issued to a beneficiary

in Asia, the LC contains wording that restricts negotiation of the LC to one of our Asian banking centers. When

documents under these LCs are presented to our Asian banking center, we are able to eliminate the duplicate step of

document examination.

With this program we create both tangible and intangible value for all involved parties. Applicants will realize the

advantages of a streamlined import process due to a lowered discrepancy rate, reduced vendor noise because of

lower product cost, faster processing and better control over transactions. For vendors, local bank representatives

who are familiar with their accounts can assist in eliminating discrepancies. This will provide faster turn-around times,

resulting in increased working capital velocity, lower interest costs and lower transaction costs with more efficient

processing.

Purchase Order to Pay (PO to Pay)Purchase Order-to-Pay is a trade payables solution for clients sourcing goods in overseas markets, which links the

client’s supply chain partners into an end-to-end payment and settlement process for increased transparency and

visibility throughout the supply chain. The service replaces paper-based functions with electronic processes and

broadens settlement options by offering open account payments as well as traditional LCs.

Through PO to Pay, clients can electronically submit to Bank of America Merrill Lynch purchase order information that

is used to construct LC and open account payment instruments for delivery to sellers in paper form or via an electronic

channel, including CashPro Online Trade Pro and Electronic Data Interchange (EDI). The service includes a matching

engine, the Purchase Order Processing System (POPS), which reconciles purchase order data submitted by buyers with

invoice data submitted by sellers prior to payment.

Buyers can also upload a PO file with all of their suppliers’ PO details to automatically create their LCs and/or open

account transactions, based on supplier terms and business rules, which streamlines buyers’ processing steps in

their daily work flow.

Supply Chain Financing Buyers often mandate that their suppliers extend payment terms and move from LCs to private label LCs or open

account terms. This can place significant financial pressure on suppliers who rely on LCs to meet their working capital

needs. Buyers now recognize the need for alternatives that enable their suppliers to obtain financing as an inducement

for accepting extended terms. By partnering with suppliers to rollout a Supply Chain Finance program, buyers can more

efficiently manage working capital and reduce costs in the supply chain while strengthen supplier relationships. Bank

of America Merrill Lynch offers a comprehensive suite of supply chain financing programs that enable buyers to provide

their suppliers with access to credit.

Foreign Exchange Services Bank of America Merrill Lynch Foreign Exchange Services give you the option to pay your vendors in their own currency.

We provide a full range of foreign exchange services, from simply sending wires denominated in foreign currency to

helping corporate clients develop and execute sophisticated hedging strategies. In addition to competitively-priced

spot and forward contracts, options, and futures, our foreign exchange traders can offer information about market

trends that can help you plan your foreign exchange strategy. Our London and Singapore foreign exchange operations

provide a virtual around-the-clock capability.


Chapter 02


Cash and Treasury Management Services Bank of America Merrill Lynch Treasury Management Services help you manage your cash position and cash flow.

We build comprehensive, customized solutions to meet the unique needs of our clients, improve their financial

competitiveness and make their treasury functions more efficient.

Working together, we can help you streamline the way you make payments, collect your receipts and reconcile your

accounts worldwide. With our broad treasury management suite of services, we guide you through the steps to make

your treasury functions more efficient.

Small Business Services (Trade Client Services) There may have been a time when you didn’t think your company could import merchandise from overseas or sell your

goods abroad. Not any more. For companies like yours, great business opportunities lie beyond our country’s borders.

And isn’t opportunity exactly what you seek for your company?

Trade Client Services is made up of a team of trade finance professionals with many years of experience. They’re

waiting for your call and the opportunity to help you find working capital solutions for your organization. Trade Client

Services has been organized to cover all U.S. time zones, so you’ll easily and conveniently be able to speak with a

representative personally.

Let Bank of America Merrill Lynch introduce a few ways you can increase opportunities

Economic forecasting and industry specialists At http://corp.bankofamerica.com portal, click on “Investment Solutions” to find the latest economic and industry

analysis. Bank of America Merrill Lynch Securities economists, based in New York, Hong Kong and London, analyze

and forecast U.S. and international economic conditions and financial market trends and post their findings on this

site.

The coverage includes analysis of macroeconomic indicators, forecasts of interest and foreign exchange rates and

perspectives on government policies. This work, coupled with research on emerging markets, fixed income, foreign

exchange and global risk, supports a wide variety of Banc of America Securities’ capital markets and client-focused

activities.

In the end it’s all about the people—superior client satisfaction We recognize that you have many choices in banks and that, in the final analysis, service will drive whether you

continue to use Bank of America Merrill Lynch. It’s for that same reason that your customers continue to do business

with you. We strive to maintain a professional and skilled international banking staff in every office location.

Furthermore, we are extremely sensitive to the unique needs of each client. We pride ourselves on a high level of

personalized service built on a long-term relationship.

Bank of America Merrill Lynch has extensive involvement with large retail and consumer companies, and therefore

is familiar with the seasonal fluctuations that are prevalent in these industries. Our global trade offices are staffed

effectively to manage these peak cycles by proactively working with the client to know exactly when these fluctuations

will occur during the year. We understand that there are critical times in each client’s business cycle and are

committed to constantly providing consistent quality service.

A global team of trade associates is typically established to meet our client’s specific processing requirements. Bank

of America Merrill Lynch will assign a primary operations contact that is responsible for technical consultation and

ensuring compliance with each client’s service requirements.

In the past few years independent research firms have conducted client satisfaction interviews with Bank of America

Merrill Lynch import LC clients located throughout the United States. Performance measurement categories included

http://corp.bankofamerica.com


Chapter 02


timeliness, accuracy, capability, staff knowledge/servicing, technology and client loyalty. Nearly ninety-six percent of

our clients reported that they were either very satisfied (highest possible rating), satisfied, or somewhat satisfied with

Bank of America Merrill Lynch’s overall import LC service. Our Global Trade Services business is committed to moving

to and maintaining a Six Sigma level of client service, and numerous performance measurements are in place to that

end.

Depend on Bank of America Merrill Lynch Your business is filled with unique and diverse challenges, challenges that demand creative, flexible and

comprehensive solutions. To help you find these solutions, you need a bank who has extensive experience, overseas

expertise and a wealth of resources. You need Bank of America Merrill Lynch Import Services. We can provide you

with a complete range of payment options and a worldwide correspondent network. We’ll take the time to help you

determine how you can make your international business run as smoothly, efficiently and profitably as possible. We

will also be ready to help you reevaluate your options as your needs change. For further information, contact your local

Bank of America Merrill Lynch Global Trade & Supply Chain Solutions officer.


Chapter 03Import LCs Defined


Chapter 03

Import LCs Defined

An import LC is a conditional payment mechanism under which the issuing bank irrevocably promises to pay the seller

if presented documents comply with all of the LC terms and conditions. The issuing bank substitutes its credit for that

of the buyer.

All LCs have similar attributes and this section will restate some of those attributes. It is important not only to

understand the attributes, but also the underlying principles.

A commercial LC offers protection to both the buyer and seller and, for this reason, is often used as a means of

payment. An LC offers the buyer a high degree of assurance that goods and services will be delivered and reduces

trading risks. In the LC process, the bank is the intermediary between the seller (an exporter) and the buyer (an

importer). The issuing bank issues the LC on behalf of the importer, examining the documents received, to determine

conformity to the terms and conditions of the LC. If the documents are correct, the bank makes payment, either

immediately or at a specified future date.

When the bank issues the LC, it substitutes its credit for that of the importer. In doing so, the bank promises to pay

the exporter upon presentation of documents in good order. The bank deals only with the documents called for in

the LC, not with the actual goods involved. For example, if an LC specifies that the exporter ship a container of steel

and the quality of the steel does not meet the buyer’s expectations, the exporter will nevertheless be paid as long as

documents are presented in conformity with the terms and conditions of the LC.

Typically the exporter’s bank acts as the advising, examining and paying bank. It may also confirm and negotiate LCs

on its client’s behalf.

Prior to any LC transaction, the buyer and seller should negotiate and agree to the terms and conditions to be

specified.

Bank of America Merrill Lynch can help structure your import LC and suggest terms that are favorable and achievable

to both you and your suppliers. This facilitates LC compliance, which helps ensure that you receive your commercial

shipment according to the terms agreed upon without delay.


Chapter 03

Import LCs Defined

LC Flow Chart

02 03 04 05

issuing / Buyer’s Bank Seller’s Bank Seller Buyer

01

Buyer

STEP ONEBuyer Applies for LC

STEP FIVEGoods Produced and Shipped

STEP TWOBuyer’s Bank Issues LC and...

STEP THREETransmits LC to Seller’s Bank

STEP FOURAdvises LC to Seller

Buyer

06

Seller

STEP SIXLC Presented to Seller’s Bank with Required Documentation

07 08

Seller’s Bank

STEP SEVENSeller’s Bank Examines Documents and Sends Documents to Issuing Bank

STEP EIGHTIssuing Bank Examines Documentation

09

issuing / Buyer’s Bank

STEP NINEIssuing Bank Debits Buyer’s Account and Releases LC Documents Making Funds Available for Payment to Seller

BuyerSeller

10

STEP TENBuyer Exchanges Documents for Goods


Chapter 03

Import LCs Defined

01 The buyer fills out an LC application that satisfies the terms of the purchase agreement plus the requirements

of customs law, shipment and document coordination.

02 The issuing bank, usually the buyer’s bank, rechecks the application to determine that it is complete and

workable.

03 The issuing bank transmits the credit to a correspondent bank by telex, SWIFT (Society for Worldwide Interbank

Financial Telecommunication, a telecommunication network of member banks) or (rarely) airmail and asks them

to advise and/or confirm the instrument.

04 The correspondent bank receives the letter of credit, checks for authenticity, records the transaction and

transmits the instrument to the seller/beneficiary, adding their confirmation if requested. Upon receipt of the

letter of credit, the seller should carefully review it to determine whether its performance requirements can be

complied with and whether it is acceptable from a credit perspective.

02 03 04

issuing / Buyer’s Bank Seller’s Bank Seller

01

Buyer

STEP ONEBuyer Applies for LC

STEP TWOBuyer’s Bank Issues LC and...

STEP THREETransmits LC to Seller’s Bank

STEP FOURAdvises LC to Seller

LC Flow Chart—Steps 1 Through 4


Chapter 03

Import LCs Defined

05 Upon determination that the LC is acceptable, the seller should ship the goods precisely consistent with its

terms and conditions.

06 The seller must prepare documents exactly as required and present them to the proper paying bank. The proper

paying bank may be any bank specified in the credit to accept, pay or negotiate. This may be the advising bank,

confirming bank, issuing bank or (on a freely negotiable credit) any bank that is willing to negotiate.

07 When the paying bank receives the documents, it will examine them to determine if they are in order pursuant

to the credit’s terms and conditions. If in order, the bank may pay, accept, or negotiate as required by the LC.

The negotiating bank will transmit the documents to the issuing bank and request reimbursement. Under an LC

payable at sight, the issuing bank may effect reimbursement to the seller’s bank by remitting funds directly to

the seller’s bank, authorizing the seller’s bank to debit the issuing bank’s account, or by authorizing the seller’s

bank to claim from a third bank where the issuing bank maintains an account.


05

Seller

STEP FIVEGoods Produced and Shipped

06

STEP SIXDocuments Presented to Seller’s Bank

07

Seller’s Bank


Seller

Letter of Credit Flow Chart Steps 5 Through 7


Chapter 03

Import LCs Defined

08 Upon receipt of the documents, the issuing bank will examine them to determine that they are in order as

specified and then reimburse the negotiating bank. For time drafts, reimbursement is made at maturity of the

bankers’ acceptance.

09 The issuing bank debits the buyer’s account and releases the documents. For a time draft, the buyer’s

account will be debited at maturity. The seller’s bank pays the exporter after being reimbursed by the buyer’s

bank.

10 The buyer exchanges the shipping documents for the goods.


08

Buyer

STEP EIGHTIssuing Bank Examines Documents and Reimburses Bank

09

STEP NINEIssuing Bank Debits Buyer’s Account and Releases LC Documents, Seller Receives Payment

10


Seller’s Bankissuing /

Buyer’s Bank Seller

Letter of Credit Flow Chart Steps 8 Through 10


Chapter 03

Import LCs Defined

Frequently Asked QuestionsWhat is an LC?An LC is a financial instrument issued, generally by a bank, to an individual or corporation by which the bank

substitutes its own creditworthiness for that of the individual or corporation. LCs facilitate importing and exporting

by assuring the seller/exporter’s payment for goods sold against compliant documents. Without such assurances of

payment, foreign trade would be severely curtailed.

Why should I use LCs when importing?Companies purchasing materials, supplies and services from domestic suppliers generally have established trade

credit and can buy on open account terms. In international trade, it is more difficult to establish trade credit,

especially with new relationships. Generally, the foreign seller will require either cash in advance or a commercial LC.

The LC provides assurance to the seller that payment will be received, and it may help the seller obtain financing for

the production and shipment of the goods being purchased. In addition to improving your cash flow, the LC gives you

some protection because payment will not be made without presentation of all required documents. Those documents

must also comply with the terms of the LC. However, the LC does not eliminate the need for you to check out the

foreign seller’s ability to produce, as well as his integrity and business reputation.

Other than my banker, who else should I be using as a resource?In addition to your Bank of America Merrill Lynch Merrill Lynch Trade specialist, you can obtain assistance from a great

number of sources— both public and private. The type of business in which you are engaged and the international

expertise of your existing staff will determine who you should use. Some of the more commonly used resources for

obtaining importing expertise include:

Government Private

Foreign consulates and commercial attachés Trade banking specialists

U.S. diplomatic personnel International lawyers

U.S. Customs personnel Customs brokers

A good customs broker is frequently the key to successful importing and should be contacted before finalizing any

contracts


Chapter 03

Import LCs Defined

What agreements are involved in an import LC transaction?01. Sales contract. Agreement between the buyer (account party or applicant) and the seller (beneficiary), which

gives rise to the use of an LC.

02. Purchase order. The buyer’s order to buy, usually describing merchandise to the unit level of detail. A purchase

order is normally submitted directly to the seller by the buyer, either electronically or hard copy.

03. Application for credit. Agreement between the buyer (applicant) and the issuing bank which spells out their

mutual obligations, including that of the applicant to reimburse the issuing bank when payments are made to the

beneficiary in accordance with the terms of an LC. For assistance in filling out an application for an LC, refer to

page 42 of this guide.

04. LC. Agreement between the issuing bank and the seller (beneficiary) that specifies conditions that must be met

before payments will be made.

What is the difference between an advised and a confirmed LC?The LC transaction usually involves two banks, the buyer’s bank issuing the LC and a bank in the seller’s country that

advises the LC to the beneficiary. The advising bank may also assume the role of confirming bank. Whether advising

and/or confirming, the seller’s bank assumes certain responsibilities.

Advising:� An advising bank acts as the agent of the issuing bank. The function of the advising bank is to take

reasonable care to verify the authenticity of LCs it receives and then accurately transmit the LCs to its beneficiaries.

When advising an LC, the bank assumes no liability. On receipt of the documents for examination and payment, the

advising bank will pay the seller only if it received good funds and has received reimbursement from the issuing bank,

even if it was specifically nominated as the paying bank in the LC.

Confirmation:� By confirming an LC, the advising bank or another bank assumes the same responsibilities as the

issuing bank, including the obligation to pay against presented documents (if they are in order and all of the LC terms

are met). In effect, the beneficiary has the individual promise of two banks—the issuing bank and the confirming

bank—to pay against conforming documents. Confirmation of an LCis an extension of credit and requires credit

approval of the issuing bank by the confirming bank. When a bank confirms an LC, it takes the credit risk of the issuing

bank and must have in place a credit limit for that issuing bank.

How is an LC confirmed?When negotiating the terms of sale, the seller may require an LCthat requests the advising bank to add its

confirmation. The buyer includes this request when submitting the application for LC issuance to his or her bank. In

most instances, the issued credit states: “Please advise beneficiary adding your confirmation” or words to similar

effect. Note: this is a request, not a requirement. The advising bank for various reasons may decline to add its

confirmation and simply advise the LC without confirmation.

What documents are usually required under an LC?The documents for an international sale can vary significantly from transaction to transaction depending on the

destination and the product being imported. See Chapter 5 for a detailed discussion of LC documents.


Chapter 03

Import LCs Defined

Parties and Roles in Commercial LC TransactionsWhat are the parties and roles in an import LC?01. Account Party/Applicant:� The buyer of goods or services who requests the LC to be opened under its liability by

the issuing bank.

02. Beneficiary:� The seller of goods or services to whom the LC is addressed and who is entitled to its benefits.

03. Issuing Bank:� The primary financial institution that initiates and writes the LC, extending its guarantee and

liability to pay if the terms and conditions are fulfilled.

04. Advising Bank:� The bank, usually in the beneficiary’s country, whose primary job is to pass on the LC to the

beneficiary. The advising bank is normally a correspondent bank of the issuing bank. That means that the two

parties have exchanged authentication procedures and may have also established accounts with each other. An

important part of passing on an LCto a beneficiary is verifying the authenticity of the LC to it. When the advising

bank authenticates the credit, it is saying that the LC is a genuine instrument from the named issuing bank.

It is not commenting on the creditworthiness of the bank or its country. This procedure gives the seller some

protection against fraudulent instruments. That is why it is common practice to have LCs advised to a seller

through a correspondent bank. LCs may be received by the advising bank by mail, telex, cable or SWIFT. (

05. Drawee Bank or Paying Bank:� This is the bank named in the credit as duly authorized to make payment. Drafts

are drawn and/or documents presented to this bank as a general rule. However, special instructions might

modify this procedure. In the U.S., this is generally the issuing bank (that is, the buyer’s bank).

06. Examining Bank:� Both the issuing bank and the seller’s bank must examine all documents stipulated in the

credit with reasonable care to ascertain whether or not they appear, on their face, to be in compliance with the

terms and conditions of the credit.

07. Confirming Bank:� A confirming bank is a financial institution requested by the issuing bank to add its guarantee

of payment or acceptance to the credit instrument. It is necessary for this bank to establish a credit line or

facility for the issuing bank in order to agree with this request. The bank requested to add its confirmation is

usually but not necessarily the advising or drawee bank. A seller should request the buyer to authorize the

issuing bank to request confirmation. Import LCs issued by Bank of America Merrill Lynch do not normally

request confirmation from another bank, due to their strong credit rating.

08. Reimbursing Bank:� At times, the issuing bank names a bank where the issuing bank keeps funds in the currency

of the LC to pay on its behalf, drawee or negotiating banks to whom payment is due. This bank, named in the

LC, known as a reimbursing bank, is usually named under the special instructions portion of the LC. See I.C.C.

Publication No. 600, Article 13.

09. Negotiating Bank:� Negotiation is the process whereby a bank examines the documents and actually pays funds

to the beneficiary. This is not very common because most banks are not willing to advance funds prior to receipt

of the goods. The beneficiary is paid immediately upon examination of documents conforming to the LC or after

approval by the issuing bank is determined by the payment terms stipulated in the LC. The negotiating bank is

either nominated by the beneficiary under a freely negotiable LC or designated as a restricted negotiating bank

by the issuing bank. The concept of a negotiating bank allows more flexibility into the payment mechanism and

enables beneficiaries to present documents for payment to their local bank.


Chapter 03

Import LCs Defined

Mitigating the Risk of Fraud in the Trade ArenaAt Bank of America Merrill Lynch we constantly strive to protect our clients from the risk of fraudulent trade finance

transactions. In our Trade Operations units around the globe, many evaluation processes take place each day in an

attempt to recognize and prevent fraud. Here are some of the precautions we take:

•We transmit and receive authenticated LCs, collections and related messages via SWIFT.

•While the Uniform Customs and Practice for Documentary Credits (UCP) 600 tells us that “Banks assume no

liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any

documents(s) . . .” (UCP, 2007 Revision, International Chamber of Commerce, or ICC), the close and careful

examination of documents provides additional assurances that they are reflective of the requirements in the LC and

thus serves to reduce the likelihood of payment against fraudulent documents.

•All of our associates that handle trade transactions are required to participate in Anti-Money Laundering (AML)

training, enabling them to understand the red flags in a transaction that may point to fraud as it relates to

money laundering. This training includes “Know Your Customer” evaluation metrics and stresses reporting of any

suspicious transaction.

•All of our associates that handle trade transactions attend compliance training courses, further refining their skills

in recognizing and properly reporting of suspicious transactions.

•Our associates stay current on fraud issues in our business through trade publications, conferences, internal

broadcasts and participation in professional trade organizations.

•Our web-based trade activity management system, TradePro, can also help reduce the incidence of trade fraud by

providing complete security and one point of entry into the Bank of America Merrill Lynch back office.


Chapter 03

Import LCs Defined

AML Policies and Office of Foreign Assets Control (OFAC) Compliance at Bank of America Merrill LynchAnti-Money Laundering (AML)Crime has a destructive and devastating effect on the communities in which we operate. Safeguarding the global

financial system is critically important for the economic and national security of the jurisdictions in which Bank of

America Merrill Lynch operates. Accordingly, it is the policy of Bank of America Merrill Lynch to take all reasonable

and appropriate steps to prevent persons engaged in money laundering, fraud or other financial crime, including the

financing of terrorists or terrorist operations (hereinafter collectively referred to as “money laundering”) from utilizing

Bank of America Merrill Lynch products and services.

With a view to ensuring that the financial system is not employed as a channel for criminal funds, associates at Bank

of America Merrill Lynch make reasonable efforts to determine the true identity of all parties involved in Bank of

America Merrill Lynch transactions. Bank of America Merrill Lynch conducts its trade business in conformity with high

ethical standards in the countries in which it does business and strictly adheres to all laws and regulations pertaining

to financial institutions. While it is accepted that Bank of America Merrill Lynch may not always be able to determine

whether a transaction originates from, or is a part of, a criminal activity, Bank of America Merrill Lynch follows these

general principles:

01. Bank of America Merrill Lynch takes reasonable steps to determine the true identity of all customers and

beneficial users of Bank of America Merrill Lynch products and services.

02. Bank of America Merrill Lynch will not knowingly accept funds from, make loans to or do any type of business

with customers whose money the bank believes is derived from criminal activity.

03. Bank of America Merrill Lynch will not ignore indications that a customer’s money originated from criminal or

other money laundering activities. When Bank of America Merrill Lynch becomes aware of facts which lead

to a reasonable suspicion that funds held by it are from criminal or other money laundering activity or that

transactions entered into are themselves criminal in purpose, appropriate measures, consistent with the law, will

be taken. These include denial of assistance to the client, severing relations with the client, closing or freezing

accounts, and when appropriate, filing of a suspicious activity report.

04. Bank of America Merrill Lynch will avoid providing support or assistance to clients seeking to deceive law

enforcement agencies through the provision of false, altered, incomplete or missing information.

05. Bank of America Merrill Lynch will cooperate fully with law enforcement and regulatory agencies to the extent that

it can do so under all applicable foreign and domestic laws.

06. Bank of America Merrill Lynch will report all identified instances of suspicious activity to the extent that it can do

so under all applicable foreign and domestic laws.

Anti-boycott policyBank of America Merrill Lynch Corporation, its domestic affiliates and its offshore branches, offices, subsidiaries

and controlled affiliates are “U.S. persons.” They transact business with residents and nationals of boycotting and

boycotted countries as well as with other persons and corporations that do business with such countries and their

nationals. Therefore, Bank of America Merrill Lynch often receives requests to comply with unsanctioned foreign

boycotts.

Such requests most frequently occur in LC transactions. Bank of America Merrill Lynch handles several thousand LCs

and collections each year, which involve persons and commerce of boycotting and boycotted countries.


Chapter 03

Import LCs Defined

Bank of America Merrill Lynch is committed to full compliance with all laws applicable to its business, including anti-

boycott laws of the United States. Accordingly, bank units must not enter into any agreement or implement any LC

containing an impermissible boycott condition or take any other action prohibited by the United States. Additionally,

bank units must not implement any LC or process any other document if it uses the term “blacklist” or “boycott” or if

its implementation or processing would constitute boycott participation under United States tax laws.

Bank of America Merrill Lynch general anti-discrimination policy prohibits all bank units from discriminating against any

person based on race, religion, sex or national origin. Bank units must not engage in any transaction containing such a

condition. Bank of America Merrill Lynch does not engage in any discriminatory business practices in connection with

the Arab League’s boycott of Israel.

OFAC complianceOFAC administers and enforces economic and trade sanctions based onU.S. foreign policy and national security

goals against targeted foreign countries, terrorists, international narcotics traffickers and those engaged in activities

related to proliferation of weapons of mass destruction. OFAC acts under Presidential wartime and national emergency

powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign

assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates,

are multilateral in scope and involve close cooperation with allied countries. OFAC has promulgated regulations to help

administer its program. All U.S. persons and entities, including banks, federal branches and agencies, international

banking facilities, and overseas branches, offices and subsidiaries of U.S. banks must comply with the laws and OFAC-

issued regulations. In general, these regulations:

•Require blocking of accounts and other assets of specified countries, entities and persons

•Prohibit unlicensed trade and financial transactions with specified countries, entities and persons

Bank of America Merrill Lynch maintains an effective OFAC compliance program, including written policies and

procedures for checking transactions for possible OFAC violations, designating associates responsible for day-to-day

compliance, establishing and maintaining strong lines of communication between departments of the bank, associate

training, and an annual in-depth audit of OFAC compliance. LCs, wire transfers and non-client transactions such as

funds transfers are compared with OFAC lists before being conducted.


Chapter 03

Import LCs Defined

20 Most Important Characteristics of an Import LC01. Irrevocable:� This term means that the issuing bank cannot cancel or amend an LC without the consent of the

beneficiary.

02. Expiry Date and Issue Date:� As agreed upon between the buyer and the seller. Commercial import LCs generally

expire in the country of the beneficiary.

03. Issuing Bank/Advising Bank:� Needs to be listed.

04. Importer/Exporter:� Make sure that the full name of your seller and the seller’s address, as well as the full name

and address of your own company, are correctly stated on the LC application and the LC itself.

05. Value/Currency:� The amount of your LC should conform to the amount of your sales contract. Make sure that the

currency of the amount is accurately indicated on your LC application.

06. Description of Goods/Services:� We recommend that you employ a very simple merchandise description when

applying for an LC. Excessive details may cause discrepancies and delays; if the nature of your sale requires a

detailed description of merchandise, it belongs in the sales contract or purchase order agreement between you

and your seller. The sales contract number or purchase order agreement can then be quoted in the merchandise

description of the LC.

07. Required Documents:� See Chapter 5, “A Closer Look at LC Documents.”

08. Payment Terms:� Also known as “Tenor.” Make sure that payment terms are accurately indicated on your LC

application, and correctly quoted in the LC. The payment term “At Sight” indicates that the bank will pay “within

a reasonable time” after documents have been presented by the beneficiary and found to be in order. If an LC

indicates “90-Days Sight,” with discount charges for beneficiary’s account, you agree to 90-day terms, and you

will be debited 90 days after the presentation of the draft and complying documents. If the discount charges

are for the buyer’s account, payment to the beneficiary will be effected “At Sight” and the buyer will pay discount

charges at the point of negotiation and the face value of the draft at maturity. See Chapter 7 for a complete

discussion of usance terms.

09. Incoterms:� Shipment terms. See Incoterms, Chapter 9.

10. Port to Port (Dispatch to Destination):� Make sure that your LC application correctly states the port of shipment

and the port of destination, as indicated in your sales contract.

11. Uniform Customs and Practices, Publication No. 600:� Your LC should state that it is subject to the UCP

Publication No. 600 of the ICC.

12. Who Pays Fees?:� Unless otherwise stipulated in the LC, all banking charges are for the account of the applicant.

If charges are for the beneficiary’s account, as specified on the LC, they are normally deducted from the face

amount of the draft at the time of payment.

13. Latest Shipment Date:� The latest shipment date should be the same as that agreed to in your sales agreement.

If you do not stipulate a latest shipment date in your LC application, it is understood as the same date as the

expiry date.

14. Presentation Date or Stipulation:� The presentation date is usually a stipulation such as “Documents must be

presented for negotiation within 15 days after the on board date of the ocean bill of lading, and within the validity

of the LC.” A 21-day presentation stipulation is understood, in the absence of any statement to this effect (see

Article 14(c), UCP 600).


Chapter 03

Import LCs Defined

15. Partial Shipments Allowed/Not Allowed:� If your LC application does not indicate that partial shipments are

prohibited, it is understood that partial shipment is allowed. Make sure that this information agrees with your

original sales contract with the seller.

16. Transshipment Allowed/Not Allowed:� If your LC application does not indicate that transshipments are

prohibited, it is understood that transshipment is allowed. Make sure that this information agrees with your

original sales contract with the seller. Transshipment means that the merchandise is loaded on a carrier that

only goes to a certain point, and at that point the merchandise is unloaded and reloaded onto another carrier.

17. Reimbursement Instructions:� Determines when payment will be received by the exporter. Four major types of

reimbursement instructions are: a) issuing bank authorizes advising bank to debit their account; b) issuing bank

instructs advising bank to claim reimbursement from a third bank (reimbursing bank); c) issuing bank requires

advising bank to send them a cable notifying them that documents have been received and found to be in

compliance with LC terms, after which issuing bank remits funds to advising bank; and d) issuing bank requires

advising bank to send documents to them for payment (slowest method of payment).

18. Availability:� Your LC is either freely negotiable or straight. A freely negotiable LC will indicate that it is “available

with any bank by sight payment, by deferred payment, by acceptance or by negotiation.” A negotiating bank may

play various roles pursuant to the latitude extended by the LC, but it normally is allowed to take the documents

in charge and pay the beneficiary against funds received from the issuing bank. A straight, or restricted, LC

will indicate that it is “available with (named bank) by sight payment, by deferred payment, by acceptance or by

negotiation.” The beneficiary must present documents at the counters of the named bank.

19. Confirming Bank:� For all intents and purposes, beneficiaries normally present their documents to the confirming

bank and regard it as the primary source of payment. A confirming bank is obligated to pay against compliant

documents, regardless of whether or not funds are received from any reimbursement source.

20. Reimbursing Bank:� The reimbursing bank is usually named under the Special Instructions portion of an LC, or in

field :78: of a SWIFT 700 message.

Understand and Control Your Import LCsWhat can an importer do to make sure that the LC process works for him?As an importer, you should strive to exercise control over this process. That’s why it’s so important to understand

the process and to establish a written contract or sales agreement with your seller before you apply to your bank (the

issuing bank) for an LC. Your contract, sales agreement or purchase order should contain all the conditions that are

necessary to be included in the LC.

When your bank issues a new LC on your behalf, it will normally provide you with a copy of the LC. Always read the

LC thoroughly. If any parts of your LC are not clear to you or do not seem to agree with your LC application and/

or sales contract and/or purchase order, contact your local Bank of America Merrill Lynch Global Trade Operations

representative.

Also make sure that you understand any additional wording that Bank of America Merrill Lynch has added to the

LC as we issue it.We are giving additional instructions directly to the advising bank in most cases, but you should

understand the meaning of these instructions.

Normally your seller should not ship merchandise until your LC has been issued by your bank. You may, however, ask

your bank to issue a preliminary advice of the LC to your beneficiary. This process will provide you and your seller with

an LC number for tracking purposes, and will give your seller the reassurance needed before shipping merchandise.


Chapter 03

Import LCs Defined

Opening a Commercial LCYour bank looks at an import LC line in much the same manner as any loan request. Careful evaluation is made of your

ability to reimburse Bank of America Merrill Lynch when drafts drawn under the LC are presented or when time drafts

(acceptances) mature. Furthermore, a review of the importer’s overall credit strength is required when it is anticipated

that loans will have to be made to finance the payment of the draft. As with any type of commercial loan, the bank

obtains appropriate borrowing authorization, resolutions, guarantees, etc. from the client.

To get started, discuss your trade finance business with your Bank of America Merrill Lynch Global Trade & Supply

Chain Solutions representative and determine the product that best suits your credit needs. Our bankers also

understand that your financial needs change as your business grows—from basic to fully integrated services. Tell us

about your changing needs and let us help you prepare for your financial future.

You will then complete an application and submit it to your banker. The application should be typed or neatly printed,

signed and accompanied by any required documents. Please note that we reserve the right to change the Application

and Agreement for Commercial LC form when we deem appropriate.

Bank fees related to issuing and negotiation of import LCs are related to the cost, risk and time involved. As with all

major banks, charges are also levied for incidental activities that arise under import LCs.

LCs are irrevocable and cannot be canceled prior to the expiration date without the written consent of the beneficiary.

After issuance, cancellation or other changes may only be effected by an amendment submitted to Bank of America

Merrill Lynch and with the agreement of the beneficiary.

A copy of a Bank of America Merrill Lynch Commercial LC Application is provided here, along with an explanation of

each of the fields on the application.


Chapter 03

Import LCs Defined

00-35-0523NSBW 01-2012 Page 1

For Bank of America Use Only L/C No.

Application and Agreement for Commercial Letter of Credit

TO: Bank of America, N.A. (“Bank of America”)

A. Application

1. Applicant Name & Address (guarantor for Letter of Credit) requests Bank of America to issue an irrevocable commercial letter of credit (the “Letter of Credit”) as follows: Full text teletransmission Courier

2. Advising Bank Name and Address: (Not Required, LC will be advised through Bank of America local office where applicable))

3. For Account of Party/Named Applicant on the Letter of Credit (Name and address, if different from Applicant as indicated in Box 1):

3a. Is this party legally related to 1. Applicant through ownership? Yes No

If yes, please indicate relationship:

Parent Subsidiary Affiliate Owner If No, provide the following: a. Tax id number/country equivalent: b. If an individual, Date of Birth: c. Brief explanation of why applicant is applying for a Letter of Credit for an non-related entity

4. In favor of (Beneficiary Name and Address):

5. Expiration Date. Documents to be presented to the Negotiating or Paying Bank on or before: 6. Amount: ( ) Put in figures and words. For example: ($10,000) Ten thousand and 00/00 Currency (if left blank, U.S. dollars) Tolerance

7. Covering : % of invoice value. (Full invoice value unless otherwise specified.)

8. Available by drafts: Sight Days Sight Days Date (being the date of the transport document). Drafts to be drawn on Bank of America or Bank of America’s correspondent, at Bank of America’s option. Bank of America may at its option waive any draft requirement. 9. Partial Shipment:

Permitted Not Permitted 10. Transshipment

Permitted Not Permitted 11. Transferable Letter of Credit?

Yes No ( If Yes, Advising bank will be the authorized bank to Transfer) 12. Latest Shipment Date

Place of Taking in Charge/ Dispatch From/ Place of Receipt

Port of Loading/ Airport of Departure

Port of Discharge/ Airport of Destination

Place of Final Destination/ For Transportation To/ Place of Delivery

13. Merchandise to be described in invoice as (omit unnecessary details;Price Basis to be specified in #14 below).

14. Shipping Terms/Price Basis (check one): FCA FOB CFR CIF CIP: Other

Named Place (e.g. FCA Oakland): as per (check one) Incoterms 2000 or Incoterms 2010


Chapter 03

Import LCs Defined

00-35-0523NSBW 01-2012 Page 2

15. Documents Required (Check applicable boxes below)

Commercial invoice in

original(s) and copies.

Packing List in original(s) and copies.

Certificate of Origin in original(s) and copies. Original Insurance Policy or Certificate covering

All Risks. Other Risks (Specify)

OR Insurance to be effected by Applicant (No Insurance document will be required in the LC)

Other documents:

Transport documents: Multi-modal Transport Document Marine Bill of Lading Presented in: Full Set 2/3 Set 1/3 Set ____ # of Copy(ies)

OR Air Waybill Truck Bill of Lading Other ___________________________

For Multimodal Transport Document or Marine Bill of Lading:

Consigned to the order of

Consigned to the order of Shipper, blank endorsed

Consigned to Applicant (non-negotiable)

For All Other Transport Documents:

Consigned to Applicant

Consigned to

Marked Notify: (Applicant’s name inserted if left blank)

Marked freight: collect prepaid

16. Special Instructions to be included in the Letter of Credit: (Unless otherwise stated) All bank charges (other than those of Bank of America) are for the account of the Beneficiary. Discount charges, if any, are for the account of the Beneficiary. All documents are to be sent by the negotiating/paying bank to Bank of America in one cover by courier.

Other instructions:

17. Special Instructions to Bank of America:

18. Documents must be presented to the negotiating or paying bank no later than: days after date of transport document (on board validation applicable for ocean shipment) but within the validity of the Letter of Credit. (Will be 21 days if left blank.)


Chapter 03

Import LCs Defined

00-35-0523NSBW 01-2012 Page 3

B. Agreement. THIS COMMERCIAL LETTER OF CREDIT AGREEMENT (this “Agreement”) is issued by the

undersigned applicant (the “Applicant”) in favor of the Bank, N. A. (together with its affiliates, the “Bank”).

The Applicant hereby requests that the Bank issue the Letter of Credit (as defined below) for the account of the Applicant, pursuant to the application for Letter of Credit in form and content acceptable to the Bank (“Application”, the Application and Agreement are sometimes hereinafter collectively referred to as the “Application and Agreement”). The term “Letter of Credit” shall mean the letter of credit issued by the Bank for the account of the Applicant (including if the letter of credit is issued jointly for the account of the Applicant and any other Person, as defined below), in each case as amended or otherwise modified from time to time. “Person” means any natural person, corporation, partnership, trust, limited liability company, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity. The Letter of Credit issued by the Bank pursuant to this Application and Agreement from the Applicant (either individually or together with any other Person) shall be a Letter of Credit hereunder even if another Person is named as the “Applicant” or “Account Party” in such letter of credit. The Applicant agrees that, except as provided below, the Letter of Credit shall be subject to the terms and provisions of this Agreement, and the Applicant further agrees with and for the benefit of the Bank as follows:

1. Letter Of Credit Procedures. (a) Subject to the terms and conditions of this Agreement, the Bank may, in its sole

and complete discretion, issue the Letter of Credit for the account of the Applicant; provided that the terms and provisions of each Letter of Credit and the Application therefor shall be satisfactory to the Bank in its discretion.

(b) Not later than three Banking Days (as defined in UCP 600, which is defined herein below) prior to the date of the proposed issuance of a Letter of Credit (or such later date as the Bank shall agree), the Applicant shall deliver the Application for the Letter of Credit to the Bank. The Application may be sent by facsimile, by United States mail, by overnight courier, by electronic transmission using the system provided by the Bank, by personal delivery or by any other means acceptable to the Bank.

(c) The Applicant authorizes the Bank to set forth the terms of the Application in the Letter of Credit corresponding to such Application (and in any amendment thereto) in such language as the Bank deems appropriate, with such variations from such terms as the Bank may in its discretion determine to be necessary (which determination shall be conclusive) and not materially inconsistent with such Application. The Bank may, but shall not be obligated to, request the Applicant to review the form of a Letter of Credit prior to issuance thereof, in which case the Applicant shall be deemed to have approved the form of the Letter of Credit. Notwithstanding, the Applicant agrees that the Letter of Credit shall be conclusively presumed to be in proper form unless the Applicant notifies the Bank in writing of any inconsistency in the Letter of Credit within three Banking Days of its issuance. Upon receipt of timely notice of any inconsistency in the Letter of Credit, the Bank will endeavor to obtain the consent of the Beneficiary and any confirming bank for an appropriate modification to the Letter of Credit; provided that the Bank shall have no liability or responsibility for its failure to obtain such consent.

(d) The Applicant accepts the risk that a Letter of Credit will be interpreted or applied other than as intended by the Applicant to the extent the Letter of Credit (i) permits presentation at a place other than the place of issuance, (ii) permits application of laws or practice rules with which the Applicant or the Bank is unfamiliar, (iii) includes ambiguous, inconsistent or impossible requirements, (iv) requires termination or reduction against a presentation made by the Applicant rather than the Beneficiary or (v) fails to incorporate or modifies appropriate letter of credit practices rules.

(e) The delivery of the Application shall automatically constitute a representation and warranty by the Applicant to the Bank to the effect that on the requested date of issuance or amendment of the Letter of Credit, (i) the representations and warranties of the Applicant set forth in Section 16 shall be true and correct as of such requested date as though made on the date thereof and (ii) no Deposit Event, as defined in Section 4 below, shall have then occurred and be continuing or will result from such issuance.

2. Applicant Payments. (a) The Applicant hereby agrees to reimburse the Bank forthwith upon demand in

an amount equal to any payment or disbursement made by the Bank under the Letter of Credit issued or any time draft accepted pursuant thereto, together with interest on the amount so paid or disbursed by the Bank from and including the date of payment or disbursement to but not including the date the Bank is reimbursed by the Applicant at the interest rate described in Section 2(g). The obligation of the Applicant to reimburse the Bank under this Section 2 for payments and disbursements made by the Bank under the Letter of Credit issued or any time draft accepted pursuant thereto shall be absolute and unconditional under any and all circumstances, including, without limitation, (i) any failure of any draft, order, instrument, demand or other document drawn or presented, or to be drawn or presented, under the Letter of Credit (“Item” or collectively referred to as “Items”) to strictly comply with the terms of the Letter of Credit; (ii) the legality, validity, regularity or enforceability of the Letter of Credit or of any Item presented thereunder; (iii) any defense based on the identity of the transferee of the Letter of Credit or the sufficiency of the transfer if the Letter of Credit is transferable; (iv) the existence of any claim, set-off, defense or other right that the Applicant may have at any time against any Beneficiary or transferee of the Letter of Credit, the Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or any unrelated transaction; (v) any Item presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (vi) honor of a demand for payment presented electronically even if the Letter of Credit requires that demand be in the form of a draft; (vii) waiver by the Bank of any requirement that exists for the Bank’s protection and not the protection of the Applicant or any waiver by the Bank which does not in fact materially prejudice the Applicant; (viii) any payment made by the Bank in respect of an otherwise complying Item presented after the date specified as the expiration date of, or the date by which documents must be received under, the Letter of Credit if presentation after such date is authorized by the UCC or the UCP 600, as applicable; or (ix) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

In the event that the Applicant shall provide written notice to the Bank within five (5) Banking Days of a payment by the Bank, that Applicant disagrees with the Bank’s findings and it is determined in a final non-appealable order by a court of competent jurisdiction that any wrongful payment or disbursement made by the Bank under the Letter of Credit was a result of any act or omission constituting gross negligence or willful misconduct on the part of the Bank, the Bank shall refund reimbursement payment paid hereunder by applicant to the Bank without interest or cost.

(b) On the fee payment date, Applicant shall pay the Bank a Letter of Credit fee and pay on demand any fees for amendments to, payments under, extensions of or cancellation of the Letter of Credit and other services. The fee payment date shall be the date as Applicant and the Bank may agree, or in the absence of such agreement, the fee payment date shall be the date on which the Bank issues the Letter of Credit.

(c) Applicant shall pay the Bank, on demand, acceptance commissions, in the amounts Applicant and the Bank may agree or, in the absence of such agreement, at the rate customarily charged by the Bank at the time such fee is payable, based upon Applicant’s creditworthiness, as determined by the Bank in its sole discretion. The applicable acceptance commission shall be calculated and payable on the drawing amount of each Letter of Credit as of each fee payment date, and shall be for the period commencing on the acceptance date and ending on the maturity date, as the case may be, inclusive of the acceptance date. The acceptance commission will be computed on the basis of a 360-day year and the actual days elapsed, or as otherwise agreed by the Bank and the Applicant. For any early payment the Bank shall not be required to refund any portion of any acceptance commission or discount paid or payable.

(d) All payments and deposits of any kind by Applicant under this Application and Agreement, including prepayments, shall be made at the banking center or office the Bank may designate from time to time. The Bank shall have no obligation to pay Applicant interest on any such payment, prepayment or deposit made by Applicant under this Application and Agreement.

(e) (i) All payments and deposits by Applicant under this Application and Agreement shall be in the currency in which the Letter of Credit is payable, except that the Bank may, at its option, require payments and deposits by Applicant under this Application and Agreement to be made in U.S. Dollars if the Letter of Credit is payable in a currency other than U.S. Dollars, (ii) the amount of each payment and each deposit by Applicant under this Application and Agreement in U.S. Dollars for a Letter of Credit payable in a currency other than U.S. Dollars shall be determined by converting the relevant amount to U.S. Dollars at the Conversion Rate in effect (A) with respect to each payment under Section 2(a) of this Agreement, on the date the payment is made by the Bank under or in respect of the Letter of Credit; and (B) with respect to each payment not falling under the preceding clause (A) and each deposit, on the date of the Bank’s demand for such payment or deposit, (iii) If a U.S. Dollar deposit by Applicant under this Application and Agreement for a Letter of Credit payable in a foreign currency becomes less than the U.S. Dollar equivalent of the undrawn amount of the Letter of Credit because of any variation in rates of exchange, Applicant shall deposit with the Bank, on demand, additional amounts in U.S. Dollars so that the total amount deposited by Applicant under this Application and Agreement is not less than the U.S. Dollar equivalent of the undrawn amount of the Letter of Credit, determined by using the Conversion Rate on the date of the Bank’s latest demand, (iv) “Conversion Rate” means the rate quoted by the Bank for the purchase from the Bank of the relevant currency other than U.S. Dollars with U.S. Dollars.

(f) Applicant shall reimburse or compensate the Bank, on demand, for all costs incurred, losses suffered and payments made by the Bank which are applied or allocated by the Bank to the Letter of Credit (as determined by the Bank) by reason of any and all present or future reserve, capital, deposit, assessment or similar requirements against (or against any class of or change in or in the amount of) assets or liabilities of, or commitments or extensions of credit by, the Bank.

(g) Applicant shall pay interest, on demand, on any amount not paid when due under this Application and Agreement from the due date until payment in full at a rate per annum equal to the rate of interest publicly announced from time to time by the Bank as its prime rate (“Prime Rate”), plus three percentage points (not to exceed the maximum rate permitted by applicable law) or as otherwise agreed by the Bank. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some credits. The Bank may price credit at, above or below the Prime Rate. Any change in the Bank’s Prime Rate shall take effect at the opening of business on the day specified in the Bank’s public announcement of a change in the Bank’s Prime Rate. Interest will be computed on the basis of a 360-day year and actual days elapsed.

3. Place of Issuance. The Letter of Credit may be issued by any office of the Bank within or outside the United States.

4. Deposit Events. Upon the occurrence of any of the following events (each a “Deposit Event”), Applicant shall deposit with the Bank, on demand (except that such demand shall not be required in the event of an occurrence described in (b) below) and as cash security for Applicant’s obligations to the Bank under this Application and Agreement, an amount equal to the undrawn amount of the Letter of Credit:

(a) Applicant defaults under any provision of this Application and Agreement; (b) Any bankruptcy or similar proceeding is commenced with respect to Applicant; (c) Any default occurs under any other agreement involving the borrowing of

money or the extension of credit under which Applicant may be obligated as borrower, installment purchaser or guarantor, if such default consists of the failure to pay any indebtedness when due or if such default permits or causes the acceleration of any indebtedness or the termination of any commitment to lend or to extend credit;

(d) Applicant or any of its affiliates defaults on any other obligation to the Bank; (e) In the opinion of the Bank, any material adverse change occurs in Applicant’s

business, operations, financial condition or ability to perform its obligations under this Application and Agreement;

(f) Any guarantee of Applicant’s obligations under this Application and Agreement terminates, is revoked or its validity is contested by the guarantor, or any of the events set


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Import LCs Defined

00-35-0523NSBW 01-2012 Page 4

forth in (b) through (e) above occur with respect to the guarantor rather than the Applicant; or

(g) Any court order, injunction or other legal process is issued restraining or seeking to restrain drawing or payment under the Letter of Credit.

5. Charge to Accounts. If the Bank is unable to debit the account, if any, specified on the Application, Applicant authorizes the Bank to charge any of Applicant’s accounts with the Bank, or any affiliate of the Bank, for all amounts then due and payable to the Bank under this Application and Agreement.

6. Documentation. (a) Unless specified to the contrary in the Application, or any amendment to the

Letter of Credit, Applicant agrees that the Bank and its correspondents may receive and accept (i) as “bills of lading” any documents issued or purportedly issued by or on behalf of any carrier which acknowledges receipt of property for transportation, irrespective of the specific provisions of such documents, (ii) either insurance policies or insurance certificates as documents of insurance, (iii) the description of property contained in any invoice as sufficient and controlling against other descriptions contained in any bills of lading, insurance or other documents accepted, as long as such descriptions are not in conflict with one another, (iv) any documents containing stamped, written, or typewritten provisions, whether or not signed and initialed, as if the same were placed with authority on the documents at the time of issuance by the carrier, other issuer, or one of their agents, (v) any Items or documents otherwise in order, issued or purportedly issued by an agent, executor, trustee in bankruptcy, receiver or other representative of the party authorized under the Letter of Credit to issue such Items or other documents, as complying with the terms of the Letter of Credit and (vi) documents which comply with the UCP 600 as defined in Section 10 of this Agreement or which comply with the laws, regulations, customs or usages of the place of shipment or negotiation/payment/acceptance, or both. The provisions of clause (v) above shall in no way be deemed to preclude the Beneficiary of the Letter of Credit from issuing and presenting Items or documents under the terms of the Letter of Credit.

(b) In the event that some of the documents required under the Letter of Credit are forwarded directly to Applicant or any other party designated by Applicant, or the Bank releases or consents to the release of some or all of the property shipped under the Letter of Credit prior to the presentation of the relative Item, Applicant agrees to pay the Bank on demand the amount of any claim made against the Bank by reason thereof and authorizes the Bank to honor such Item when it is presented regardless of whether or not such Item or any document that may accompany it complies with the terms of the Letter of Credit. In case of the Bank’s issuance of a steamship indemnity for the benefit of Applicant, the Bank is authorized to retain one original bill of lading for delivery to the shipping company to secure the release of the Bank’s indemnity.

(c) Subject to the provisions of this Section 6, in the event that any Item presented to the Bank appears on its face to be non-compliant with the terms and conditions of the Letter of Credit, the Bank may send notice thereof to Applicant. In that event, Applicant will promptly review such notice and will notify the Bank within seven Banking Days of its receipt of such notice if it has any claim of non-compliance. If Applicant does not respond to the Bank within such seven Banking Day period, the Bank reserves the right to return the documents to the presenter at anytime in its discretion or if requested by the presenter. Upon demand of the presenter at any time the Bank shall promptly return the documents.

7. Collateral. (a) As security for the performance of all obligations of every kind (including, but not

limited to, the obligation to make payments pursuant to Section 2 hereof) owed by Applicant to the Bank under the Letter of Credit, this Application and Agreement, or otherwise, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, howsoever created, arising or evidenced (the “Liabilities”), Applicant hereby assigns, pledges and grants to the Bank a lien upon and a security interest for the Bank’s benefit in, and recognizes and admits the Bank’s unqualified right to: (i) the possession and disposal of any and all Items, all shipping documents, warehouse receipts, policies or certificates of insurance, and other documents accompanying or relative to any Items, and all Property (as defined below) covered, shipped, or stored under any Items or documents whether or not any Items, documents, or Property shall be released to Applicant, (ii) all claims which the Applicant may have against anyone else in connection with any of the foregoing including, without limitation, any guarantees, indemnities, agreements or other undertakings, policies of insurance or assurances in connection therewith, (iii) all other Property (A) which, now or hereafter, is in the Bank’s possession, control, or in transit to, or the pledge of which is at any time registered to, the Bank or the Bank’s agent or bailee for any reason or purpose or (B) in which, now or hereafter, the Bank may have a security interest, securing any of the Liabilities, (iv) all balances, credits, deposits, accounts or moneys, held by the Bank, now or hereafter, which Applicant owns or in which Applicant may have an interest, and (v) all dividends, distributions and other rights in or with respect to, and substitutions for and products and proceeds of, any of the foregoing being referred to collectively as the “Collateral”. In addition, Applicant agrees: (i) that Applicant shall keep all Collateral that is customarily insured against loss, damage, theft and other risks, insured in amounts and by companies satisfactory to the Bank, and either assign the policies and certificates of insurance to the Bank or make the loss or adjustment payable to the Bank, and hold as the Bank’s agent in trust for the Bank any proceeds received by Applicant under such policies and promptly deliver the same to the Bank, (ii) that, if the Bank at any time deems such insurance inadequate for any reason, the Bank may procure such insurance as the Bank deems necessary, at Applicant’s expense, and (iii) to furnish to the Bank such certificates or other evidence with respect to the foregoing as the Bank may request. “Property” includes any rights or interests in goods, merchandise, documents, securities, funds, chooses-in-action and any and all other forms of property, whether tangible or intangible, real, personal or mixed, and proceeds thereof, which are owned by Applicant.

(b) Applicant agrees to keep the Collateral free and clear of all other interests and claims and, at any time and from time to time, upon the Bank’s request, (i) to deliver to the Bank any of the Collateral that may then be in or may hereafter come into its possession or control, (ii) to execute and deliver to the Bank such further security agreements, financing statements and other documents (and to pay the cost of filing or

recording the same in all public offices deemed necessary by the Bank), and to do such other acts or things required to perfect and maintain a valid security interest in the Collateral to secure the payment of the Liabilities (and any reproductions of this Agreement or of any such other security agreement or financing statement shall be sufficient for filing as a financing statement), (iii) to furnish to the Bank information concerning its financial condition, the Collateral, and any obligors on the Collateral as the Bank may reasonably request, and (iv) to deliver and assign to the Bank additional Collateral (including, but not limited to, cash Collateral) of a value and condition satisfactory to the Bank in the Bank’s sole judgment as additional security for the Liabilities if the Bank feels insecure for any reason. Applicant hereby irrevocably authorizes the Bank at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto without the signature of the Borrower that indicates the Collateral.

(c) The Bank shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if the Bank takes such action as Applicant shall request in writing, but the Bank’s failure to comply with any such request shall not be a failure to exercise reasonable care. If Applicant does not make a request in writing, the Bank’s failure to preserve or protect any rights to the Collateral shall not be a failure to exercise reasonable care in the custody and preservation of the Collateral.

(d) The Bank may, whether before or after the occurrence of any Deposit Event referred to in Section 4 hereof, at the Bank’s sole discretion and without notice to Applicant, take any or all of the following actions: (i) transfer all or any part of the Collateral into the Bank’s name or the name of the Bank’s nominee, with or without disclosing that such Collateral is subject to the security interest under this Agreement, (ii) notify any obligors of any of the Collateral to make payment to the Bank of any amounts due or to become due, (iii) enforce collection of any of the Collateral by suit or otherwise, or surrender, release or exchange all or any part of the Collateral, (iv) take control of any proceeds (including insurance proceeds) of any of the Collateral, and (v) extend or renew any obligation of any obligor to the Collateral, or grant releases, compromises or indulgences for any obligation of any obligor to the Collateral.

The security interest granted by this Section shall continue until such time as all Liabilities have been paid in full and discharged.

8. Risks. Applicant agrees that any action or omission by the Bank under or in connection with the Letter of Credit or any Items, documents or Property shall, unless in breach of good faith, be binding on Applicant and shall not put the Bank under any resulting liability to Applicant; and Applicant will indemnify the Bank and hold the Bank harmless from and against each and every claim, demand, liability, loss, cost or expense (including, but not limited to, reasonable attorneys’ fees and allocated costs of in-house counsel, and legal costs) to which the Bank may be subjected or which the Bank may incur by reason of any such action or omission, or by reason of any action taken pursuant to this Application and Agreement, unless in breach of good faith. In no event shall the Bank be liable for incidental, consequential or special damages.

9. Exculpation. In addition to the exculpatory provisions contained in the UCP 600, the Bank or the Bank’s correspondents shall not be responsible for and Applicant’s obligation to reimburse the Bank shall not be affected by:

(a) the time, place, manner, or order in which shipment is made, or partial or incomplete shipment or insurance of any property or any risk connected with insurance, delay in arrival or failure to arrive of any property or any relative documents, delay in giving or failure to give notice of arrival of goods or any other notice;

(b) compliance with any laws, customs or regulations in effect in countries of negotiation or payment of the Letter of Credit;

(c) failure of any Item to refer adequately to the Letter of Credit, or failure of documents to accompany any Item at negotiation/ payment/acceptance, or failure of any person to note the amount of any Item on the reverse of the Letter of Credit or to surrender or to take up the Letter of Credit or to forward required documents with Items, each of which provisions, if contained in the Letter of Credit itself, it is agreed may be waived by the Bank;

(d) any irregularity in connection with shipment, including any default, oversight or fraud by the shipper and/or any others in connection with the Property or documents or the shipment, non-shipment or transmittal thereof;

(e) any refusal by the Bank honor Items or the Bank is prevented from processing Items because of an applicable law, regulation or ruling of any governmental agency whether valid or invalid, or now or hereafter in effect;

(f) acts or the inability to act of the Bank’s agents or correspondents including, but not limited to, their inability to process Items because of any law, decree, regulation, ruling, or interpretation of any governmental agency, or

(g) the identity of any transferee of the Letter of Credit or the sufficiency of the transfer if the Letter of Credit is transferable.

10. Limitations on the Bank’s Liability. (a) The Bank shall not be responsible to Applicant for, and the Bank’s rights and

remedies against Applicant shall not be impaired by (i) action or inaction of the Bank required or permitted under any law, order, or practice that is required or permitted to be applied to the Letter of Credit or this Agreement (including the law or any order of a jurisdiction where the Bank or the Beneficiary is located and the practice stated in the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ICC”) Publication No. 600 (“UCP 600”), or the current version, and the decisions, opinions, practice statements, and official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade - International Financial Services Association (BAFT-IFSA), and the Institute of International Banking Law & Practice.) whether or not the Letter of Credit chooses such law or practice, (ii) honor without regard to any non-documentary condition(s) in the Letter of Credit, (iii) honor or other recognition of a presentation or other demand that includes forged or fraudulent documents or that is otherwise affected by the fraudulent, bad faith, or illegal conduct of the Beneficiary or other person (excluding employees of the Bank and any processing agent engaged by the Bank), whether or not Applicant is innocent and obtains no benefit, (iv) dishonor of any presentation that does not strictly comply or that is fraudulent, forged, or otherwise not entitled to honor, (v) dishonor which is authorized by Applicant, which occurs during the continuance of an Event of Default (defined below), or for which


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Applicant is unwilling or unable to reimburse the Bank, (vi) non-notification to Applicant of the Bank’s receipt of a presentation or claim for reimbursement under each Letter of Credit or of the Bank’s disposition thereof and, (vii) if the Bank in its sole discretion approaches Applicant for a waiver of discrepancies, dishonors regardless of Applicant’s waiver of discrepancies or request for honor, or (viii) retention of Letter of Credit proceeds based on a valid exercise of Bank of America’s set off rights or on an apparently applicable attachment order, blocking regulation, or third-party claim notified to the Bank.

(b) Except as may be expressly provided in this Agreement, the Bank shall not be liable to the Applicant in contract, tort or otherwise and under no circumstances shall the Bank be liable to the Applicant or any other person for any special, indirect, consequential, exemplary, or punitive damages.

11. The Bank’s Discretion. (a) The Bank may for Applicant’s account at any time provide in the Letter of Credit

or otherwise agree to do or do any one or more of the following (i) send the Letter of Credit or conduct any communication to or from the Beneficiary via the Society for Worldwide Interbank Financial Telecommunication ("SWIFT") message or overnight courier, or any other commercially reasonable means of communicating with a bank beneficiary, (ii) assert or waive or, with any necessary consent from the Beneficiary or other person, amend any provision in the Letter of Credit or applicable practice that primarily concerns issuer operations (including (A) identification of the Letter of Credit in any presentation, (B) marking of the Letter of Credit to reflect a transfer, payment, or other action, (C) specification of banking days and hours, manner, and place for the Bank’s receiving a presentation, effecting honor, and giving notice of dishonor under the Letter of Credit, (D) duration of the period(s) for examination, approaching Applicant for a waiver, or sending a notice of refusal, (E) disposition of the Beneficiary’s documents after dishonor or while approaching Applicant for a waiver, and (F) replacement of a lost Letter of Credit or recognition of a successor Beneficiary), (iii) select any branch or office of the Bank or any affiliate of the Bank or another Bank to act as advising, transferring, confirming, and/or nominated bank or person under the law and practice of the place where it acts (if the Letter of Credit permits advice, transfer, confirmation, and/or nomination) or to act as letter of credit processing agent for the Bank in the Bank’s issuance of the Letter of Credit or processing of demands or in any other action that the Bank is required or permitted to take under the Letter of Credit, (iv) honor any presentation that substantially complies with the terms and conditions of the Letter of Credit, whether or not the Letter of Credit requires strict or literal compliance; and (v) provide for or submit to arbitration, mediation, or the like for the resolution of any dispute between the Bank and Beneficiary.

(b) Unless specifically committed to do so in a writing signed by the Bank, the Bank need not consent to any Letter of Credit amendment.

(c) If the Beneficiary or another person claims that the Bank has wrongfully repudiated or dishonored, then the Bank shall have the right to defend or settle the claim, with or without joining Applicant in any proceeding or negotiation and without regard to whether the claimant asserts that the Bank is precluded from relying on a valid defense, and Applicant shall have the obligation to mitigate damages and, if the Bank pays or settles, to reimburse, indemnify, account for any benefits, as provided above, and to cooperate with the Bank as subrogee.

(d) The Bank’s agreement to use, or its use of, its discretion in one or more instances shall not waive its right, with or without notice to Applicant, to use its discretion differently in other similar instances and shall not establish a course of conduct on which Applicant may rely in any other instances under the Letter of Credit.

12. Applicant’s Responsibility for Letter of Credit Text and Practice. Applicant is responsible for preparing or approving the text of the Letter of Credit as submitted to and as issued by the Bank and as received by the Beneficiary. The Bank’s recommendation or drafting of text or the Bank’s use or non use or refusal to use text submitted by Applicant shall not affect Applicant’s ultimate responsibility for the final text. Applicant is responsible for the Bank’s failure to apply, or to observe standard practice as applied to, Letter of Credit terms or conditions that (i) are erroneous, ambiguous, inconsistent, insufficient, ineffective, or illegal, (ii) require the Bank to respond to a demand in fewer than 3 banking days, or (iii) require Applicant to sign, issue, or present a document.

13. Indemnities. (a) Applicant will indemnify and hold the Bank (such term to include for purposes of

this Section 13 affiliates of the Bank and its affiliates’ officers, directors, employees and agents) harmless from and against (i) all loss, claim, expense or damage arising out of the issuance by the Bank, or any other action taken by any such indemnified party in connection the Letter of Credit including any loss or damage arising in whole or in part from the negligence of the party seeking indemnification, but excluding any loss or damage resulting from the gross negligence or willful misconduct of the party seeking indemnification, and (ii) all costs and expenses (including reasonable attorneys’ fees and allocated costs of in-house counsel and legal expenses) of all claims or legal proceedings arising out of the issuance and all actions arising from or relating to issuance by the Bank of the Letter of Credit or incident to the collection of amounts owed by Applicant hereunder or the enforcement of the rights of the Bank hereunder, including, without limitation, legal proceedings related to any court order, injunction, or other process or decree restraining or seeking to restrain the Bank from paying any amount under the Letter of Credit. Additionally, Applicant will indemnify and hold the Bank harmless from and against all claims, losses, damages, suits, costs or expenses (including reasonable attorneys’ fees and allocated costs of in-house counsel, and legal expenses) arising out of (i) the Bank’s acceptance of telecommunication instructions in connection with the Letter of Credit, including but not limited to, telephonic instructions in connection with any waiver of discrepancies, or (ii) Applicant’s failure to timely procure licenses or comply with applicable laws, regulations or rules, or any other conduct or failure of Applicant relating to or affecting the Letter of Credit.

(b) If any award, judgment or order is given or made for the payment of any amount due under this Agreement and such award, judgment or order is expressed in a currency other than the currency required under this Agreement, Applicant shall indemnify the Bank against and hold the Bank harmless from all loss and damage incurred by the Bank as a result of any variation in rates of exchange between the date of such award, judgment or order and the date of payment (or, in the case of partial payments, the date of each partial payment thereof) in the required currency.

(c) Without limiting the foregoing, the above indemnities cover all claims and liabilities for which the indemnified party is not responsible to the Applicant under this Agreement, or, if not covered in this Agreement, under applicable law or practice, and the above indemnities cover all claims and liabilities, whether they arise or are settled formally or informally, in which (i) the Beneficiary seeks to enforce the Letter of Credit or any pre-advice of its issuance or amendment, (ii) a third party seeks to enforce the rights of an applicant, Beneficiary, nominated bank, assignee of letter of credit proceeds, or holder of a document, (iii) Applicant seeks to enjoin honor or to attach proceeds from honor or to obtain similar relief against the Bank or (iv) a government agency seeks to investigate or regulate specifically this Agreement, the Letter of Credit, or any document or property received under this Application and Agreement or the Letter of Credit.

(d) Each of these indemnities shall constitute an obligation separate and independent from the other obligations contained in this Application and Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Bank from time to time, and shall continue in full force and effect notwithstanding any award, judgment or order for a liquidated sum in respect of an amount due under this Agreement.

14. Governing Law and Rules. (a)This agreement will be governed by and interpreted in accordance with (i) U.S.

federal law and, (ii) the laws of the state of New York. Unless otherwise specified in the terms of the Letter of Credit, the Letter of Credit will be subject to and governed by and interpreted in accordance with the most current version of the UCP 600 in effect on the date the Letter of Credit is issued. In any event, each choice of law shall be without reference to the chosen jurisdiction’s provisions regarding conflicts of laws.

(b) To the extent permissible under applicable law, the Applicant hereby waives any rights it may have to a trial by jury of any dispute arising under or relating to this Application and Agreement or the Letter of Credit, and agrees that any such dispute shall be tried before a judge sitting without a jury.

15. Applicant Status. The word “Applicant” in this Application and Agreement refers to each signer (other than the Bank) of this Application and Agreement. If this Application and Agreement is signed by more than one Applicant, their obligations under this Application and Agreement shall be joint and several. If there is more than one Applicant, the Letter of Credit will be issued in the name of the Account Party listed on the Application, or if no such party is listed, the first Applicant named on the Application (the “Designated Party”). Applicant further agrees that the Designated Party shall have the exclusive right to issue all instructions relating to the Letter of Credit including (without limitation) instructions as to the disposition of documents and any unutilized funds, waiver of discrepancies, and to agree with the Bank upon any amendments, modifications, extensions, renewals, or increases in the Letter of Credit or the further financing or refinancing of any transaction effected thereunder, irrespective of whether the same may now or hereafter affect its rights or those of its legal representatives, heirs, successors or assigns. The Designated Party shall have specimen signatures on file with the Bank and the Bank may give any notices to the Designated Party without notice to any other person listed as an Applicant on the Application.

16. Representations and Warranties. (a) Applicant represents and warrants to the Bank that it has the authority to enter

into this Application and Agreement and that such agreement will not violate or conflict with any of the provisions of its constituent documents or any other agreement or undertaking to which it is a party or to which it is bound.

(b) Applicant represents and warrants to the Bank that Applicant has obtained all licenses and other governmental approvals required for the import, export, shipping, storage of, financing of or payment for goods and the documents described in the Letter of Credit. Applicant also represents and warrants to the Bank that it has paid all applicable levies, duties or other taxes imposed in connection with the Letter of Credit (other than net income taxes payable by the Bank). Without limiting the generality of the foregoing, Applicant further expressly represents and warrants to the Bank that the transactions underlying the Letter of Credit are not prohibited under the Foreign Assets Control Regulations of the United States Treasury Department and any importation covered by the Letter of Credit conforms in every respect with all existing applicable U.S. and state laws.

17. Miscellaneous. (a) No delay, extension of time, renewal, compromise or other indulgence which

may occur or be granted by the Bank shall impair the rights and powers of the Bank hereunder. The Bank shall not be deemed to have waived any of its rights hereunder, unless the Bank shall have signed such waiver in writing.

(b) Any notice from the Bank to Applicant shall be deemed given when mailed, postage paid, or when delivered to a courier, fee paid by shipper, addressed to Applicant at the address furnished by Applicant to the Bank pursuant to this Application and Agreement, or when confirmed by electronic confirmation to the Bank. as having been delivered via facsimile or other teletransmission. Any notice from Applicant to the Bank shall be sent to the address of the Bank specified by the Bank to Applicant and shall be effective upon receipt by the Bank.

(c) Each provision of this Application and Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Application and Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Application and Agreement.

(d) Any and all payments made to the Bank hereunder shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding income or franchise taxes imposed by the United States and any political subdivisions thereof (such nonexcluded taxes being herein called “Taxes”). If Applicant shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 17(d)), the Bank shall receive an amount equal to the sum the Bank would have received had no such deductions been made, (ii) Applicant shall make such deductions, and (iii) Applicant shall pay the full amount deducted to the relevant authority in accordance with applicable law.


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Applicant will indemnify the Bank for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 17(d)) paid by the Bank and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date the Bank makes written demand therefor. Within 30 days after the date of any payment of Taxes, Applicant will furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof.

(e) This Application and Agreement shall be binding upon Applicant, its successors and assigns, and shall inure to the benefit of the Bank, its successors, transferees and assigns; provided that any assignment by Applicant of any of its rights or obligations under this Application and Agreement without the prior written consent of the Bank shall be void.

(f) If the Applicant requests the Bank to increase the amount of the Letter of Credit, extend or renew the Letter of Credit, otherwise modify the terms of the Letter of Credit, or finance or refinance any transaction effected under the Letter of Credit, Applicant agrees that this Agreement shall continue to bind it with respect to any action taken by the Bank or any of the Bank’s correspondents in accordance with such increase, extension, renewal or other modification and as to any transaction so financed or refinanced.

(g) Applicant shall pay the Bank for reasonable attorneys’ fees and allocated costs of in-house counsel, and legal costs paid or incurred by the Bank in connection with this Agreement or the related Letter of Credit (including, without limitation, the defense by the Bank of any proceeding initiated by the Applicant to enjoin or restrain any drawing, payment or negotiation of the Letter of Credit by the Bank, even if the Applicant is awarded such relief, provided only that the Bank has acted in good faith in defending such action).

(h) In the event of any change or modification, with the consent of Applicant, which consent may be given by any means of submission acceptable to the Bank, including, without limitation, computer, facsimile or telex, relative to the Letter of Credit or any instrument called for hereunder, including any waiver made or in good faith believed by the Bank to have been made by Applicant of any term hereof or the noncompliance of any such instruments with the terms of the Letter of Credit, this Application and Agreement shall be binding upon Applicant with regard to the Letter of Credit as so changed or modified, and to any action taken by the Bank or any of its correspondents relative thereto. No term or provision of this Application and Agreement can be changed orally, but only in a writing and signed by Applicant and the Bank. This Agreement may be amended, supplemented or modified from time to time by a rider, amendment or supplement executed by Applicant and accepted by the Bank.

(i) The Bank assumes no liability or responsibility for the consequences arising out of delay and/or loss in transit of any message, letter or documentation, or for delay, mutilation or other error arising in the transmission of any teletransmission.

(j) If Applicant includes in the Application any language describing events or conditions that would not be possible for the Bank to verify solely from the documents required to be presented under the Letter of Credit, Applicant acknowledges and agrees that the Bank has no obligation to verify compliance with such requirements. NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Application and Agreement is executed by Applicant on .

If this box is marked, Applicant authorizes Bank of America to effect payment of any sums due under this Application and Agreement by means of debiting Applicant’s account with Bank of America set forth below. This authorization does not effect the obligation of Applicant to pay such sums when due, if there are insufficient funds in such account to make such payment when due, or if Bank of America fails to debit the account, and this authorization does not effect any setoff rights of Bank of America at law or in equity. Applicant’s account number with Bank of America is .

APPLICANT Name of Company or Individual

By, Authorized by (signature)

Title

Telephone ( ) Fax ( )


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Import LCs Defined

Understanding the commercial LC applicationCommercial Letter of Credit Application01. Applicant:� Enter your legal name exactly as it appears on your preapproved line of credit or application for credit.

02. Full text teletransmission /Courier:� Bank of America Merrill Lynch will send the issued LC to an advising bank

in the country of the beneficiary using the method that you choose. When “full text teletransmission” is chosen,

Bank of America Merrill Lynch normally sends the LC via SWIFT to the advising bank for forwarding to the

beneficiary. LCs can also be sent by a brief teletransmission advice, followed by full details by airmail or courier.

This same advising bank must be used when making an amendment to the LC.

03. Advising Bank:� Enter the name of the bank the beneficiary wishes to use to advise the LC. If no specific bank

has been requested, leave this blank. Bank of America Merrill Lynch will send the LC to a branch of Bank of

America Merrill Lynch or a correspondent bank in the beneficiary’s country to deliver the LC to the beneficiary.

The only responsibility of the advising bank is to take reasonable care to check the apparent authenticity of the

LC that it advises, thoroughly test key arrangements, and then mail or deliver it to the beneficiary. In addition,

advising banks might be nominated or requested to negotiate credits but have no obligation to do so.

04. For Account Of:� this box if you want the LC to be issued on behalf of an entity other than the applicant.

Otherwise, leave blank.

05. In Favor Of:� Enter the name and address of the beneficiary. The beneficiary is the party from which you are

buying the merchandise. This is the party entitled to be drawn under the LC and the party that will receive

payment upon presentation of documents that comply with the terms of the LC.

06. Expiration Date:� Enter the date the LC is to expire. Be sure to allow plenty of time for the beneficiary to make the

shipment and present the documents required by the LC. The expiration date cannot be later than the date your

available credit expires. LCs typically expire at the offices of an advising or negotiating bank in the beneficiary’s

country. To allow time for any drawing to reach us, collateral is generally held for 30 days after the expiration

date. If the LC expires at our counters, the collateral is generally held for ten working days. This allows for

documents that may still be in transit to reach us.

07. Amount:� Enter the amount of the LC in figures followed by the amount in words. Enter the name of the currency.

If blank, the currency will be assumed as USD. However, your beneficiary may require the LC to be paid in a

major foreign currency such as the EUR, JPY or GPS. If the LC is issued in a foreign currency, you undertake the

exchange rate fluctuation risk, and additional credit approval will be required.

08. Covering:� LCs are usually issued for 100% of the amount of the invoice. They can be issued for less than the full

amount of the invoice if, for example, you have made an advance payment to the beneficiary.

09. Available By Drafts At (Tenor):� The draft is the document that represents the demand for payment that the

beneficiary makes on the bank. Most LCs call for drafts at “Sight,” where the beneficiary is paid at the time

documents are received and found to be in compliance with the terms of the LC. If, on the other hand, the

beneficiary and bank have agreed to give you payment terms, the LC will call for drafts payable at some future

time. For example, drafts payable at “90-Days Sight” or payable at “45 days after Bill of Lading date.”

10. Partial shipment:� Check the appropriate box to indicate whether or not you will allow payment on partial

shipments.


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Import LCs Defined

11. Transshipment:� Check the box to indicate whether or not you will allow transshipment. Transshipment means

that the merchandise is loaded on a carrier that only goes to a certain point and at that point the merchandise

is unloaded and reloaded on another carrier. Transshipment should always be permitted on air shipments and

combined transport method shipments. It may be prohibited on shipments where direct shipping service between

the supplier and you is always available.

12. Transferable LC:� Check the box to indicate whether or not you will allow this LC to be transferred by the

beneficiary. A transferable LC allows the beneficiary of an LC to make available (transfer) all or part of the

proceeds of the LC to a separate party. The parties to whom the LC is transferred acquire the same rights and

responsibilities under the LC as the original beneficiary. Transferable LCs are typically used when both parties

require the protection of the LC and the first beneficiary of the LC is an agent or intermediary procuring goods

from another supplier whose identity he does not want to disclose to the buyer.

13. Shipment From:� To: For shipments where a multi modal document is called for, complete at least fields A and/

or D, fields B and C are optional and should be used as applicable to give clear information about the expected

movement of the goods. For shipments where an ocean or charter party bill of lading OR an air waybill is called

for, complete fields B and C only. For shipments where road, rail or inland waterway documents are called for,

complete fields A and D only.

14. Merchandise to be Described in Invoice as:� Enter a brief description of the merchandise. If your description is

too detailed, we may ask you to shorten the description before we issue the LC. A detailed description of the

merchandise belongs in the contract between buyer and seller or in purchase order, not in the LC.

15. Shipping terms/price basis:� Also known as Incoterms, the shipping terms you select should be discussed and

agreed to with your supplier in advance of completing the application. The price basis determines which services

and related costs, usually freight and insurance, are included in the price, in addition to the cost of the goods

themselves. International trade terms used in connection with specific prices should be understood thoroughly

by both the buyer and seller (see Incoterms).

16. Documents required:� This area contains a number of commonly requested LC documents to demonstrate

shipment of the merchandise you’ve contracted to buy. The documents you will need from the beneficiary depend

upon the contract between you and the beneficiary, the country from which the goods will be shipped, the price

basis and, in some cases, the merchandise itself. Your customs house broker can give you guidance regarding

the documentation you will need from the beneficiary. Refer to Chapter 5 for more information on documents

typically required under an LC.

Commercial Invoice:� This is always required. Specify how many originals and how many copies you’ll need.

Packing List:� Typically required, it describes the contents that were packed into the containers you’ll be

receiving. Specify how many originals and how many copies you’ll need.

Certificate of Origin:� Typically required, it certifies where your merchandise originated. Specify how many

originals and how many copies you’ll need.

Negotiable Marine/Air Insurance Policy:� Check this box if your shipping term includes insurance. Stipulate

who is to effect the insurance coverage. Also check the boxes to indicate which risks should be covered by the

insurance policy.

Transport Documents:� Indicate type of transport document and number of originals required based on the

expected mode of shipment.


Chapter 03

Import LCs Defined

Consigned To/the Order of:� Indicate to whom the merchandise will be consigned, the order of and how the

consignment must be endorsed. This is the party that will be able to take possession of the goods.

Marked Notify:� Specify a party to be notified when the goods arrive for dispatch to the consignee. Marked

Freight: Check the box to indicate whether freight is to be covered on a “collect” or “prepaid” basis.

Other Documents:� List any additional documents you expect the exporter to produce. These could include

Inspection Certificates and Phytosanitary Certificates, among others. If the shipment is to be made by air, you

may wish to require a signed statement from the beneficiary that one set of documents has accompanied the

shipment. This will enable you to pick up the merchandise as soon as it arrives. This should be included in

Special Instructions.

17. Special Instructions to be Included in the LC:� When there are additional terms or conditions that are not

covered by these documents, you can indicate them here. Bank of America Merrill Lynch automatically indicates

that any banking charges other than ours are to be charged to the beneficiary, unless you indicate otherwise.

We may inquire about the purpose of special instructions requested by you, to better ensure that they can be

complied with.

18. Special instructions for Bank of America Merrill Lynch:� Use this area to tell us who we should call with any

questions about your application and who to contact if there are discrepancies in the documents presented.

19. Documents must be presented to the negotiating or payment bank no later than:� This is the amount of time

the seller has to obtain, complete and present all documents required under the LC for payment. If this space

is left blank, the shipper may take up to 21 days to present documents, not to exceed the expiry date of the LC.

Steamship companies normally require an original bill of lading to release merchandise. If you allow the shipper

too many days to present documents, the ship may arrive at the destination port in advance of the documents.

The merchandise will then be placed in storage by the steamship company and will accrue demurrage charges.

The number of days entered here added to the latest shipment date in box No. 12 should arrive at the expiration

date in box No. 5.

Agreement

Following the demonstration copy of the Commercial LC Application, you’ll find an example of the Agreement

from the reverse side of the application. This represents the Agreement between you and Bank of America

Merrill Lynch for the issuance of your LC. Please read it carefully, and complete and sign in accordance with the

instructions on the Agreement itself.


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Import LCs Defined

A Discussion of UCP 600All commercial LCs should be issued subject to a set of rules established by the ICC, and known officially as “The

Uniform Customs and Practice for Documentary Credits.” The current version is referred to as UCP 600 and went into

effect July 1, 2007. The following discussion is intended to only summarize the 39 articles that comprise UCP 600

and is not intended to be advice. Partial quotes and comments are given in this chapter and should not be interpreted

as a full summary. For a complete understanding and review of UCP 600, as well as the URC 522 (“Uniform Rules for

Collections”), please refer to the ICC publications, available for purchase on ICC’s website at www.iccbooksusa.com.

Art. 01. Application of UCP

UCP 600, applies to all LCs that specifically state that they are issued subject to its terms. You may want to

great care to avoid accepting commercial credits that are not issued subject to UCP 600. Please note that

standby LCs can be issued subject to UCP 600, they are generally issued subject to another set of rules

issued by the International Chamber of Commerce, ISP 98.

Art. 02. Definitions

This article gives 14 definitions relative to this publication.

Art. 03. Interpretations

This article gives 12 interpretations to use within the framework of the rules.

Art. 04. Credits vs. Contracts

“A credit by its nature is a separate transaction from the sales or other contract on which it may be based.”

• This article makes a distinct difference between the credit itself and any underlying contract to which

the transaction is connected. Banks are not concerned with any underlying contracts, and an applicant

cannot prevent a bank from paying on a credit simply because the applicant asserts that the underlying

contract has been broken or not fulfilled.

• There may be various contractual relationships which exist between banks or between the applicant and

the issuing bank. Beneficiaries may not avail themselves of such relationships (see Art. 5).

Art. 05. Documents vs. Goods/Services/Performance

This article clarifies that banks deal only with documents, and not with goods, services or other

performances relative to those documents.

For example: A credit calls for shipment of “5 blade ceiling fans,” and the applicant (buyer) learns that the

beneficiary shipped “4 blade ceiling fans.” The applicant cannot instruct the bank to deny payment. So long

as the documents being submitted describe the goods as “5 blade ceiling fans,” the bank is obligated to pay

(assuming all other terms and conditions were complied with). Likewise, if a standby credit contains a clause

that requires the beneficiary to submit a statement certifying that “The applicant is in default under their

contract No. 1234 dated May 15, 2006,” then the applicant is precluded from instructing the bank to deny

payment simply on the basis that the applicant claims not to be in default.

Art. 06. Availability, Expiry Date and Place for Presentation

“A credit must state the bank with which it is available or whether it is available with any bank.” This article

gives specific guidance on the various availability structures, expiry conditions and place for presentation of

documents. Properly structured, a credit will effectively tie these items to one another.

Art. 07. Bank Undertaking

A credit is an obligation of the issuing bank to honor, provided that a complying presentation is made. The

article outlines the various scenarios which will engage the issuing bank’s obligation depending on the

availability of the credit.

http://www.iccbooksusa.com


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Import LCs Defined

Art. 08. Confirming Bank Undertaking

By adding its confirmation to a credit, a bank is obligated to honor provided that a complying presentation

is made. The article outlines the various scenarios which will engage the confirming bank’s obligation

depending on the availability of the credit.

Art. 09. Advising

A credit may be advised to a beneficiary through another bank without engagement on the part of that

bank. This bank may act in the role of either an advising bank or as a confirming bank. The advising bank’s

responsibility is limited to taking reasonable care to ensure the authenticity of the credit and the accuracy

of the credit as it is passed to the beneficiary. If it is unable to verify authenticity, it must notify the issuing

bank right away. Should the advising bank choose to advise an unauthenticated credit, they must so

indicate this on their cover letter to the beneficiary. This responsibility on the part of an advising bank is

very important. Unfortunately, there have been numerous documented cases of bogus letters of credit being

issued, and then advised or confirmed by yet another bogus bank in the beneficiary’s country. This is just

one good reason to arrange for letters of credit to be advised/confirmed by the beneficiary’s bank whenever

possible.

Art. 10. Amendments

A credit cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank

(if any), and the beneficiary. The only minor exception is covered under transferable credits, Article . An

issuing bank is bound by any amendments as soon as it has issued them. A confirming bank is likewise

bound from the moment that it extends its confirmation to any amendment. However, a confirming bank may

decline to extend its confirmation to an amendment, and, if it does so, it must inform the issuing bank and

the beneficiary without delay. An amendment does not become effective until the beneficiary accepts the

amendment. Acceptance may be in writing. If the beneficiary does not accept the amendment in writing but

subsequently presents documents that conform to the credit and the not yet accepted amendment, then the

amendment is deemed accepted at that time. If the beneficiary wishes to reject the amendment, rejection

should be done in writing prior to presenting documents. If there is more than one change covered in the

same amendment advice, the beneficiary must accept or reject all changes in that particular amendment.

Art. 11. Teletransmitted and Pre-Advised Credits

Credits sent by an issuing bank to an advising bank via a teletransmission are considered the operative

instrument and no confirmation is expected to follow.

Art. 12. Nomination

“An authorization to honor or negotiate does not impose any obligation on that nominated bank.” This article

describes the options of a bank who has been nominated to honor or negotiate. It is also the article that

authorizes a nominated bank that has accepted a draft or incurred a deferred payment undertaking to prepay

or purchase that undertaking from the beneficiary. Lastly, this article makes it clear that the act of receiving,

examining and forwarding documents does not constitute honor or negotiation.


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Art. 13. Bank-to-Bank Reimbursement Arrangements

This article only applies to those credits which arrange for bank-to-bank reimbursement where the letter

of credit does NOT indicate that the reimbursement is subject to URR 525 (ICC Rules for Bank-to-Bank

Reimbursements).

• When an issuing bank opens a letter of credit that is available with a bank other than itself, the issuing

bank will frequently indicate the name of a reimbursing bank. The issuing bank maintains an account with

the reimbursing bank and authorizes them to honor reimbursement claim(s) from the nominated bank that

has acted in accordance with its nomination under the credit. This article simply states that the issuing

bank must provide authorization instructions to the reimbursing bank in a timely manner. The bank that

requests reimbursement is called the claiming bank.

• A claiming bank shall not be required to supply a certificate of compliance with the terms and conditions

to the reimbursing bank.

• If the reimbursing bank fails to pay the claiming bank, then the issuing bank is still obligated to pay the

claiming bank provided that all terms and conditions of the credit have been complied with.

• The issuing bank shall be responsible to the claiming bank for any loss of interest if reimbursement is

not provided by the reimbursing bank on first demand, or as otherwise specified in the credit or mutually

agreed, as the case may be.

• The reimbursing bank’s charges are to be paid by the issuing bank unless specified for the account of

the beneficiary. If so specified, the reimbursing bank’s charges will be deducted from the payment to the

claiming bank. In the event that the credit is not drawn under the reimbursing bank, charges remain for

the account of the issuing bank.

Art. 14. Standard for Examination of Documents

This article gives exporters a clear idea of how banks will perform the examination of their documents and

sets a strong foundation for how to prepare complying documents. It deals with the following topics:

• Banks must determine compliance on the basis of documents.

• Each bank that has a specific duty in the LC (issuing bank, confirming bank, nominated bank that is acting

on its nomination) has a maximum of five banking days following the day of presentation to examine the

documents and determine compliance.

• A presentation must be made no later than 21 days after the goods have been shipped, but in no case

later than the expiry date of the credit.

• Example: An LC is issued with an expiry date of Saturday, August 25, 2007, but does not stipulate a latest

shipping date. Documents could be presented as late as Monday, August 27, 2007; however, the latest

shipping date could be no later than Saturday, August 25, 2007.

Note: Sometimes documents are presented on or before the expiry date or latest day for presentation,

and are subsequently found to contain discrepancies. On occasion, the beneficiary must re-present

corrected documents. If the corrected documents are submitted after the expiry date or latest day for

presentation then a new discrepancy will exist of “LC expired” or “late presentation.” For this reason it is

highly advisable to present documents at least seven days prior to the expiry date of the credit.

• The data content in any required document in the presentation must not conflict with data

• The description of goods in documents other than the commercial invoice may be in general terms.

• Except for the transport document, commercial invoice and insurance document (if any), unless the

credit stipulates otherwise, banks will accept documents as presented if the content appears to fulfill the

function of the required document.

• Documents presented that are not required by the credit will be disregarded and likely will be returned to

the presenter.


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• If a credit speaks to a condition and does not indicate which document would contain information to show

compliance, that condition will be disregarded.

• Information such as beneficiary and applicant addresses and contact details and the named shipper or

consignor on any document may vary from that shown in the credit.

Art. 15. Complying Presentation

This article describes the actions around negotiation, honor and forwarding of documents required of a bank

when a presentation is found to be in compliance.

Art. 16. Discrepant Documents, Waiver and Notice

This article describes the actions permitted or required of a bank when a presentation does not comply.

• The bank may refuse to negotiate or honor.

• The issuing bank may approach the applicant for waiver of discrepancies.

• The bank deciding to refuse must give a single notice to the presenter, by expeditious means, by the

close of the 5th banking day after presentation that includes:

A statement of refusal

A listing of each discrepancy

A notice of how the documents will be handled

• If the bank fails in any of these responsibilities they shall be precluded from claiming that the documents

do not comply.

Art. 17. Original Document and Copies

This article explains the issues around original vs. copy documents:

• At least one(1) original of each document called for in a credit must be presented.

• Guidelines are described regarding how to determine if a document is an original for the purposes of

these rules.

Art. 18. Commercial Invoice

This article describes the basic features of a compliant commercial invoice. It is important to note that

the requirement for merchandise description has a higher threshold for compliance than that for other

documents—“must correspond with that appearing in the credit.”

Art. 19. Transport Document Covering at Least Two Different Modes of Transport

This article describes the required characteristics for the transport document we often call the multimodal or

combined transport document. Here you will find information on:

• Signature requirements

• Shipment or dispatch information

• Logistic information

• Terms of carriage

• Transshipment information

Art. 20. Bill of Lading

This article describes the basic required characteristics for the transport document often referred to as a

Marine or Ocean Bill of Lading (B/L) and that indicates a port-to-port shipment. Here you will find information

on:







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Art. 21. Non-Negotiable Sea Waybill

This article describes the basic required characteristics of the document often referred to by its shorter

name—sea waybill. This document must not be confused with the non-negotiable copy of a bill of lading or

multimodal transport document nor with a bill of lading or multimodal transport document that has been

issued in straight or non-negotiable form. In the article you will find information on:






Art. 22. Charter Party Bill of Lading

This article describes the basic required characteristics of this private agreement transport document—the

bill of lading that is subject to a charter party contract. In the article you will find information on:




Art. 23. Transport Document

This article describes the basic required characteristics of the document often referred to as an air waybill

(AWB). In the article you will find information on:






Art. 24. Road, Rail or Inland Waterway Transport Document

This article describes several transport documents where, for the purposes of letters of credit, the basic

required characteristics are similar. You might see the documents referred to as (including but not limited to):

• Truck/ Road—Bill of Lading or Waybill

• Rail Bill of Lading or Waybill

• Barge Waybill

In this article you will find information on:





Art. 25. Courier Receipt, Post Receipt or Certificate of Posting

This article describes the basic required characteristics for transport documents that indicate shipment of

goods by courier or postal services. In this article you will find information on:





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Art. 26. “On Deck,” “Shipper’s Load and Count,” “Said by Shipper to Contain” and Charges Additional to Freight

This article describes certain wording that typically is found on transport documents and details how banks

will deal with this circumstance.

Art. 27. Clean Transport Document

This article provides a rule that says that bank will accept only clean transport documents and what

constitutes a transport document that is not clean. The word “clean” need not appear on the document.

Art. 28. Insurance Document and Coverage

Insurance documents come into play when the shipment requires the seller to provide proof that the

goods have been insured as they move from seller to buyer. This article gives an overview of what

basic requirements must be met when an insurance document is required and conditions for certain

characteristics.

• Insurance document types


• Dates of coverage

• Logistics covered

• Value of coverage

• Risks covered

• Exclusions and deductibles

Art. 29. Extension of Expiry; Last Date or Day for Presentation

Control of the critical dates in a credit is one of responsibilities of the beneficiary that will help ensure they

retain the protection of the credit. This article gives the beneficiary the right tomake their presentation on the

banking day following the latest day for presentation, whether that is tied to a shipping date or is actually the

expiry date of the credit.

Art. 30. Tolerance in Credit Amount, Quantity and Unit Prices

This article provides for tools within the credit that create allowances often necessary with regard to the

details of amount, quantity and unit prices, while also providing for protection of unit prices where necessary.

This is a very useful article in helping credits adapt to the needs of the buyer and seller when exact values

are undetermined until goods are actually shipped.

Allowances in Credit Amount, Quantity and Unit Price

• Sometimes an LC will refer to the amount or the quantity as “about,” or “approximately.” When this

happens, the amount or quantity may be up to 10%more or less than the amount or quantity (including

unit prices) stated in the credit.

• Banks will accept documents which show that the quantity of goods being shipped has a variance of

5%more or less than that stipulated in the credit unless it would cause the amount of the drawing to

exceed the available balance under the credit, or the credit states the quantity in terms of a stipulated

number of packing units.

Example:� LC calls for 5,000 gallons of orange juice valued at $100,000.Unless specifically prohibited in the

credit, banks will accept documents showing the amount of product within a range of 4,750 gallons up to

5,250 gallons. Note: The amount being drawn could be reduced to $95,000 (for 4,750 gallons), but could not

exceed $100,000 even though between 5,000 and 5,250 gallons were shipped.

Example:� LC calls for 5,000 cartons of orange juice. Banks will reject documents which indicate a shipment

of either less than or more than 5,000 cartons. (Exception: Banks will accept documents for less than 5,000

cartons if the credit allows for partial shipments). UNLESS a credit stipulates otherwise, or unless Article 30


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Import LCs Defined

(a) or (b) applies, banks will accept documents with an amount up to 5% less than the amount of the credit.

However, if the credit calls for a specific quantity or unit price, then the full quantity must be shipped and the

unit price must not be reduced.

Example:� LC calls for a shipment of 5,000 cartons of orange juice totaling $100,000. Partial shipments are

prohibited. Banks will accept documents totaling between $95,000 and $100,000 provided that the invoices

still indicate that 5,000 cartons have been shipped.

Art. 31. Partial Drawings or Shipments

While the standard credit makes no restrictions around partial shipments and/or partial drawings, credits

can and often do restrict partial shipments and/or drawings. This article helps all parties concerned

understand what constitutes a partial shipment in order to control partial shipment restrictions.

Art. 32. Installment Drawings or Shipments

Some credits contain conditions for required installment drawings and/or shipments. This article tells us that

if any such installments are not drawn or shipped according to the time requirements in the credit, the credit

CEASES to be available for that and any further drawings.

Art. 33. Hours of Presentation

Banks have no obligation to be available to take in presentations outside of normal business hours (see

Article 2 for definition of banking days).

Art. 34. Disclaimer on Effectiveness of Documents

This article establishes that, while banks deal in documents only with regard to the transaction covered by

the LC, they do not have any responsibility to go outside of those documents to establish their genuineness

or accuracy or descriptions therein, etc.

Art. 35. Disclaimer on Transmission and Translation

This article establishes that banks are not responsible for consequences of loss in transit or mutilation of

documents arising out of transmission or delivery.

Art. 36. Force Majeure

This article relieves banks of responsibility for consequences arising during force majeure events.

Art. 37. Disclaimer for Acts of an Instructed Party

This article covers a few separate issues related to the use of another bank’s services to complete the work

needed to process the LC.

• Banks often will utilize the services of another bank to effect instructions given by the applicant. This is

done so at the applicant’s risk.

• Neither the issuing bank nor the advising bank assumes responsibility should instructions it transmits to

another bank not be fulfilled, even if the bank was at their choice.

• A bank performing services at the request of an instructing bank is entitled to claim their charges from

the instructing bank; if the credit states that the charges are for account of the beneficiary and these

charges cannot be collected from them, the instructing bank remains liable for these charges.

Art. 38. Transferable Credits

A credit may be issued allowing for transfer by the issuing bank or by a bank nominated in the credit. This

article describes the governing rules for the transfer process.

• A bank is not obligated to transfer even though the LC states it is transferable

• Transferable credit is defined

• Transferring bank is defined

• Charges for transfer must be paid by the beneficiary


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Import LCs Defined

• Transfer in whole or in part

• How to handle amendments

• More than one second beneficiary

• Terms that may be changes as the transfer is made

• Substitution of invoice and draft by the first beneficiary; failure to substitute when demanded

• Second beneficiary presentation of documents must be made to the transferring bank

Art. 39. Assignment of Proceeds

The beneficiary may instruct that the proceeds (some or all) of a credit be paid to another party. Local law

governs such transactions.

This paraphrased version of the UCP 600 is intended to summarize and clarify its articles only, and is not to be

construed as the entire document. Partial quotes are made in this section. Bank of America assumes no liability for any

misunderstanding arising from the use of this condensed version. For a complete reading of UCP 600, URC 522, ISP98

and ISBP, please refer to the ICC publications available for purchase on ICC’s Web site at www.iccbooksusa.com.



Chapter 03

Import LCs Defined

A Discussion of the eUCP(Reference to UCP 500 can be carried over to UCP 600)

As an importer, you are probably aware that digital developments are shrinking the world and creating new

opportunities for your success in the global marketplace. New technologies can help increase cash flow, strengthen

supply chain relationships and streamline your trade activity.

With a basic understanding of these new guidelines for electronic document presentment (eUCP), you can start to

consider how digital developments will affect the future of your organization.

The ICC’s rules governing documentary credits now include an electronic supplement that caters to the growing

number of documents that are presented electronically. The eUCP came into force on March 31, 2002, and was

updated in July 2007 to bring it current with the UCP 600. It is now titled eUCP 1.1. The eUCP, several pages in

length, covers items such as the relationship of the eUCP to UCP 600, electronic formats for electronic documents,

amendments, place of presentation and notice of dishonor and preclusion.

These new articles supplement the UCP 600 rules and in no way replace them; they are to be used in conjunction

with the UCP 600. The eUCP provisions shall prevail to the extent that they would produce a result different from the

application of the UCP 600.

Parties wishing to use the eUCP will specifically have to incorporate it into the credit. However, a credit subject to the

eUCP is also subject to the UCP without express incorporation of the UCP.

The eUCP contains a number of definitions of terms that have totally different meanings in the electronic and paper-

based contexts. Terms such as “appears on its face,” “place for presentation,” and “sign”— all common features of

the UCP—are redefined to take an electronic environment into account. The full-text publication of the eUCP can be

ordered from the ICC at http://www.iccbooksusa.com.

At Bank of America Merrill Lynch we constantly evaluate new technology and consider future relationships. Our

e-Solutions are scalable, interoperable and are designed with the client in mind. Because we are not locked in to a

single solution and a single vendor, we can provide sound recommendations to help you manage increased volumes

and complexity and expand your global trade opportunities.

General statements from the eUCP Working Group ICC Banking Commission—March 2002“The Working Group concluded that its task is to create a supplement to the UCP that will deal with the issues of

electronic presentation. The official name for the work is ‘UCP Supplement for Electronic Presentation.’ It uses the

acronym ‘eUCP.’ The eUCP provides definitions to allow current UCP terminology to accommodate the presentation

of the equivalent of paper documents electronically and to provide necessary rules to allow the UCP and the eUCP to

work together. The eUCP has been written to allow for presentation completely electronically or to allow for a mixture

of paper documents and electronic presentation. While practice in this area is evolving, the Working Group believes

that providing exclusively for electronic presentation is not entirely realistic, nor will it promote the transition to total

electronic presentation.

The Working Group has not seen the need to address any issues relating to the issuance or advice of credits

electronically, since current market practice and theUCP have long allowed for credits to be issued and advised

electronically.

It is important for the reader of the eUCP to understand that many of the articles of the UCP are not affected by

the presentation of the electronic equivalent of paper documents and do not require any changes to accommodate

electronic presentation.

When read together, the UCP and the eUCP will provide the necessary rules to allow for electronic presentation and



Chapter 03

Import LCs Defined

are broad enough to allow for developing practice in this area. Where specific words or phrases used in the UCP are

defined in the eUCP, these definitions, unless otherwise stated, apply wherever the terms appear in the UCP. The

Working Group, in drafting the eUCP, has reviewed and considered definitions used in other ICC documents as well

as rules and regulations promulgated by governmental and international bodies. These definitions have been used or

partially used to the extent possible. Because the business is evolving, it is necessary in many cases to modify these

definitions or to create new definitions specifically to address the unique requirements related to the presentation of

the electronic equivalents of paper documents under the UCP.

The eUCP is specific to UCP 500 and, if necessary, may need to be revised as technologies develop, perhaps prior

to the next revision of the UCP. For that purpose, the eUCP is issued in version numbers that will allow for a revision

and subsequent version if the need arises. The eUCP has been specifically drafted to be independent of specific

technologies and developing electronic commerce systems. That is, it does not address specific technologies or

systems necessary to facilitate electronic presentation.

These technologies are evolving and it is left to the specific parties to agree on the technology or systems to be used

to provide for presentation of electronic records in compliance with the requirements of the eUCP.

The eUCP has been created to anticipate the needs of the market for the presentation of electronic documents. The

market, as it is developing, has created a higher standard in anticipation of increased processing efficiencies when

the electronic equivalents of paper documents are presented. In anticipation of this demand and to meet the market

expectation, several changes to the standards established by the UCP have been deemed necessary when an entirely

electronic presentation occurs. These changes are consistent with current practice and the expectations of the

marketplace. In order to avoid confusion between the articles of the UCP and the eUCP, the articles of the eUCP are

numbered with an ‘e’ preceding each article number.”


Chapter 03

Import LCs Defined

S.W.I.F.T. Samples and Comments on Specific FieldsThis sample is for illustration purposes only.

The LC is presented in SWIFT format, which is commonly used by major international banks to transmit LCs and other

messages. SWIFT messages are authenticated, between banks, by the exchange of an electronic key.

SAMPLE OF AN LC ISSUED BY BANk OF AMERICA MERRILL LYNCH

SENDER: BANK OF AMERICA

TRADE OPERATIONS CENTER

1000 WEST TEMPLE STREET

LOS ANGELES, CALIFORNIA 90012

RECEIVER: BANQUE AVISANT

PARIS, FRANCE

SWIFT AUTHENTICATED MESSAGE

ISSUE OF DOCUMENTARY CREDIT (TYPE: 700)

:27: SEQUENCE OF TOTAL:

1/1

:40A: FORM OF DOCUMENTARY CREDIT:

IRREVOCABLE

:20: DOCUMENTARY CREDIT NUMBER:

123456

:31C: DATE OF ISSUE:

071024

:40E: APPLICABLE RULES:

UCPLV

:31D: DATE AND PLACE OF EXPIRY:

071130 LOS ANGELES, CA

:50: APPLICANT:

RANDALL COMPUTER, INC.

321 OAK STREET


:59: BENEFICIARY:

PRODUITS ELECTRONIQUES S.A.

15 RUE GEORGES DUMAS PARIS 75009, FRANCE

:32B: CURRENCY CODE, AMOUNT:

USD 134,000.00

:41A: AVAILABLE WITH … BY … :

BANK OF AMERICA

TRADE OPERATIONS CENTER

1000 WEST TEMPLE STREET—7TH FLOOR


BY ACCEPTANCE


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Import LCs Defined

:42C: DRAFTS AT … :

90 DAYS SIGHT

FOR 100 PCT INVOICE VALUE

:42A: DRAWEE:

BANK OF AMERICA

LOS ANGELES, CALIFORNIA

:43P: PARTIAL SHIPMENTS:

PERMITTED

:43T: TRANSSHIPMENT:

PERMITTED

:44A: PLACE OF TAKING IN CHARGE/DISPATCH FROM/PLACE OF RECEIPT :

PARIS, FRANCE

:44E: PORT OF LOADING/AIRPORT OF DEPARTURE:

LE HAVRE, FRANCE

:44F: PORT OF DISCHARGE/AIRPORT OF DESTINATION:

LOS ANGELES, CALIFORNIA

:44B: PLACE OF FINAL DESTINATION/FOR TRANSPORTATION TO/PLACE OF DELIVERY:

FRESNO, CALIFORNIA

:44C: LATEST DATE OF SHIPMENT:

071120

:45A: DESCRIPTION OF GOODS AND/OR SERVICES:

COMPUTER EQUIPMENT ACCORDING TO P.O. NO. 87654

FCA PARIS, FRANCE

:46A: DOCUMENTS REQUIRED:

SIGNED COMMERCIAL INVOICE IN ORIGINAL AND TWO COPIES.

PACKING LIST IN ORIGINAL AND TWO COPIES.

FULL SET OF CLEAN MULTIMODAL TRANSPORT DOCUMENTS CONSIGNED TO THE ORDER OF SHIPPER,

BLANK ENDORSED, MARKED FREIGHT COLLECT AND NOTIFY BUYER.

:71B: CHARGES:

BANKING CHARGES ARE FOR ACCOUNT OF APPLICANT, EXCEPT FOR DOCUMENTARY DISCREPANCY

CHARGES, IF ANY, WHICH ARE FOR ACCOUNT OF BENEFICIARY.

:48: PERIOD FOR PRESENTATION:

DOCUMENTS MUST BE PRESENTED FOR PAYMENT, ACCEPTANCE / NEGOTIATION WITHIN 10 DAYS

AFTER THE DATE OF SHIPMENT, BUT WITHIN THE VALIDITY OF THIS CREDIT.

:49: CONFIRMATION INSTRUCTIONS:

WITHOUT

:78: INSTRUCTIONS TO THE PAYING/ACCEPTING/NEGOTIATING BANK:

1) ALL DOCUMENTS MUST BE FORWARDED IN ONE MAILING, VIA COURIER OR EXPRESS MAIL

SERVICE, TO BANK OF AMERICA, TRADE OPERATIONS CENTER, 1000 WEST TEMPLE STREET,

LOS ANGELES, CALIFORNIA 90012.


Chapter 03

Import LCs Defined

:72: SENDER TO RECEIVER INFORMATION:

PLEASE NOTIFY TO BENEFICIARY UNDER ADVICE TO US

ATTN: XYZ SMITH

PHONE: (012) 200—3000

FAX: (012) 200—4000

REGARDS

The preceding LC example is provided for information and illustration only, and does not convey any engagement or

responsibility on the part of Bank of America Merrill Lynch. The names of the institutions used, except for the name

of Bank of America Merrill Lynch, and the transaction represented herein are fictitious. Any similarity with actual

institutions and transactions is unintentional and coincidental.

Comments on Specific Fields in Preceding SampleSENDER:� ISSUING BANk

This is the bank that issues the LC at the request of their client, the buyer (applicant), in favor of the seller

(beneficiary). In the LC sample attached, the issuing bank is Bank of America Merrill Lynch.

RECEIVER:� ADVISING BANkThis is the bank that receives the LC from the issuing bank. In the LC sample attached, “Banque Avisant” is the

bank that would receive the LC and, consequently, the advising bank. LCs are normally sent by the issuing bank

to the beneficiary through an advising bank.

The advising bank has the means to verify the authenticity of the LC before forwarding it to the beneficiary.

However, the advising bank is not responsible for payment. The responsibility for payment rests with the issuing

bank.

40A:� FORM OF DOCUMENTARY CREDITThis field should read IRREVOCABLE. It means that the issuing bank cannot cancel the LC prior to its expiration

date (31D). Although an LC can be issued as “Revocable,” it is rarely issued as such since most beneficiaries

would not accept a revocable LC.

40E:� APPLICABLE RULESThis field describes the governing body of law to which the LC is subject with the use of codes. “UCPLV”, as

shown in the example, indicates “UCP LATEST VERSION”.

31D:� DATE AND PLACE OF EXPIRYDATE—The expiry date should allow the beneficiary enough time to make the shipment, and present the required

documents (46A) to the bank where the LC is available (41A), before the LC expires.

PLACE—The place where the LC expires should be the same as the location of the bank where the LC is

available (41A). If the LC states that it is available “With Any Bank,” the expiry place would be the country of the

beneficiary. Both the place where the LC expires and the place where the LC is available to the beneficiary should

be where the beneficiary is located, or where it would be reasonably convenient for the beneficiary to present

documents. In the sample attached, the LC expires in Los Angeles, California.


Chapter 03

Import LCs Defined

50:� APPLICANTThis is the party, usually the buyer, on whose behalf the LC is issued. In the sample attached, the applicant is

Randall Computer, Inc.

On an LC issued on your behalf, check to determine that your name and address are correct. Any difference

between the information in the LC and the information in presented documents may be considered a discrepancy.

59:� BENEFICIARYThis is the party, usually the seller, in whose favor the LC is issued. In the sample attached, the beneficiary is

Produits Electroniques S.A.

32B:� CURRENCY CODE, AMOUNTThe amount specified in the LC should be sufficient to cover the cost of the merchandise, plus any other

expenses to be incurred by the seller. The expenses may include freight, insurance, and other charges. In the LC

sample attached, the shipment is to bemade FCA Paris, France (44A). The costs to the seller extend only to the

point of “taking in charge” of the merchandise. With an FCA shipment, the buyer assumes the costs of freight

and insurance to destination. Besides specifying the amount of the LC, this field will also specify the currency in

which the LC is payable. In the sample attached, the LC has been issued in USD. If the LC amount is stated in a

foreign currency, you bear the risk of exchange rate fluctuations.

41A:� AVAILABLE WITH . . . BY . . .This field identifies the bank with which the credit is available (the place for presentation) and an indication of

how the credit is available.

WITH—The LC should name a specific bank where the presentation of the document under the letter of credit

must be made (46A). Alternatively, the LC may state that it is available “With Any Bank,” thus allowing the

beneficiary to present documents at any bank of their choice. For practical purposes, however, if the LC states

that it is available “With Any Bank,” the beneficiary would want to present documents at a bank that is involved

in the LC transaction, such as the advising bank. If the LC is restricted to the issuing bank, or names a bank

outside of the beneficiary’s area as the bank where the LC is available, payment may be delayed. In the sample

attached, the LC is available to the beneficiary with Bank of America, Los Angeles, California.

BY—All LCs must clearly indicate whether they are available by sight payment, by deferred payment, by

acceptance, or by negotiation. In the sample attached, the LC is available by acceptance because it requires

the beneficiary to present a time draft, payable at 90-days sight (42C). After the beneficiary presents the draft

and required documents to Bank of America, and Bank of America has determined that the draft and documents

are in compliance with the terms of the LC, Bank of America would accept to pay the beneficiary 90 days later.

Hence, the LC is available by acceptance.

42C:� DRAFTS AT . . .A draft is the document that represents the demand for payment that the beneficiary makes under the LC. A

draft may be payable at sight, meaning at the time when it is presented for payment, or it may be payable at

some future time after being presented for payment. In the sample attached, the LC requires drafts payable at

90 days sight. The time when payment is to be made to the beneficiary is usually determined between buyer and

seller. If the seller gives payment terms to the buyer, or if the buyer requires bank financing of the merchandise,

the LC would require the beneficiary to present a time draft. For further information on drafts, please refer to the

section “Banker’s Acceptances” in the accompanying material.


Chapter 03

Import LCs Defined

NOTE: The issuing bank may not always require presentation of a draft. If payment under the LC is to be made at

some future time, and no draft is required, the LC is referred to as a “Deferred Payment Letter of Credit.” Under

this type of LC, since no draft is required, the beneficiary does not have the option of having a draft discounted,

that is, of obtaining payment prior to maturity at an advantageous interest rate.

42A:� DRAWEEThis is the bank on whom the beneficiary is instructed to draw the drafts. An LC may require the beneficiary to

draw drafts on the issuing bank, on the advising or confirming bank, or on the reimbursing bank (53A). In the

sample attached, the LC requires drafts to be drawn on Bank of America Merrill Lynch, Los Angeles, California,

the issuing bank.

43P:� PARTIAL SHIPMENTSPartial shipments may or may not be permitted, or may be permitted within a stated schedule. The beneficiary

should make sure that he can meet the shipping requirements.

43T:� TRANSSHIPMENTThis term means that the merchandise is loaded and reloaded from one carrier to another during the course of

carriage. When a shipment is made by air or by combined transport, transshipment should be permitted. In the

LC sample attached, transshipment is permitted.

:�44A:� PLACE OF TAkING IN CHARGE/DISPATCH FROM/PLACE OF RECEIPT :�This field is commonly used when a multimodal bill of lading is required. It describes the inland point of taking in

charge, dispatch from or initial place of receipt of the merchandise, for onward travel.

:�44E:� PORT OF LOADING/AIRPORT OF DEPARTURE:�This field describes the port of loading or airport of departure of the merchandise shipment.

:�44F:� PORT OF DISCHARGE/AIRPORT OF DESTINATION:�This field describes the port of discharge or airport of destination of the merchandise shipment.

:�44B:� PLACE OF FINAL DESTINATION/FOR TRANSPORTATION TO/PLACE OF DELIVERY:�This field is commonly used when a multimodal bill of lading is required. It describes the inland place of

final destination or place of delivery of the merchandise. General comments about fields 44A, 44E, 44F and

44B: depending on the type of transport document required under a letter of credit and the shipment terms

(Incoterms), either all or some of these fields may be included in the S.W.I.F.T. 700 message.

44C:� LATEST DATE OF SHIPMENTDates are very important in the LC. The latest date of shipment specified in this field should allow enough time

for the beneficiary to be able to meet the shipment deadline.

45A:� DESCRIPTION OF GOODS AND/OR SERVICESThe merchandise description in the LC must be brief. Specific details can be included in the purchase order

or sales contract, but have no place in the LC. If an LC contains excessive details in the description of the

merchandise, or in the terms of the LC, the advising bank may decline to advise it. Also, complex details in the

LC can result in documentary discrepancies. Since the issuing bank could not pay against discrepant documents,

the buyer would have the option to refuse payment. Documents presented under an LC containing excessive

details may be sent to the issuing bank as presented without review by the bank where the documents are

presented. The price basis is usually stated in this field and should be correct. Whether the shipment is to be

made FOB port of departure or CIF port of destination, or under any other basis, the price basis stated in the LC

should be according to the trade terms specified in the International Chamber of Commerce Publication No. 560,


Chapter 03

Import LCs Defined

“Incoterms 2000.” Also, the price basis should be reflected in the documentary requirements. In the LC sample

attached, the price basis has been stated as “FCA Paris, France.” Accordingly, under Field 46A, the transport

document is to be marked “Freight Collect” and no insurance document is required.

Use of an incorrect price basis, not in conformity with “Incoterms 2000,”may result in misunderstandings

between buyer and seller and a possible delay in payment. For a complete set of the international rules covering

trade terms, please refer to the International Chamber of Commerce Publication No. 560, “Incoterms 2000.” A

copy can be ordered via the internet at www.iccbooksusa.com.

46A:� DOCUMENTS REQUIREDThe documents required for payment should be kept to a minimum. When presented, the documents must be in

strict compliance with the LC terms.

48:� PERIOD FOR PRESENTATIONThe number of days allowed for presentation of documents after the shipment is made should allow enough

time for the beneficiary to receive shipping documents from the carrier or the freight forwarder, and present all

documents to the bank where the LC is available, within the validity of the LC. The number of days allowed for

presentation of documents should be the difference in the number of days between the latest date of shipment

(44C) and the expiry date (31D). In the LC sample attached, the latest date for shipment is November 20 and

the expiry date is November 30. Consequently, the number of days allowed for presentation of documents is

10 days. If a letter of credit does not contain a reference to the number of days allowed for presentation of

documents, the number of days allowed for presentation defaults to 21 days, per UCP 600, Article 14C.

49:� CONFIRMATION INSTRUCTIONSThis field indicates whether or not the issuing bank is requesting the advising bank to confirm the LC. The

advising bank would only consider confirming an LC at the request of the issuing bank. The beneficiary may

ormay not require confirmation of an LC. It would depend on the strength of the issuing bank, the country where

the issuing bank is located, and the amount of the transaction. If the seller requires confirmation of the LC,

the buyer, in turn, will have to inform the issuing bank, so that the issuing bank will request the advising bank

to confirm the LC. If the advising bank agrees to confirm it, the LC would carry the engagement of the advising

bank, in addition to the engagement of the issuing bank. When the LC is sent to the beneficiary, the advising

bank would notify them if it has confirmed the LC.

78:� INSTRUCTIONS TO THE PAYING/ACCEPTING/NEGOTIATING BANkThis field is commonly used for the issuing bank to provide instructions concerning the mailing of documents.

When used to indicate pre-notification of a reimbursement claim, or that pre-debit notification to the issuance

bank is required, the number and type (i.e. banking or calendar) of days within which the issuing bank has to be

notified should also be indicated.



Chapter 04Purchase Order-to-Pay Service


Chapter 04

Purchase Order-to-Pay Service

For the past 10 to 15 years, importers have invested large sums of money to improve the efficiency of their physical

supply chains, moving goods across borders with increased speed and lower costs to meet the demands of an

increasingly competitive marketplace. In many instances, the benefits of an efficient physical supply chain have fallen

short of expectations because of the failure to link the movement of goods with the movement of money, or with the

financial supply chain.

Bank of America Merrill Lynch is committed to developing solutions to assist you in optimizing and integrating your

supply chains. Our Purchase Order-to-Pay Service can help reengineer your trading processes and unlock substantial

amounts of working capital for you.

PO to Pay is a trade payables solution for clients sourcing goods in overseas markets, which links the client’s supply

chain partners into an end-to-end payment and settlement process for increased transparency and visibility throughout

the supply chain. The service replaces paper-based functions with electronic processes and broadens settlement

options by offering open account payments as well as traditional LCs.

Through PO to Pay, clients can electronically submit to Bank of America Merrill Lynch purchase order information that

is used to construct LC and open account payment instruments for delivery to sellers in paper form or via an electronic

channel, including Trade Pro and EDI. The service includes a matching engine, the Purchase Order Processing System

(POPS), which reconciles purchase order data submitted by buyers with invoice data submitted by sellers prior to

payment.

Buyers can also upload a PO file with all of their suppliers’ PO details to automatically create their LCs and/or open

account transactions, based on supplier terms and business rules, which streamlines buyers’ processing steps in

their daily work flow.


Chapter 04


Benefits of Purchase Order-to-Pay (PO to Pay)Our PO to Pay service offers you several benefits:

•Simplified payment process:� Importers no longer have to manage reconciliation of purchase orders to invoice,

packing lists and other shipping documents manually. PO to Pay eliminates these time-consuming tasks by

automating your cross-border trade payment process using business-matching rules. It can also handle multiple

payment terms and can be integrated with major purchase order and ERP systems that you use today.

•More certainty and assurance of payment:� For exporters, the major disadvantage of moving to open account

terms is that you lose the payment guarantee offered by LCs. With the PO to Pay payment assurance option,

subject to credit line availability, your exporters are provided additional assurance that as long as compliant

documents are presented to Bank of America Merrill Lynch.

•Flexible financing Another concern of exporters who are considering the move to open account is the availability

of financing in the absence of an LC. Upon request, your exporters have the ability to receive pre- and post-

shipment financing against qualified open account transactions, subject to credit availability.

•Enhanced security and control:� Security is a major concern when transmitting financial data electronically.

To help you maintain the integrity of your documents, all web-based services offered by Bank of America

Merrill Lynch have rigorous security standards, including browsers with 128-bit encryption, server-side digital

certificates, fire walls and user access controls.

How PO to Pay works The importer transmits or uploads a file of purchase orders to Bank of America Merrill Lynch. Files can be accepted

in a variety of formats and can be sent through various electronic channels (internet or VAN). In the transmitted file,

the payment type for each transaction is flagged as either “letter of credit” or “open account.” Purchase orders are

housed in an electronic database at Bank of America Merrill Lynch, establishing the conditions a vendor must meet

to receive payment.

If the transaction is flagged for settlement by LC, the purchase order detail is used to issue a traditional LC to the

beneficiary. Both LC and open account transactions are available electronically to all trading partners who have been

granted access to TradePro, our web-based trade management system.

Data matching and payment feature:� As goods are manufactured and shipped, vendors present documents to Bank

of America Merrill Lynch for payment. Presentations may be in paper or electronic form or a combination of both. Key

data elements in the seller’s documents are matched with purchase order data, using an automated mapping engine

for electronic presentations or document checkers for paper presentations. If conditions match, payment is made

immediately for an LC or open account with the “auto-pay” feature. Payment for all other open account payment

types is made immediately after the importer has given approval. If the matching process fails, discrepancy details

are transmitted to the importer for resolution. Once payment is triggered, details can be sent electronically to both

the importer and vendor.


Chapter 04


Open account payment typesThe PO to Pay platform supports three open account payment types:

•Buyer Approved, No Conditions Matching:� The purchase orders contain instructions to present documents to

Bank of America Merrill Lynch. When presented, we convert paper documents into a previously agreed-upon

electronic format that can be processed automatically by the importer or viewed online via TradePro. The importer

matches details to underlying purchase orders and can either approve or reject the transaction for payment.

Buyers do not have to submit purchase orders to Bank of America Merrill Lynch.

•Buyer Approved, with Conditions Matching:� The purchase orders are sent to both the seller and Bank of America

Merrill Lynch or only to Bank of America Merrill Lynch with instructions to advise the open account instrument with

purchase order details to the vendor. As export documents are received, Bank of America Merrill Lynch matches

shipment data with purchase order data in accordance with parameters established by the importer. Both

compliant and non¬compliant presentations are transmitted to the importer for approval to pay.

•Bank Approved, with Conditions Matching (Auto-Pay):� This option is similar to the “buyer approved” option,

except Bank of America Merrill Lynch automatically pays against transactions where data matches within agreed

tolerance limits and based on the availability of funds (straight-through processing). If a match is not established,

discrepancy details are transmitted to the importer to be resolved with the seller prior to payment.

No matter what option the buyer chooses, Bank of America Merrill Lynch provides the status of their payments and

comprehensive management reports.

It pays to have PO to PayWith Bank of America Merrill Lynch PO to Pay, you improve communication and data exchange with your trading

partners and move one step closer to a seamless process that may more fully synchronize the movement of goods

with the exchange of trading documents, financial data and funds.

Call your Global Trade & Supply Chain Solutions representative today to obtain more information about the

advantages of our PO-to-Pay Service.


Chapter 05A Closer Look at Letter of Credit Documents


Chapter 05

A Closer Look at Letter of Credit Documents

What are some of the typical documents required in an LC?Some of the more commonly required documents include:

Commercial invoice (see Exhibit A) The invoice is a record of the transactions between seller and buyer. It is a request for payment. It is also important

to any third party who has an interest in or right to determine the value of a shipment, such as the bank that is asked

to discount a draft or the underwriter who is requested to insure the goods. While in some countries the commercial

invoice is sufficient for customs purposes, generally a consular invoice or a certificate of origin must be produced for

appraisement and entry of goods. When countries accept the commercial invoice as a basis for customs appraisal,

they may insist that the description of the goods on the commercial invoice fit the corresponding category or

description of their active customs tariff. A number of countries make the sending of the commercial invoice obligatory

and require an oath to be signed at the foot of the paper stating that the values shown are entirely in accordance with

the facts.

The commercial invoice generally gives terms, price, and all details necessary for the proper description of the

merchandise as well as the gross amounts and net amounts due. The invoice should be numbered, show the date

when it is prepared and the address of the shipper. The price information may include the net unit or total price, and

all charges connected with the shipment, including such commissions as may have been agreed upon. In the case of a

draft, the interest of the draft could be added, being computed in advance on the basis of the terms of the draft (sight,

30 days, 60 days, and so forth), plus the time it will take for the draft to reach the destination. Other components

of the invoice could include: marks and numbers, quantities, number of packages, weights and measurements, tare

(when necessary), packed and unpacked, the date of shipment, fax number, and telephone numbers of the seller and/

or buyer, per unit, gross costs, etc.

Bank commissions and all other charges should also be added to the commercial invoice if the buyer has to pay for

them. In cases where the buyer pays for freight, insurance or any other items, these should be added, just the same

as consular fees, cartage, lighterage, telecommunication fees, customs fees and any fees for certificates (such as of

health or analysis), provided that the sale makes the buyer liable for any or all of them.

Certificate of origin (See Exhibit B) A certificate of origin certifies that goods were mined, manufactured or assembled within a certain country. A number

of countries have apportioned space on the consular invoice to show the country of origin of each item on the invoice,

obviating the necessity for a separate certificate. The reasons for requiring such a certificate vary. It is demanded and

needed by governments or countries whose tariff laws favor certain countries, or which have made agreements with

certain countries, to determine such favored tariff rates. These favorable tariff laws necessitate (for goods brought in

from favored countries) a certificate of the actual origin of the articles imported and of the fact that they come from

the country or countries enjoying such special tariff privileges or favors.


Chapter 05


The certificate, known as the certificate of origin, therefore enables the importing country to determine, through its

customs officers and administration, which shipments or goods shall benefit by such preferences. It contains generally

the same information as the consular invoice. This certificate is then presented by the importer to customs officials

to show the origin of the goods so that special preferential tariff rates, discounts from regular tariff rates, or other

deductions granted in agreements existing between the countries of buyer and seller, or favors, can be taken into

consideration.

Consular invoice These invoices may be required by various countries for customs or for statistical or other reasons. They must contain

full details and description of the shipment, to be used as evidence of the shipper’s owner’s declaration of the value

of the shipment. They are certified by the consul of the country to which the shipment is destined, and generally

include a sworn statement not only as to the truth of the declarations made, but also as to the nonexistence of any

other invoice for the same shipment. The consular invoice must show all details of the goods themselves, as well as

all discounts, rebates, or the like. The consular certificate or invoice facilitates customs work at destination as well as

collection of taxes, and also serves for statistical purposes.

The number of copies of the consular invoice which must be presented when a visa is requested will vary considerably

with the country and the set-up of its consular and customs offices. The consul always keeps certain copies, partly

for his or her own files and partly to be forwarded to the customs officers in the place of destination. The number

that are retained depend upon the country. The copies which the consul returns to the shipper are for the exporter to

forward to the importer for presentation to customs when the exporter declares the goods. They should arrive as close

to the arrival time of the goods as possible (preferably not later than the shipment). Delay in receipt of documents is

frequently penalized heavily by the customs department of the importing country.

Generally the consular invoice is a copy of the commercial invoice in the language of the importing country, supplied

in two to ten copies, which gives full details of the merchandise shipped (see above). The invoice must show also, in

addition to information about the materials or merchandise, the name and nationality of the vessel that carries the

cargo, the port of shipment, and the port or point of destination.

Inspection certificate An inspection certificate testifies to the inspection of exported or imported goods. If it is needed, this documentary

requirement should be clearly stated in quotation and sales contracts. In regard to many staple commodities sold

against LCs, on grade designation entirely, such as raw cotton, the buyer provides for inspection or warehouse

certification of the goods before shipment to avoid loss due to deviation from standard grade. Inspection before

shipment is also provided in many sales contracts on expensive machinery or equipment. An inspection from an

independent third party may be requested under an LC.


Chapter 05


Insurance policy or certificate (see Exhibit C) An insurance policy or certificate should be required for presentment under an LC if the arrangement between buyer

and seller indicates that the seller should purchase the insurance. Cargo Insurance serves to protect the shipment of

merchandise against loss or damage during transit.

Whether or not the buyer or seller is required to purchase insurance for shipped merchandise depends upon the

type of transaction specified in the contract or purchase order. For example, if the seller is contracted to deliver

merchandise to the buyer FOB, then the buyer/importer is responsible for insuring the goods against risks while

in transit. See Chapter 9 of this guide for an in-depth explanation of all shipping terms (Incoterms) and insurance

responsibility under each term. Carrier and shipping firms are not required to provide insurance for cargo they are

instructed to deliver.

Seeking insurance for merchandise is a straightforward process that many merchant insurance firms and freight

forwarders will provide. Regular importers frequently use an open cargo policy that provides coverage from warehouse

to warehouse, depending upon the terms. This provides automatic coverage for the merchandise throughout the

shipping process.

These policies usually provide all risk, in addition to warehouse to warehouse, coverage, as well as similar coverage

for airfreight and parcel post shipments. Policies for one-time shipments are also available. These are often used by

infrequent importers, who arrange these policies with their freight forwarders. With few exceptions (bulk agricultural

products and hazardous materials), it is usually preferable for importers to use only warehouse to warehouse or door

to door insurance policies for whatever risks are being covered. This provides additional assurance that all transit

points are covered.

Insurance costs vary according to the extent of coverage, the risks specified, and any additional coverage requested

by the purchaser. Typical coverage for a policy is 110 percent of the CIF value. This is a common level of coverage,

since it is the default level of coverage according to UCP 600.

Packing/weight list (see Exhibit D and E) The list which shows, item by item, the contents of cases or containers with each item listed separately, and its weight

and description set forth so as to permit checks by customs on arrival, as well as by the recipient of the goods. It must

be accurate and must satisfy both buyer and customs.

Bill of lading (see Exhibits F and G) The bill of lading is the receipt for the goods received by or loaded on a carrier and the contract between the shipper

and the carrier. The contract stipulates where the goods are to be delivered, the freight charges to be paid, when and

by whom. This receipt for the merchandise, therefore, whether issued by a steamship company or by other carrier

(railway, air carrier, and so forth), represents a definite agreement between shipper and carrier. The conditions of

the bills of lading are not uniform and depend upon the nature of the carrier, the conditions and usages at port of

shipment or destination, and other individual factors and requirements. The bill of lading may also convey title to the

goods to which it refers and can be used to transfer such ownership of the goods with certain exceptions.

For all these reasons, the carrier or its agent generally will refuse to deliver the goods covered by a negotiable bill

of lading without the bill being produced, duly signed or endorsed. Customs considers the holder of a duly signed or

endorsed bill of lading to be the owner of all merchandise on such bill of lading issued by a common carrier. The bill

itself is regarded as constituting the best evidence of the right to make entry. Some countries require legalization

of the bill of lading by their consul at the place or port of shipment to give official proof of the accuracy of the bill as

regards to the origin, quantity, and mode of shipment of the merchandise.


Chapter 05


Ocean bill of lading An ocean bill of lading is a receipt for the goods delivered to or on board a vessel, specifying the conditions and terms

of carriage, the character of the goods shipped, and their weights, measurements, and destinations, as well as the

person to whom the goods are consigned or who is to be notified of their arrival. The bill of lading does not convey title

to the goods until it is properly endorsed. It is created by the shipper and must be based on the dock receipt that the

steamship line issues on receiving the cargo at the pier, the dock receipt being exchanged for the bill of lading.

Usually, three bills of lading are signed, although the various shippers may ask for more unsigned (and therefore not

negotiable) copies for different purposes and uses in their offices. For shipments going to certain countries, it is

necessary to present the bill of lading for customs along with the other documents; otherwise, it will not be usable at

the destination.

Ocean bills of lading are issued as straight bills of lading and order bills of lading. The former is a non-negotiable

document by which the transportation company acknowledges receipt of cargo and contracts to move it. It is not

always necessary to surrender the original copy for delivery of cargo. The order bill of lading is a negotiable document

acknowledging receipt of cargo and contracting to move it. Surrender of the original properly endorsed B/L is required

on delivery of the cargo. The ocean bills f lading are of two classes, “received for shipment” and “shipped” or “on

board.” The former is issued for a named steamer in which space has been previously reserved and goods are in

the possession of the steamship company; the latter is issued only after the goods have been loaded on the vessel.

Banks often require “on board” bills of lading when issuing an LC.

The ocean bill of lading is not only the final receipt from the carrier, but is a contract between the carrier and shipper.

It may be used as a negotiable document. Drafts or bills of exchange to which are attached the shipper’s invoice,

ocean bill of lading, and insurance policy constitute methods commonly used in making foreign-trade financial

settlement. The freight charges generally must be paid before the steamship company surrenders the cargo.

Straight bill of lading A straight bill of lading is a bill of lading made out to a named consignee. It is not negotiable and is therefore issued

for shipments to a specified person.

Bill of lading to Order This is a bill of lading made out to the order of, and endorsed by, the shipper either in blank or to a named consignee.

The purpose of this type of bill of lading is to protect the shipper against buyers obtaining possession of the goods

before they have paid or accepted the relative draft. A steamship company will not deliver goods covered by a “to

order” bill until ownership is proven by presenting the original endorsed bill. However, problems exist in connection

with “to order” bills of lading for Latin American countries, where delivery of incoming cargo is the function of the

customs authorities and is not entrusted to steamship lines or their agents. The laws of a few Latin American

countries prohibit “to order” bills of lading, and in some other Latin American countries, these bills are not accorded

the same protection as in Europe and the United States.

Important Note: In shipping parlance, a distinction is made between a bill of lading made out to the order of the

shipper and a bill made out to the order of the buyer. The latter bill does not give shippers as much protection as a bill

drawn to their own order. As a rule, when a bill of lading is to the order of a buyer, the buyer can get the goods from a

steamship line without presenting the bill of lading by posting a bond.

Negotiable bill of lading When an order bill of lading is endorsed in blank, it becomes negotiable and the carrier will deliver the goods to

whoever presents the endorsed bill of lading. While all original bills of lading (full set) are negotiable, one is sufficient

to obtain goods. On the other hand, if bills are drawn to order of the consignee, the consignee’s endorsement makes

it negotiable. If they are drawn to order of the shipper, the shipper must endorse it before it can be transferred and,


Chapter 05


therefore, before the goods it represents can be conveyed to a third party. The endorsement itself can be made to a

specific third person or firm, a bank, or in blank; while one endorsed copy is sufficient, the full set of originals should

be endorsed. In addition to the original endorsed bills of lading, remaining copies generally are kept by the shipper and

carrier for their records.

Original bill of lading This is the original bill of lading, which is negotiable, provided that it is a “to order” bill. Generally three such

“originals” are issued, known as a “full set,” with the carrier marking the total number of the originals on each

original issued. When negotiating the originals, the bank will require the full set, although one of them, properly

endorsed, is sufficient to obtain the goods. If delivery is made against one of the bills of lading, the others are thereby

automatically rendered void (see “Bill of Lading” on 65).

Full set bill of lading When more than one negotiable bill of lading is issued, the number of such total issued is marked on each individual

document, and the banks generally insist on receiving the total number of bills issued, or the “full set.” Extra copies

generally are kept by the steamship company and shipper (see Bill of Lading on 65).

Foul bill of lading vs. clean A bill of lading is called foul when, contrary to the clean bill of lading, it shows by marginal notes, rider or otherwise

that all or part of the shipment to which it refers is in bad condition or damaged.

Multi-modal transport document This is a bill of lading covering shipment on one and the same (straight or to order) bill of lading from point of

shipment to port or point of destination, involving transportation by more than one carrier. It is also the term used for

a bill of lading issued by a steamer from port of shipment to either an out port or to a point inland in the country of

destination, including any transshipment or land carriage necessary to make such delivery.

Air waybill An Air Waybill is similar to an ocean bill of lading, except that it is restricted to shipment by airfreight. A major

difference between the two is that the air waybill is always non-negotiable. It is the contract between the shipper and

the airfreight carrier, limited to the conditions stated on the air waybill such as the destination and recipient. An air

waybill is normally issued in one original, with several copies.


Chapter 05


Exhibit A Sample Copy Only

BENEFICIARY:

DEMO BENEFICIARY CO.DEMO STREETDEMO CITYHONG KONG, HONG KONG

COMMERCIAL INVOICE

Date: 10 Jan 2007 Invoice No:B/L No:Vessel:Shipped from: JAKARTA, INDONESIAShipped To: SAN DIEGO, USA

Additional Information (for this shipment only)

Letter of Credit No: M1241204NS00178Issued By: IMPORTER’S ISSUING BANK NAME

SOLD TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203

MERCHANDISE DESCRIPTION:

LADIES BLOUSES AS PER PO. NO. 12345

ITEM: QUANTITY: PRICE:

Invoice Total: 10,000.00 (USD)

Authorized Signature:

Name:

Title:

Certification Statement If Required:



Chapter 05


CERTIFICATE OF ORIGIN

EXPORTER:DEMO BENEFICIARY CO.DEMO STREETDEMO CITYHONG KONG, HONG KONG

DATE: 10 Jan 2007

OTHER REFERENCES:LC NO: M1241204NS00178SALES ORDER:INVOICE NO:B/L NO:


COUNTRY OF ORIGIN OF GOODS:

CONSIGNEE:MIZUHO BANK

THE UNDERSIGNED HEREBY DECLARE THAT THE ABOVE DETAILS AND STATEMENTS ARE CORRECT

NOTIFY:AIRPORTS AUTHORITY INDONESIA

JAKARTA, KASAFDARJUNG

AIRPORT, JAKARTA

REMARKS:WE CERTIFY THAT THE ORIGIN OF THEGOODS IS THE COUNTRY OF INDONESIA.

:ERUTANGISDEZIROHTUA:ETADDNAECALP

COVERING:LADIES BLOUSES AS PER PO.NO. 12345

ITEM NO: :YTINAUQ:NIGIRO:NOITPIRCSED

AIRPORTS AUTHORITY INDONESIAJAKARTA, KASAFDARJUNGAIRPORT, JAKARTA

WE CERTIFY THAT THE ORIGIN OF THEGOODS IS THE COUNTRY OF INDONESIA


Exhibit B Sample Copy Only


Chapter 05


Exhibit C Sample Copy Only

ARCH INSURANCE COMPANYA Missouri CorporationHome Office: 3100 Broadway, Suite 511, Kansas City, MO 64111Administrative Office: One Liberty Plaza, 53rd Floor, New York, NY 10006 Tel: 800-817-3252

ASSURED

UTLIMATE CONSIGNEE and INSURED DESTINATION

NOTIFY PARTY (not applicable to insurance certificate)

PIER OR AIRPORT

EXPORTING CARRIER

AIR/SEA PORT OF EXCHANGE

B/L DATE INSURED VALUE$

AMOUNT IN WORDS

DOLLARS

FOR TRANSHIPMENT TO

ONWARD INLAND ROUTING

PARTICULARS FURNISHED BY SHIPPER

MARKS AND NUMBERS NO. OF PKGS DESCRIPTION OF PACKAGES AND GOODS & SPECIAL INS CONDITIONS GROSS WEIGHT MEASUREMENTS

PORT OF LOADING

POLICY NO.

EXPORT REFERENCES

FORWARDED AGENT / REFERENCES

POINT AND COUNTRY OF ORIGIN

DOMESTIC ROUTING/EXPORT INSTRUCTIONS (not applicable to insurance certificate)

CERTIFICATE OF INSURANCE NO.

Certificate of InsuranceORIGINAL THIS CERTIFICATE

REQUIRES ENDORESEMENT INTHE EVENT OF ASSIGNMENT

71-OCP 1597700

CA U.S.A

LOS ANGELES, CA U.S. PORT

PRESIDENT TRUMAN 164

NAHA, OKINAWA, JAPAN

124 1420.00L6428.29K

1x40HC SLAC:PKGSDESCRIPTION OF GOODS AND/SERVICESCONSTRUCTION MATERIALS AND EQUIPMENTCIF NAHA, OKINAWA, JAPAN

L/C:

110 PERCENT OF THE INVOICE VALUE INCLUDING INSTITUTECARGO CLAUSES (ALL RISKS).INSURANCE CLAIMS TO BE PAYABLE IN JAPAN IN CURRENCYOF DRAFTS.

LOS ANGELES, CA U.S. PORT

71-1710

Broker: Global Solutions Insurance Services, Inc. Redondo Beach, CA 90278

CONDITIONS OF INSURANCE ON REVERSE SIDE

2170.000F61.454M


Chapter 05


Exhibit D Sample Copy Only

BENEFICIARY:


WEIGHT LIST

Date: 10 Jan 2007 Invoice No:S.O. No:

NOTIFY:AIRPORTS AUHTORITY INDONESIAJAKARTA, KASAFDARJUNGAIRPORT, JAKARTA

Letter of Credit No: M1241204NS00178

Drawn Under: IMPORTER’S ISSUING BANK NAME


SHIP TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203



ITEM: NET WEIGHT: GROSS WEIGHT:

We certify this document is true and correct.

Authorized Signature:

10 JAN 2007

LADIES BLOUSES AS PER P.O. NO. 12345


Chapter 05


Exhibit E Sample Copy Only

BENEFICIARY:


PACKING LIST

Date: 10 Jan 2007B/L No:Vessel:Shipped From: JAKARTA, INDONESIAShipped To: SAN DIEGO, USA

Invoice No:

Letter of Credit No: M1241204NS00178

Issued By: IMPORTER’S ISSUING BANK NAME




ITEMS: NET WEIGHT:QUANTITY: :THGIEWSSORG:SEGAKCAP

COMMENTS:

PACKING LIST COMMENTS HERE

LADIES BLOUSES AS PER P.O. NO. 12345


Chapter 05


Exhibit F Sample Copy Only

drop in revised form

SHIPPER

CONSIGNEE

NOTIFY PARTY INTERMEDIATE CONSIGNEE

INITIAL CARRIAGE PLACE OF RECEIPT

EXPORT CARRIER

PORT OF EXCHANGE

B/L TO BE RELEASED AT SERVICE CENTER MPREPAID U.S. $

Vessel: Voyager TOTAL COLLECT

TOTAL PREPAID

Authorized Signature

COLLECT U.S. $ Local Currency

BL number: APLU 098033266

Conditions on Reverse SideOCEAN FREIGHT PAYABLE AT

PLACE OF DELIVERY

PARTICULARS FURNISHED BY SHIPPERExport Valuation

MARKS & NO.s / CONTAINER NO.S NO. OF PKGS H.M. STNEMERUSAEMTHGIEWSSORGSDOOGDNASEGAKCAPFONOITPIRCSED

PORT OF LOADING

PAGE

EXPORT REFERENCES

FORWARDED AGENT (References F.M.C. No)

POINT AND COUNTRY OF ORIGIN OF GOODS

ALSO NOTIFY

B/L NUMBER

CNTRY: US

1 OF 1

J.E. LOWDEN & CO FMC87NF CHB5118275 BATTERY STREET SUITE 400SAN FRANCISCO CA 94111

TEL:415-781-7040FAX:415-392-3970

NO SED REQUIRED, AES 942267037-SF0105028

CTR NBR SEAL NBR T/S MODE QUANT/TYPECRLU910345-9 4492 R40 CY/CY 1440 CTNS

SHIPPER’S WEIGHT LOAD AND COUNT

THESE COMMODITIES, TECHNOLOGY OR SOFTWARE WERE EXPORTED FROMTHE U.S. IN ACCORDANCE WITH THE EXPORT ADMIN. REGULATIONS.DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED.ON BOARD APL BELGIUM 107 ON AUG.28, 2007 AT OAKLAND

APLU 098033266

NON-NEGOTIABLE SEA WAYBILL

APL BELGIUM 107

KAOHSIUNG KEELUNG

1440

NO M/N

43200#19595K1-40 FT CY/CY CONTAINER/S SL&C

CARTONS

FRESH NECTARINESUNDER REFRIGERATIONMAINTAIN TEMPERATURE 34 DEGREES FVENT SETTING: 0015 CFMFREIGHT PREPAID

NLR

OAKLAND

Payment by Cheque to be made to the order of APL-Co. ED. Ltd.

NON-NEGOTIABLE COPY

This Bill of Lading is governed by and subject to the terms andconditions of APL’s Bill of Lading, which may be found on thereverse side of this document or obtained on your Homeport at:www.apl.com or by APL upon request.

Date: AUG. 28, 2007 American President Lines, Ltd., The CarrierPlace Issued: SERVICE CENTER By:

APL


Chapter 05


Exhibit G Sample Copy Only

drop in revised form

SHIPPER / IMPORTER

CONSIGNEE (Not negotiable unless consigned “to order”)

NOTIFY PARTY

PRE-CARRIAGE BY PLACE OF RECEIPT

OCEAN VESSEL/VOY. NO.

PORT OF DISCHARGE

No. of Originals

By

Place and Date of B/L Issue: TotalsPay At:

PLACE OF DELIVERY

Container No.; Seal No.; Marks and No.s Type or Kind of Containers or Packages - Description of Goods

PORT OF LOADING

BOOKING NO.

EXPORT REFERENCES

FORWARDING AGENT

Also Notify -- Export Instructions for Merchant’s Reference Only

B/L NUMBER600781434-A

FMC# 0087

J.E. LOWDEN & CO275 BATTERY ST., STE 400SAN FRANCISCO CA 94111

TO ORDER OF SHIPPER

THESE COMMODITIES, TECHNOLOGY, OR SOFTWARE WEREEXPORTED FROM THE UNITED STATES IN ACCORDANCEWITH THE EXPORT ADMINISTRATION REGULATION.DIVERSION CONTRARY TO U.S. LAW PROHIBITED.

MOLU600781434

BILL OF LADING NON-NEGOTIABLE (COPY)

MOL DISCOVERY

NAGOYA NAGOYA - CY

MCTU0015535/0008087/C4MOLU0023233/0008085/C4MOGU0044804/0008175/C4TRIU9731550/0008156/C4CAXU9774887/0008155/C4

SED Not Required - AES 942267037-SP01051660FREIGHT PREPAID. SHIPPER’S LOAD AND COUNT.

5 x 40’ HIGH CUBE CONTAINERSSAID TO CONTAIN:

3F678.89101BL00.88948SGAB04033M008.882GK00.05583ETILREP

LADEN ON BOARD THE VESSEL MOL DISCOVERY VOY NO 016M AT OAKLAND, CA ON 09-26-2007

OFRBCGDOCUMENTJAPAN TWC

5.000 405.000 401.000 BL5.000 40

0110081A02

OAKLAND, CA UNITED STATES

OAKLAND, CA - CY

Gross Weight Measurements

Mitsui O.S.K. Lines, Ltd.

Mitsui O.S.K. Lines, Ltd., as Carrier

Point and Country of Origin of Goods (for Merchant’s Reference Only)

Loading Pier Terminal

Final Destination for Merchant’s Reference

No. of Containersor Packages

Total number of Containers or other packagesreceived by the carrier (inwards):

Code Tariff Item Basis Freighted As Curr. Rate Per Prepaid Collect

Part

icul

ars

furn

ishe

dby

Ship

per

CRB# 511B

OAKLAND - TRAPAC PORT

FIVE CONTAINERS

PCPCPBPC

4040BL40

USDUSDUSDUSD

600.00000140.0000025.00000

240.00000

3000.00700.0025.00

1200.00

LADEN ON BOARD THEVESSEL 09-26-2007 THREE SAN FRANCISCO 09-26-2007

USD 4925.00SAN FRANCISCO

Conditions on Reverse Side


Chapter 05


Frequently Asked QuestionsWhat documents should I require? You may request the issuing bank to stipulate any of the above or additional documents that you may need or want. In

addition, you should have your customs broker verify that all documents that are required in order to clear the goods

through customs have been stipulated. While LCs are very flexible, one common-sense rule is to exclude excess detail

in the LC, as well as requirements for documents that the seller cannot provide. If you attempt to include documents

or conditions in the LC that the seller finds objectionable, they will most likely contact you with a request for an

amendment before shipment is made. This invariably will cause delay and additional cost.

What happens when the seller does not submit all of the required documentation? It is your bank’s obligation to examine the documents received from the seller’s bank with the utmost care, and

make payment only when all documents conform to the LC that was issued on your instructions. If the issuing bank

discovers discrepancies in the documents, they will contact you, list the discrepancies found for your consideration,

and inquire as to whether you wish to authorize payment. You must make a decision within a reasonable time period to

avoid the possibility of the seller arranging for the return of the merchandise or the sale of the merchandise to a third

party.

What internal controls does the bank employ to help determine accurate documentary review? How

does the bank measure quality of service? Bank of America Merrill Lynch exercises due diligence and care when examining documents presented under LCs

in accordance with the guidelines of UCP. We have established several levels of checking to help ensure that our

documentary review meets your requirements. Your LCs and documents will be checked by our experienced trade and

compliance specialists who are familiar with your processing and document requirements. Each trade specialist has a

specific delegated authority regarding negotiation. For any transaction over that specific dollar amount, an additional

review is required. A trade specialist will review all the transactions again to determine whether they are in compliance

with the ISBP. Our trade operations managers also perform periodic reviews of the transactions in order to maintain

consistent service quality and accuracy.

We measure quality using the following five key elements:�• Timeliness

•Responsiveness

•Accuracy

•Courtesy

•Knowledge

With our strong commitment to service quality, we have set up a system of measurements. All transaction processing

times and customer inquiries are recorded by our system automatically. Our trade operations managers review these

service levels on a regular basis to determine whether our service standards are met. Historically, the review process

mentioned above has resulted in an adherence rate that consistently exceeds industry standards.


Chapter 05


A Discussion of ISBP for the Examination of Documents under Documentary CreditsIn November of 2002, the National Committees of the ICC Banking Commission voted overwhelmingly to adopt the

ISBP for the Examination of Documents under Documentary Credits, also known as the ISBP. It is believed that the

adoption of the ISBP will reduce the number of rejections by banks of documents under documentary credits. The ISBP

was updated in July 2007 to bring it in line with UCP 600.

The ISBP was written to help businesses that follow the ICC’s internationally accepted rules for LCs, the UCP.

Currently, it is reported that discrepancies in LC documents found by banks in the interpretation and application of

the UCP have led to 60-70 percent of documents being rejected on first presentation. As LCs are one of the chosen

methods of payment for financing world trade, these rejections have been slowing trade and at times have led to

costly disputes and court cases.

The ISBP has been written as a supplement to the UCP, and explains how theUCP applies to day-to-day practice. It

does not amend the UCP, but explains how the practices articulated in the UCP are to be construed by businesses

worldwide.

The ISBP deals with some of the following most-questioned practices:

•Alterations: What constitutes an “alteration” or “addition” to a document and when and how should these be

authenticated?

•Drafts: What constitutes a proper endorsement? When does “sight” really occur when documents are discrepant?

How should alterations on drafts be treated?

•Signing of documents: How should documents be signed if not expressly stated in the LC?

•Applicant and beneficiary addresses: How should obvious typing errors in the name and address on documents be

handled? What about different addresses of the same company?

• Trade terms: Must trade terms, such as Incoterms, appear on the commercial invoice and other documents?

•Mathematical calculations: How to deal with mathematical calculations appearing on invoices and other

documents.

•Combined documents: Should a beneficiary’s certificate, when required under an LC, appear on the invoice or be

included as a separate document?

• Transport documents: What constitutes the “face” of a document?

• Insurance documents: What constitutes a full set? What constitutes a proper endorsement? How does one

determine the effective date?

Potential benefits of the ISBP to trade business are significant:� •As an importer or applicant of an LC, you can look forward to faster receipt of import documents, avoiding

demurrage charges and delays in the receipt of goods and ultimately reducing the cost of goods.

•Banks are anticipating that this new consistency will enhance straight-through processing and significantly reduce

the amount of time spent on dealing with discrepancies in their back offices.

•Your supplier, the beneficiary of your LC, should realize improved cash flow and efficiency as a result of their

improved knowledge of document preparation and presentation requirements.

• The complex nature of the LC will no longer be an obstacle, but an asset to the participants and to the future

growth of world trade.

The full text of the ISBP for the Examination of Documents under Documentary Credits can be ordered from the ICC

Bookstore at www.iccbooksusa.com.



Chapter 06Documentary Collection for Importers


Chapter 06

Documentary Collection for Importers

Documentary collections were introduced in the first chapter of this guide, which explored the inherent collection risk

factors of buyers and sellers in addition to basic background information. This section expands upon that information

with definitions, a flowchart and significant additional information.

What are bank collections?Bank collections are the delivery through banking channels of various commercial and shipping documents for release

to a buyer against either payment or acceptance of financial instruments.

What are documents?Documents are financial and/or commercial instruments.

a. Financial documents include bills of exchange (drafts), payment receipts, checks, promissory or demand notes, or

other similar instruments.

b. Commercial/shipping documents include invoices, bills of lading, shipping receipts, title documents, commercial

certificates (weight, origin, packing, etc.) or any other documents not interpreted as financial documents.

What are clean versus documentary collections? Clean collections are collections of financial documents without attached commercial documents. Documentary

collections are collections of commercial documents and may or may not have financial documents attached.

Who are the parties to a collection? The involved collection parties consist of the “drawer,” or the party that requests the collection process through his/

her bank called the “remitting bank” (exporter’s bank). A “collecting bank” (importer’s bank) is the bank that makes

the ultimate proposal for acceptance or payment of documents to the final party under the collection order, known as

the “drawee”.

What are foreign collections? Foreign collections through banks are a time-proven, low-cost method of collecting money. Collections abroad can

involve a variety of items in the form of documents that companies or individuals are trading for a payment or a

promise of payment of money. Banks are entrusted with these items for their proper release when acceptance or

money is obtained as instructed. The charge for this service is usually a nominal flat fee, plus out-of-pocket expenses.

What are the benefits of collections for importers? When you are dealing with a familiar trading partner, you should consider using documentary collections. A

documentary collection is a more secure alternative to the risk of paying cash in advance, and it does not tie up your

credit facility.

Why use Bank of America Merrill Lynch for documentary collections? Savvy importers know when and how to protect themselves from unfamiliar trading partners and risky marketplaces.

You rely on, and know how to leverage, established trade partnerships to ensure prompt delivery of the goods you

need. Maintaining sound relationships with your suppliers while safely managing the process of receiving title to the

goods you ordered are two ingredients of a successful trade partnership.


Chapter 06


Documentary collections can work to your advantage because payment is contingent on your bank receiving and

holding the documents that you will rely on to obtain your goods. These shipping documents—which you and your

seller agree to in advance—could include bills of lading or other title documents, commercial invoices, packing lists,

certificates of origin or inspection certificates.

When Bank of America Merrill Lynch receives documents from your supplier or your supplier’s bank, our collection

staff records the collection and notifies you that your supplier has delivered proof of shipment. You then either pay

for the goods or accept a time draft, depending on the terms you’ve agreed to with your supplier. In either case, title

documents will be released so that you can obtain your goods. When you pay for the shipment, we remit payment to

your supplier through the collecting bank.

Here again, Bank of America Merrill Lynch’s web-based product, TradePro, can be utilized to process these

transactions and provide the comprehensive reporting so critical to your business.

The two types of documentary collections are distinguished by the timing of the payment:

•Documents against payment (also known as sight draft or cash against documents)—you pay Bank of America

Merrill Lynch; we release the documents giving you title and forward your payment to your supplier’s bank.

•Documents against acceptance (financing agreed to in advance with your supplier)—you sign a time draft promising

to pay for the goods at a future date. Once you accept the draft you receive title documents.

Bank of America Merrill Lynch can receive documents from your supplier’s bank, or directly from your supplier. Either

way, you can be sure that you will be notified promptly and that you will receive the documents upon acceptance or

when payment has been made. That means no matter what the distance is between you and your supplier, you will

receive documentation promptly.

Bank of America Merrill Lynch makes it easy to establish an incoming documentary collection relationship in three

simple steps:

01. Complete our easy-to-use Incoming Documentary Collection Agreement.

02. Submit the completed application to your local Bank of America Merrill Lynch banking center or

Trade Services office.

03. Instruct your supplier to send collection documents to a Bank of America Merrill Lynch Trade Operations Center

as the presenting bank. Naming Bank of America Merrill Lynch as your presenting bank for import documentary

collections means that you will be working with a bank you know and trust.

How are collections sent?Collections may be sent to collecting banks by courier service (Airborne, FedEx, DHL, etc.), express airmail or regular

airmail. In the past it has been customary for sellers to deliver documents to their bank for transmittal as mentioned.

The documents would be accompanied by a precise letter of instruction, which the seller’s (remitting) bank could

transcribe on its own collection letter form. Today, however, many banks provide a service called direct documentary

collections. This is an arrangement that enables the exporter to send documents, drafts and collection letters

to the buyer’s bank. The purpose is to save time that would otherwise be required to pass the collection through

the exporter’s bank first. The seller sends a copy of the collection letter to his/her bank, which follows up on the

collection.

Commercial documentsAs with LCs, the basic instrument through which payment is obtained is a draft. This is an order for the payment of

money drawn by one party, the drawer, on another, the drawee. Drafts may be payable at sight upon presentation or

at a fixed future date, such as 60 days from presentation. A properly executed draft is a negotiable instrument. Drafts

are generally referred to as bills of exchange outside the United States. A time draft that has been accepted by the


Chapter 06


drawee is called a trade acceptance.

The documents accompanying the draft are those required by customs authorities in both countries and those

stipulated by the importer. Failure to provide proper documentation could place the shipment in serious jeopardy. A

bill of lading is the title document for the goods shipped. In most cases, a negotiable bill of lading is used and title is

transferred by a simple endorsement. In the case of air shipments, the bills of lading are non-negotiable. To prevent

the importer from obtaining possession of the merchandise without paying or accepting a time draft, the exporter may

consign the shipment to the collecting bank, provided that the bank gives advance approval. Another alternative may

be to consign the goods to an impartial agent. If either option is not possible, the documentary collection device may

not be advisable when a straight or non-negotiable bill of lading or air waybill is used.

While the seller or its bank may select the collecting bank, the transaction may be expedited by using the buyer’s bank

in that role. Typically, the seller’s instructions list the documents transmitted and state the conditions under which

they are to be given to the buyer; they set forth the channel through which proceeds are to be remitted and establish

responsibility for paying bank charges. If the seller has an office or local representative in the buyer’s country, this

should be indicated in addition to listing a contact to be made there in the event of any problems.

Collection fees In addition to the protection provided by the retention of title by the exporter, documentary collections have other

advantages. The fees are usually lower than those charged for LCs, and the collecting bank’s assistance expedites

payment over that which would be obtained by open account. It should also be noted that foreign collecting banks

deduct their fees from the funds received before sending them back to the seller. Those charges in some countries

are surprisingly high. Sellers can learn what fees are involved by asking their banks. If the costs cannot be absorbed,

arrangements should be made during the sale to have the buyer pay all or part of the fees. If the collection letter does

not specify which party is to pay, the fees will be deducted from the collected amount.

Collection advantages/disadvantages Documentary collections are widely used to settle trade transactions. They are the primary terms of sale when a long

standing relationship exists between the buyer and seller and particularly when the buyer is an authorized dealer or

distributor for the seller. In practice, the most common disadvantage is the delay when local funds are exchanged into

dollars or other hard currencies desired by the sellers for sales to developing countries. Those delays are most often

the fault of the exchange control authorities, not the buyers.

Please note that when the goods being shipped are perishable or manufactured to a buyer’s unique specifications, this

settlement method may not be advisable.

ICC rules The ICC Uniform Rules for Collections (URC 522) govern the rights and responsibilities of the parties in most

countries. In a collection transaction, a bank acts as an agent for the seller. It is bound by the seller’s instructions and

acts at its own risk if it takes actions not covered by the instructions.

The full text version of the URC 522 can be ordered at www.iccbooksusa.com.



Chapter 06


Cash FlowIncoming Documentary Collections

importerexporter

exporter’s Bank (remitting Bank)exporter Documents


Chapter 06


Cash FlowIncoming Documentary Collections (Continued)

exporter’s Bank (remitting Bank)

importer’s Bank (collecting Bank)exporter Documents Documents

importerexporter


Chapter 06


Cash FlowIncoming Documentary Collections (Continued)


importer’s Bank (collecting Bank)

exporter Documents Documents


importer’s Bank (collecting Bank)importer

importerDocuments

exporter

exporter




Chapter 07Bankers’ Acceptances Under Import LCs


Chapter 07

Bankers’ Acceptances Under Import LCs

A bankers’ acceptance is a draft (an order for payment) or bill of exchange, payable at a fixed or determinable future

date, which is drawn on and accepted by a banking institution in the course of financing domestic or international

trade. By accepting the draft, the bank assumes an unconditional promise to pay the amount of the draft to any proper

holder who presents the draft for payment at maturity. A customer on whose behalf a draft is accepted is obligated

to make payment to the bank on or before the maturity date of the draft. A bankers’ acceptance is a negotiable

instrument that normally does not state an interest rate. Bankers’ acceptances are bought and sold on a discount

basis (that is, for less than face value) by subtracting an interest charge from the face amount of the acceptance.

When a bank buys (discounts) a bankers’ acceptance, it earns the difference between the purchase price and the face

amount that will be reimbursed at maturity by the client. After a bank has initially discounted its acceptance, it may

either hold the bill until maturity in its own portfolio as an investment, or rediscount with another investor.

Appropriate types of business for bankers’ acceptance financing Because of restrictions imposed by the Federal Reserve Act and related regulations, the majority of users of this

type of financing tend to be engaged in some aspect of domestic or international commerce. Nonetheless, there

remains a very broad segment of business types that can effectively use this vehicle when the financing relates to

the movement of goods or their storage under contract of sale. Acceptance financing may also be employed for other

purposes as well, but there are some additional limitations to its use. Financial institutions, including banks and

other types of lending institutions, that do not have the ability to create or market bankers’ acceptances because of

laws, regulations, lack of expertise, size, location or lack of market recognition may also find this type of financing

to be useful by employing banks such as Bank of America Merrill Lynch that do have this capacity. The advantage of

acceptance financing is its fixed, predetermined cost.

Financing characteristics Unlike conventional bank lending, which normally requires funding for the life of the loan, there is an active secondary

market for bankers’ acceptances. This secondary market gives these negotiable instruments a high degree of liquidity

that permits a bank to sell or rediscount them rather than hold them in portfolio. The secondary market consists

principally of a number of dealers (most of whom are nationally known brokers or securities dealers) who stand

ready to buy acceptances from banks at a discounted rate primarily for resale to their customers. Banks may also

market acceptances directly to customers or others who seek high-quality, short-term, liquid investments. Because

of the marketability feature, it has been said that when a bank finances a customer on an acceptance basis, it lends

its name rather than its money. The holder or investor in acceptances has the assurance of payment by both the

accepting bank and other endorsers. For this reason bankers’ acceptances are marketed at very competitive rates.


Chapter 07


Structure and mechanics of transactionsOf interest to importers, bankers’ acceptances are created through commercial LCs by requiring that drafts be drawn

to mature at a specific future date rather than at sight. If the documents accompanying the time draft are found to

be in order, the time draft is accepted by the drawee bank, thereby creating a bankers’ acceptance. If the beneficiary

desires payment before maturity of the draft, the bank may discount the draft and pay the beneficiary. Bankers’

acceptances are also generated independent of commercial LCs. A bankers’ acceptance is actually created when a

bank formally acknowledges its obligation to honor a time draft drawn on itself by stamping word “Accepted” across

the draft, dating and officially signing the notation.

Parties to the draftThere are three main parties involved in the execution of a draft:

01. The Drawer: The seller or exporter who draws the draft.

02. The Drawee: The person or entity to whom the draft is addressed. This will be a bank under an LC transaction.

03. The Payee: The specific person/company to whom payment is directed.

TenorTime (usance) drafts for acceptance must indicate payment at a fixed or a determinable future period in time. This

is called the tenor of a draft. An example of a fixed future time is a draft drawn on October 1, 2007, specifying

payment on November 1, 2007.Most time drafts, however, specify payment on a determinable future time. Various

determination type tenors are:

• Thirty days sight (30 d/s)—this means the determined payment date would be 30 days after the inscribed date of

acceptance on the draft.

• Thirty days date (30 d/d)—the determined payment date under this method would be 30 days after the date of the

draft.

• Thirty days after bill of lading date—this denotes that the draft is payable 30 days after the “on board” date

if a marine bill of lading, or 30 days after the reception date by the carrier in the case of truck, railroad or air

shipments. (See UCP 600, Articles 19 through 27).However, this type of tenor is not determinable unless the draft

also shows on its face the bill of lading date or date of receipt by the carrier. If the draft were being drawn under an

LC, the preferred method would be to have the creation date of the draft the same as the “on board” bill of lading

date or receipt date. Note: the above examples show 30 as the number of days for projection. This number can vary

as necessary, such as 45, 60, 90, 120, 150 or 180. Acceptance financing is usually short term, up to six months

or 180 days.

Draft tenors must always be fixed maturities or capable of being projected to a definite maturity. A draft tenor can

never be ambiguous or based on a contingency. Examples of inappropriate tenors are: thirty days after ship arrives,

sixty days after merchandise is accepted or forty-five days from delivery.


Chapter 07


Advances The creation of a bankers’ acceptance does not itself generate a flow of cash since it is simply a promise to pay the

acceptance at maturity. To initiate the flow of funds, the bill must be discounted. Customarily, such discount is made

by the bank by deducting a fee (interest) from its face value for the period from the date of discount until maturity. In

most instances, the initial discount is performed by the accepting bank, usually at a rate related to going market rates.

The total cost to the beneficiary consists of the fee assessed by the bank for accepting the draft and the discount.

Often, both elements are combined in an “all-in” or all-inclusive quotation to the customer. Under an LC, acceptance

fees and discount costs may be either for the account of the beneficiary (normal) or the applicant. If discount charges

are payable by the applicant, discount of the acceptance is virtually automatic since the beneficiary will receive the

face amount of the acceptance as proceeds.

Repayment The accepting bank is obliged to honor at maturity the acceptance it created, so it looks to its customer for

reimbursement. By paying the holder (purchaser) of the draft upon presentation at maturity, the bank extinguishes its

obligation.


Chapter 07


Bankers’ Acceptance Cash Flow

Flow of funds at time BA created

01 Exporter draws $500,000 draft on Bank of America Merrill Lynchassumption: acceptance commission at 1.5% per annum, 90 days to maturity.

assumption: discount at illustration rate of 6%03

Bank of America Merrill Lynch deducts acceptance commissions of $1,875 and $7500 for discount charges

02 Bank of America Merrill Lynch accepts the draft

04 Bank of America Merrill Lynch advances $490,625

05 At maturity, borrower repays Bank of America Merrill Lynch $500,000


Chapter 08Obtaining Your Merchandise


Chapter 08

Obtaining Your Merchandise

The issuing bank will send the documents presented under your LC either directly to you, or to your customs broker,

after proper examination has been completed. Your customs broker will then use the documents to clear the goods

through customs.

The customs broker will advise you of charges for duty, ocean freight, insurance or entry fees. These charges must be

paid to the customs broker immediately as failure to do so may result in penalties from U.S. Customs. In addition, you

should keep the following in mind:

•No pier pickup can be made until all duty and ocean freight have been paid

•All figures should be verified against those given by the seller

• If any of the charges appear to be out of line, advise the seller immediately

•Duty should not be paid on items that are not dutiable

•Wharfage charges must be paid at the pier

• If goods travel as loose cargo, a loading charge must be paid

•Wharfage charges and loading charges are nominal and vary from port to port.

Full container loads are normally available for pickup within two days after arrival, and loose cargo is typically ready

for pickup three or four days after docking. Either you or your customs broker can check on cargo availability after

arrival. Some steamship companies require an appointment to pick up merchandise. If your goods require further

transportation, you must provide your trucker with a delivery order on your company’s letterhead for him to take

possession of your merchandise. All the information needed for this delivery order will be contained in your bill of

lading.

What happens if the goods arrive before the documents? Much depends on the type of transport document used.

Shipments made under an “order” bill of lading will normally not be released by the carrier without a properly endorsed

original bill of lading. However, Bank of America Merrill Lynch may be able to help you avoid costly delays and

demurrage charges by issuing a Steamship Guarantee or Air Release to the carrier.

A good customs broker is frequently the key to successful importing and should be contacted before finalizing any

contracts. Customs brokers can provide you with current information on:

•All documents needed from the seller—both regular and special—in order to have your goods clear customs.

• Import duties that may be assessed on your goods.

•Any quota that limits the quantity of a specific item for import.

•Some of the other ways in which your customs broker can assist you include:

•Most shipments require formal customs entry and the posting of a bond.

A customs broker can assist you in both areas.

•Goods in transit should be insured by either the buyer or seller. If you do not have a policy, and insurance is not

provided by the seller, your customs agent can obtain the necessary coverage.


Chapter 09Incoterms—International Shipping/Trade Terms


Chapter 09

Incoterms—International Shipping/Trade Terms

What are Incoterms?When buying or selling in international markets, it is critical that all parties to the transaction know and understand

the terms of sale. For example, a seller may think that he has quoted a price to a buyer exclusive of the freight costs.

If the buyer thought that the price included the freight charges then a costly misunderstanding has occurred. For this

reason the ICC has developed a set of trade terms that are used worldwide. They come under the general heading of

Incoterms. Some of the more frequently used terms are outlined below. The most recent Incoterms, Incoterms 2010,

was published on January 1, 2011.

There are 11 Incoterms subdivided into 2 categories: rules for any mode of transport and rules for seas and inland

waterway. The following is a summary of the highlights of the Incoterms, which is not intended to furnish Incoterms

in their entirety. For a more complete understanding please refer to the Guide to Incoterms 2010 published by ICC

Publishing Co. in New York, which can be ordered through ICC’s website at www.iccbooksusa.com.

RULES FOR ANY MODE OF TRANSPORT

EXW (ExWorks . . . named place) Ex Works means that the seller fulfills his obligation to deliver when he has made the goods available at his premises

(that is, works, factory, warehouse, etc.) to the buyer. In particular, he is not responsible for loading the goods on the

vehicle provided by the buyer or for clearing the goods for export, unless otherwise agreed. This term thus represents

the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from

the seller’s premises. If the parties wish the seller to be responsible for the loading of the goods on departure and its

risks and costs, this should be made clear by adding explicit wording to this effect to the contract of sale. This term

should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances,

the FCA term should be used, provided the seller agrees that he will load at his cost and risk.

FCA (Free Carrier . . . at the named point) This term has been designed to meet the requirements of modern transport, particularly such multimodal transport as

container or roll on-roll off traffic trailers and ferries. It is based on the same main principle as FOB except that sellers

fulfill their obligations when they deliver the goods into the custody of the carrier at the named point. If no precise

point can be mentioned at the time of the contract of sale, the parties should refer to the place or range where the

carriers should take the goods into their charge. The risk of loss or damage to the goods is transferred from seller

to buyer at that time and not at the ship’s rail. A “Received for Shipment” bill of lading is acceptable in lieu of an

“On Board” bill of lading. This allows exporters to receive shipping documents more quickly and to get paid in a more

timely manner. “Carrier” means any person by whom or in whose name a contract of carriage by road, rail, air, sea or

a combination of modes has been made. When the seller has to furnish a bill of lading, waybill or carrier’s receipt, he/

she duly fulfills this obligation by presenting such a document issued by a person so defined.

CPT (Carriage Paid To . . . named place of destination) This term means that the seller delivers the goods to the carrier nominated by him, but the seller must also pay the

cost of carriage to bring the goods to the named destination. The buyer bears all risks and any other costs occurring



Chapter 09


after the goods have been so delivered. “Carrier” is defined as any person who, in a contract of carriage, undertakes

to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of

methods. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods

have been delivered to the first carrier. This CPT term requires the seller to clear the goods for export.

CIP (Carriage and Insurance Paid To . . . named place of destination) This term is the same as “Carriage Paid To . . .” but with the addition that the seller has to procure transport insurance

against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the

insurance premium. CIF is used for goods carried by sea, while CIP is used irrespective of the mode of transport. This

term allows the exporter the greatest control over all aspects of shipment.

DAT (Delivered At Terminal. . . named terminal at port or place of destination)This term is the same as CPT “Carriage Paid To . . .” but with the addition that the seller must pay for the unload

main carrier charges. The seller’s obligation ends when the goods are delivered to the disposal of the buyer, unloaded

from the arriving carrier at the named destination terminal, cleared for export, but not cleared for import. The buyer is

responsible for the import clearance of the goods. If the seller is also to be responsible for delivering the goods past

the terminal to another place, then DAP or DDP terms should be used.

DAP (Delivered At Place. . . named place of destination))This term is the same as DAT “Delivered at Terminal. . ..” but with the addition that the seller must pay for the

destination terminal charges. The seller’s obligation ends when the goods are delivered to the disposal of the buyer at

the named destination place, cleared for export, but not cleared for import. The seller and buyer should agree which

party will be responsible for unloading. The buyer is responsible for the import clearance of the goods.

DDP (Delivered Duty Paid. . . named place of destination). This term means that the seller delivers the goods to the buyer (cleared for import) but not unloaded from any arriving

means of transport at the named place of destination. The seller must bear all costs and risks involved in bringing the

goods thereto including, where applicable, any “duty” (which includes the responsibility for and the risk of carrying out

of customs formalities, customs duties, taxes and other charges) for import in the country of destination. While the

EXW term signifies the seller’s minimum obligation, the DDP term represents the maximum obligation.

RULES FOR SEA AND INLAND WATERWAY

FAS (Free Along Side . . . named port of shipment) This means that the sellers fulfill their obligation to deliver when the goods have been placed alongside the vessel on

the dock or quay at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the

goods from that moment. The FAS term requires the seller to clear the goods for export.

FOB (Free on Board . . . named port of shipment) FOB means “Free on Board.” The goods are placed on board a ship by the seller at a port of shipment named in the

sales contract. The risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods

pass the ship’s rail. All costs from that point forward, including freight and insurance, are for the buyer’s account. This

term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the

ship’s rail, the FCA term should be used.


Chapter 09


CFR (Cost and Freight . . . named point of destination) CFR means “Cost and Freight.” The seller must pay the costs and freight necessary to bring the goods to the named

destination, but the risk of loss or damage to the goods, as well as any cost increases, is transferred from the seller

to the buyer when the goods pass the ship’s rail in the port of shipment. The CFR term requires the seller to clear

the goods for export. This term should only be used for sea and inland waterway transportation. If the parties do not

intend to deliver the goods across the ship’s rail, the CPT term should be used.

CIF (Cost, Insurance and Freight . . . named port of destination) CIF means “Cost, Insurance and Freight.” This means that the seller delivers when the goods pass the ship’s rail

in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port

of destination, but the risk of loss or damage, as well as additional costs due to events occurring after the time of

delivery, are transferred from the seller to the buyer. In CIF the seller also has to procure marine insurance against the

buyer’s risk of loss or damage to the goods during the carriage. Consequently, the seller contracts for insurance and

pays the premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on

minimum cover. The CIF term requires the seller to clear the goods for export. This term should be used only for sea

and inland waterway transport. If the parties do not intend to deliver the merchandise across the ship’s rail, the CIP

term should be used

Incoterms summary of seller’s and buyer’s charges/fees responsibilities

Any Transport Mode

EXW FCA CPT CIP DAT DAP DDPEx Works Free Carrier Carriage Paid

toCarriage Insurance Paid to

Delivered at Terminal

Delivered at Place

Delivered Duty Paid

Packaging Buyer or Seller Seller Seller Seller Seller Seller Seller

Loading Charges

Buyer Seller Seller Seller Seller Seller Seller

Delivery to Part/Place


Export Duty & Taxes


Origin Terminal Charges

Buyer Buyer Seller Seller Seller Seller Seller

Loading on Carriage


Carriage Charges


Insurance Seller

Destination Terminal Charges


Delivery to Destination

Buyer Buyer Buyer Buyer Buyer Seller Seller

Import Duty & Taxes

Buyer Buyer Buyer Buyer Buyer Buyer Seller


Chapter 09


Sea/Inland Waterway Transport

FAS FOB CFR CIFFree Alongside Ship Free on Board Cost & Freight Cost Insurance & Freight

Packaging Seller Seller Seller Seller

Loading Charges

Seller Seller Seller Seller

Delivery to Part/Place


Export Duty & Taxes


Origin Terminal Charges


Loading on Carriage

Buyer Seller Seller Seller

Carriage Charges

Buyer Buyer Seller Seller

Insurance Seller

Destination Terminal Charges

Buyer Buyer Buyer Buyer

Delivery to Destination


Import Duty & Taxes



Chapter 10Standby LCs and Special Purpose LCs


Chapter 10

Standby LCs and Special Purpose LCs

Standby LCs A standby LC is an assurance of the performance of the client (applicant) to a beneficiary. Bank of America Merrill

Lynch issues standby LCs for its clients (individuals, corporations or correspondent banks).

The standby LC substitutes the credit standing of Bank of America Merrill Lynch for that of our client. Generally,

standby LCs are payable against the presentation of a draft and a statement from the beneficiary stating that our

client, the applicant of the standby LC, has defaulted under the terms of a specific underlying agreement.

The standby LC is an extremely flexible instrument and can be tailored to fit many situations. The following are

examples of typical uses for standby LCs:

•Bid and performance bonds or guarantees

• To ensure the repayment of principal and/or interest on loans, bonds, or commercial paper

•Assurance of timely invoice payment

•Substitute for a cash security deposit.

Applicants should be cautious when a standby LC is requested. Since most of these LCs require only statements

or declarations prepared by the beneficiary, they can be drawn on arbitrarily. The beneficiary should therefore be of

unquestionable character and have an established relationship with the applicant.

Standby LCs are governed by the International Standby Practices, ICC Publication 590 (ISP98), when incorporated by

reference in the standby LCs. The ISP98 reflects generally accepted practice, custom, and usage of standby LCs.

The formulation of standby LCs practices in separate rules evidences the maturity and importance of this financial

product. The outstanding amounts of standby LCs greatly exceed the outstanding amounts of commercial LCs. While

the standby LCs is associated with the United States, where it originated and where it is most widely used, it is truly

an international product. Non-U.S. bank outstandings have exceeded those of U.S. banks in the United States for the

past several years. The full text version of the ISP98 is available from the ICC at www.iccbooksusa.com.



Chapter 10


Bank of America Merrill Lynch provides...

Feature Advantages Benefits

Cash Flow Financial strength of Bank of America Merrill Lynch Frees customer funds that would otherwise have been tied up separately as deposits.

Expertise Staff of professionals have years of experience in the technical handling of standby LCs.

Assures that the standby letter of credit is issued in a manner that best protects client interest.

Foreign Exchange Bank of America Merrill Lynch can issue a standby letter of credit in currencies other than U.S. dollars.

Achieves compliance with contracts requiring foreign currency payments.

Credit Assurance Bank of America Merrill Lynch can issue a standby letter of credit on behalf of a client to serve as an assurance to a bank overseas for the repayment of loans made by the bank to our client or its subsidiary or affiliate.

Provides access to foreign loans that would otherwise not be available to client.

A “Standby Letter of Credit Application Kit,” which includes additional information and guidance on completing a

standby LC application, is available through your local Global Trade & Supply Chain Solutions Officer.


Chapter 10


A typical standby LC, as issued, is shown here:�

WE HEREBY ISSUE IN YOUR FAVOR THIS IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXXXXXX WHICH ISAVAILABLE BY PAYMENT WITH OURSELVES AGAINST PRESENTATION OF YOUR DRAFT AT SIGHT DRAWN ON BANKOF AMERICA, LOS ANGELES CALIFORNIA, BEARING THE CLAUSE: “DRAWN UNDER STANDBY LETTER OF CREDITNUMBER XXXXXXX OF BANK OF AMERICA, LOS ANGELES, CA” ACCOMPANIED BY THE FOLLOWING DOCUMENTS.

BENEFICIARY SIGNED STATEMENT CERTIFYING THAT (APPLICANT NAME) HAS FAILED TO COMPLY WITH THETERMS AND CONDITIONS OF CONTRACT NO. KFX-KAF-02005.

IT IS A CONDITION OF THIS LETTER THAT IT WILL BE AUTOMATICALLY EXTENDED WITHOUTAMENDMENT FOR ADDITIONAL PERIODS OF ONE YEAR FROM THE CURRENT OR ANY FUTURE EXPIRATION DATEHEREOF UNLESS, SIXTY (60) OR MORE DAYS PRIOR TO ANY SUCH EXPIRATION DATE, BANK OF AMERICA WILL NOTIFYBENEFICIARY BY REGISTERED MAIL OR COURIER SERVICE AT THE ABOVE ADDRESS, THAT THE BANK ELECTED NOTTO RENEW THIS LETTER OF CREDIT FOR ANY SUCH ADDITIOANL PERIOD.

IT IS A FURTHER CONDITION HEREOF THAT BENEFICIARY MAY DURING THE LAST FIFTEEN (15) DAYS OF THETHEN CURRENT VALIDITY PERIOD DRAW HEREUNDER BY MEANS OF THEIR SIGHT DRAFTS ON OURSELVES FOR ANAMOUNT UP TO THE AVAILABLE BALANCE ACCOMPANIED BY THEIR SIGNED STATEMENT STATING THAT THEYHAVE RECEIVED NOTICE FROM BANK OF AMERICA, LOS ANGELES, CA THAT BANK ELECTED NOT TO CONSIDER THEEXPIRY DATE OF STANBY LETTER OF CREDIT NUMBER XXXXXXX EXTENDED.

PARTIAL DRAWINGS PERMITTED.

ALL REQUIRED DOCUMENTS MUST BE PRESENTED TO BANK OF AMERICA, LOS ANGELES, CA.

WE HEREBY ENGAGE WITH YOU THAT DRAFTS DRAWN AND PRESENTED IN THE CONFORMITY WITH THETERMS OF THIS CREDIT WILL BE DULY HONORED ON PRESENTATION.

“EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS DOCUMENTARY CREDIT IS SUBJECT TOINTERNATIONAL STANDBY PRACTICES (ISP98), PUBLICATION NO. 590 OF THE INTERNATIONAL CHAMBER OFCOMMERCE.”

PLACE AND DIATE OF ISSUE IRREVOCABLE STANDBYLOS ANGELES, CA JUNE 29, 2007 LETTER OF CREDIT NO. XXXXXXX

APPLICANT DATE AND PLACE OF EXPIRY(APPLICANT NAME) DECEMBER 31, 2010 IN SAN FRANCISCO, CA

35 MAIN STREETSAN FRANCISCO, CA 94116 BENEFICIARY

(BENEFICIARY NAME)ADVISING BANK GPO BOX 444BANK OF AMERICA HONG KONGHONG KONG

AMOUNT: U.S. $3, 500,000.00 (THREE MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS)


Chapter 10


Special Purpose LCsRevolving LCs A revolving LC is one which, under the terms and conditions thereof, the amount is renewed or reinstated without

specific amendment to the LC.

A revolving LC:

•Can be revocable or irrevocable

•Can revolve in relation to time or value

In the case of an LC that revolves in relation to time, which is available for up to $15,000.00 per month during a fixed

period of time such as six months, the credit is automatically available for $15,000.00 each month whether or not

any sum was drawn during the previous month. A LC of this nature can be cumulative or non-cumulative. If the LC is

stated to be cumulative, any sum not utilized during the first period carries over and may be utilized during subsequent

periods. If the LC is non-cumulative, any sum not utilized in a period ceases to be available (not carried over to a

subsequent period).

In the case of an LC that revolves in relation to value, the amount of the LC is reinstated upon utilization, with a

given overall period of validity. The LC may provide for automatic reinstatement immediately upon presentation of

the specified documents only after receipt by the issuing bank of those documents. To give a degree of control it is

necessary to specify the maximum total amount that may be drawn under the LC. Such amount would have to be

decided by the buyer and seller to meet their requirements and agreed to by the issuing bank. A LC for the full value of

goods to be shipped by requiring specific quantities to be shipped weekly or monthly, and allowing partial shipments,

is not a revolving credit. It is a LC available by installments as defined in the UCP 600 Article 32. In this type of LC it is

important to note than any missed installment makes the LC unavailable for further drawings.

Transferable LCs A transferable LC is one that can be transferred by the original (first) beneficiary in whole or in part, to one or more

other parties (second beneficiaries) (ISP98 Rule 6 orUCP 600 Article 38,). It is normally used when the first beneficiary

does not supply the merchandise but is a broker and thus wishes to transfer part, or all, of the rights and obligations

to the actual supplier(s) as second beneficiary(ies). This type of LC can only be transferred once (any second

beneficiary cannot transfer to a third beneficiary).


Chapter 10


The transfer must be effected in accordance with the terms of the original LC, subject to the following exceptions:

01. The name and address of the first beneficiary may be substituted for that of the applicant of the LC.

02. The amount of the LC and any unit price may be reduced; this would enable the first beneficiary to draw against

the LC for commission or profit.

03. The expiration date of the credit, the period of time after date of issuance of the transport document for

presentation of documents, and the shipment period may be shortened.

04. The percentage for which insurance coverage must be effected may be increased in such a way as to provide the

amount of cover stipulated in the original LC.

It should be noted that a LC would only be issued as “transferable” on the specific instructions of the applicant.

This would mean that both the LC application form and the LC itself must clearly show that the credit is to be made

transferable (only an irrevocable LC would be issued in this form).

The transfer is effected by the bank authorized in the LC as the transferring bank at the request of the first beneficiary.

In practice, the first beneficiary is allowed to substitute any invoices and any drafts for those presented to the

transferring bank by the second beneficiary. The bank must correlate and check both invoices and drafts with the other

documents called for and determine that all documents comply with the terms of the original LC.


Chapter 11International Cash Management and Foreign Exchange Services


Chapter 11

International Cash Management and Foreign Exchange Services

International Treasury Management ServicesBank of America Merrill Lynch Treasury Management Services help you manage your cash position and cash flow.

We build comprehensive, customized solutions to meet the unique needs of our clients, improve their financial

competitiveness, and make their treasury functions more efficient.

By working with you, we help you streamline the way you make payments, collect your receipts, and reconcile your

accounts worldwide. With our broad treasury management suite of services, we guide you through the steps to make

your treasury functions more efficient.

Bank of America Merrill Lynch Treasury Management services can:�•Reduce your administrative costs and help you analyze and forecast your financial needs

•Help you concentrate on managing your working capital and other strategic financial objectives, including

maximizing company investments

• Increase cash for investment, capital expenditures, and other purposes by helping you predict your day-to-day cash

needs

• Free up resources by providing you with fast and accurate information.

PaymentsBank of America Merrill Lynch offers you quick, efficient payment services that can streamline the way you remit to

your vendors, clients and employees and reconcile your accounts. We can provide a customized solution, integrating

the following components:

•Account Reconciliation—reconcile your accounts quickly, easily and accurately

•Automated ClearingHouse (ACH)—save time and money by moving funds electronically, from your own personal

computer

•EDI—increase your efficiencies through the electronic transfer of business data with your business partners

• Information Reporting—receive timely account information at your desktop

•Wire Transfer Service—Efficiently send or receive same-day funds with robust security.

ReceiptsWe can help you quickly turn your receipts into cash while reducing information float and improving credit management.

If you are challenged to provide your clients with payment flexibility or to improve efficiencies in your receipt

processing, we can help you manage your receivables by developing customized solutions from the following range of

services:

•Account Reconciliation—fast and economical method to help you manage your deposit activity by outsourcing all or

part of your monthly checking account reconciliation functions

•ACH—save time and money by moving funds electronically

•EDI—increase your efficiencies through the electronic transfer of business data with your business partners


Chapter 11


• Information Reporting—receive timely account information at your personal computer

• Lockbox—utilize our network of post office boxes to accelerate the collection of client remittances, improving

control of your receipts in selected countries

TreasuryBank of America Merrill Lynch Treasury Services gives you the information and services to help you get the most out of

your deposits and balances.

•SWEEP—automate the concentration of your daily excess collected balances

•Zero Balance Accounts—gain greater control of your funds by automatically transferring them between master and

subsidiary accounts on a same-day basis

•Euro Cross-Border Automated Zero Balance—concentrate your Euro currencies

•Online capabilities

•Current-day reporting

•Prior-day reporting

•ACH initiation

•Wire transfer initiation

• International U.S. dollar wires

• FX international wires.

Working Capital ManagementTreasury Management has typically been charged with studying and documenting the cycles of receipts and payments

to improve return on investment portfolios and/or to reduce debt. The credit management function involves managing

raw materials, work in process, inventory and the distribution of finished goods. These are all components of the

cash flow cycle and very closely tied to one another. If one component fails or is delayed, the next activity and all

subsequent activities will suffer.

Your Bank of America Merrill Lynch Treasury Management team is prepared to work with you to identify issues and

discover opportunities and solutions.

Investment/Paydown

Sales of goods

Raw Materials

Inventory

Work in Progress

Payables

Receipts

Equity/Debt

Distribution


Chapter 11


Client financial architectureThe focus of your Corporate Treasury staff has expanded to include overseeing the complete transaction process—

receipts, payments and treasury.

Bank of America Merrill Lynch Treasury Management officers will ask questions to gain an understanding of your core

processes so they can more easily develop and implement solutions that add value to your internal operations.

•Your Bank of America Merrill Lynch Treasury Management team will work with you to learn and understand your

issues and needs to uncover opportunities not easily recognized.

•Working as advisors, we will deliver innovative solutions, drawing from our comprehensive U.S. and international

payments, receipts, treasury and global trade capabilities to help you meet your business objectives.

•As the #1 provider of treasury management services to middle market and large corporate clients in the United

States, we provide exceptional customer service and ongoing technological advancements.

• The Global Banking System (GBS), the backbone of Bank of America Merrill Lynch’s international banking

operations, links accounts and services through one single platform.

Risk

ReceiptsCredit

Invoice

Receipts

Cash Application

Deductions Mgmt

Disputes

Collections/Loss Control

Research/Inquiries

TreasuryCash Position

Bank Relations

Miscellaneous

PaymentsPurchasing

Request for Payment

Payment Origination Settlement

Fraud Control

Reconcilenment

Research/Inquiries

Information

Client Access Technology Strategy Information Security


Chapter 11


Foreign Exchange ServicesBank of America Merrill Lynch Foreign Exchange Services Group provides the following products and services:

Worldwide trading•Nearly thirty sales and trading centers

•Short-and long-dated forwards in all non-exotic currencies

•Non-deliverable forwards pricing in selected exotic currencies

•Standard and exotic options.

Risk analysis•Quantitative analysis of FX exposures and hedging strategies

•Analysis and review of the risk management process

•Development of new hedging approaches and products

•Currency research and risk management monographs

Currency strategy•Economists located on trading floors, who are responsive to market developments

•Globalmacro-economic coverage of all markets through worldwide network

•Regular publication of market research and country analysis available electronically in real-time

Other services•Extensive series of workshops and seminars

• Full-featured capital markets Web site with instant access to research, market commentary, and risk analysis tools

E-SolutionsBank of America Merrill Lynch’s Global Markets website provides clients with valuable ideas, analyses and tools

required to manage their physical assets, liabilities and risks.

The resources available through the site include:

•Research: Market commentary, economic analysis, technical analysis, forecasts and research on practical

investment and risk management issues, such as setting foreign exchange budget rates, estimating international

costs of capital and evaluating hedging strategies

•News & information: Economic calendar hyperlinked to Bank of America Merrill Lynch research and online futures

and margin statements

•Analysis tools: TradeCalc (Options pricer), Chart Room (historical data), Portfolio Optimizer, Implied Volatility and

Daily FX rates

• Trading: FX02, an FX e-dealing service that offers spot, forward and swap transactions, online trade blotters,

confirmations and valuation reporting


Chapter 11


CashPro FXYour business is increasingly global. Your operations are expanding internationally. Employees and suppliers extend

across borders. As your company changes and grows, you need the ability to make multi-currency payments quickly,

easily and cost-effectively. Bank of America Merrill Lynch FX Wires and Drafts allow you to tap the power of the internet

to manage foreign currency payments effectively.

Integrated FX platformThe CashProFX service allows you to issue payments—in more than 100 currencies—using the web browser on your

PC desktop.

The service makes it easy for you to make payments of up to $5 million (USD equivalent) to suppliers, overseas

employees, international operating units, or any other beneficiary, via our state-of-the-art web-browser¬based system.

Payment settlement is made via deductions from your Bank of America Merrill Lynch account. Since competitive

foreign exchange rates are critical, our system provides the most current rates, which are continuously updated

throughout each business day.

Benefits of CashPro FX:�• Intuitive pull-down menus and clear data input screens make it easy for you to complete a transaction in minutes.

• The service is available 24 hours a day, allowing you to set up payments and review transactions on a schedule

that’s convenient for you.

•With on-site draft printing, you can print your foreign currency drafts locally and immediately.

• The service gives you robust security, using digital certificates and flexible user controls.

•You have the benefit of real-time, competitive FX rates from one of the leading FX trading operations in the world.

•You have the added confidence that your payments are made with greater accuracy since the system automatically

provides certain standard payment information.


Chapter 11


Seminars and WorkshopsForeign Exchange Workshop•A three-day, case study-based workshop that introduces the attendees to such topics as: “Defining Foreign

Exchange Exposures,” “Settling Currency Risk Management Policies and Procedures,” “Foreign Currency Options”

and “Managing Foreign Currency Exposures”

•A one-day seminar specifically designed to cover the key aspects of the three-day seminar in a more condensed

version.

Currency Option SeminarsTo complement Bank of America Merrill Lynch’s extensive capabilities in providing currency options to its clients, the

bank also offers educational opportunities where clients can improve their understanding of option-related products

and learn to use them within an appropriate risk management framework.

Seminars include:

• Introduction to Vanilla Currency Options

• Introduction to Exotic Currency Options

•Hedging with Currency Options and the Accounting Implications

•Currency Option Risk Management

Managing risk for the MNCThis seminar is designed for the Treasury professional who desires a deeper understanding of the issues and

strategies that are necessary for managing risk for a multi-national corporation.

FAS 133This comprehensive seminar will help Treasury and Accounting implement and maintain compliance with the new

derivatives and hedging rules. The seminar will focus specifically on new developments, including recent decisions

from the DIG and insight into future changes.

If you are interested in attending any of these seminars, please contact your Global Product Solutions officer.


Chapter 11


Accounting ConsiderationsAccounting for Derivatives and Hedging Transactions—FAS 133 (as amended by FAS 138)• Financial Accounting Standard No. 133 (as amended by FAS 138), effective for fiscal years starting after June 15,

2000, requires all derivatives to be shown on the balance sheet at fair value. Changes in fair value of the hedge will

go through earnings unless the transaction qualifies for special hedge accounting.

•Each operating unit determines whether it has an FX exposure based upon its functional currency. Companies must

document hedge strategies and the hedge must be highly effective to qualify for hedge accounting. Any ineffective

portion of the hedge may be charged to earnings immediately.

• Three types of hedges that qualify for special accounting are cash flow hedges, fair value hedges and net

investment hedges.

•A cash flow hedge protects against changes in the USD-equivalent cash flows associated with an unrecognized firm

commitment, recognized assets or liabilities or a forecasted transaction.

•A fair value hedge protects against changes in fair value of an FX-denominated unrecognized firm commitment, a

recognized asset or liability or an available-for-sale security.

•A net investment hedge protects the USD equivalent net asset position of a foreign currency functional subsidiary.

•Hedges of business combinations, inter-company dividends and anticipated exposures that are not probable do not

receive special hedge accounting.

Cash Flow Hedge AccountingThe fair value of the hedge is recorded on the balance sheet as an asset or liability and the effective portion of the

hedge is offset in equity (Other Comprehensive Income). The balance in equity is released to income as the hedged

item affects earnings (i.e., when forecasted transaction occurs or when sport/sport changes of balance sheet items

are recognized).

Fair Value Hedge AccountingThe fair value of the hedge is recorded on the balance sheet as an asset or liability with the offset in income. The

carrying value of the underlying hedged item is also adjusted with the offset in income as well.

Net Investment Hedge AccountingThe fair value of the hedge is recorded on the balance sheet as an asset or liability with the offset in the cumulative

translation account CTA (equity). The change in value of the foreign subsidiary net asset position is also adjusted to

CTA.

Please note that Bank of America Merrill Lynch Corporation is not an accounting advisor. Please consult with your

auditors to determine the appropriate accounting treatment for your company.


Chapter 12International Trade Glossary


Chapter 12

International Trade Glossary

Acceptance. A time draft that the drawee (the payer) has accepted and acknowledged in writing the unconditional

obligation to pay it at maturity.

Accepting Bank. A bank that is the drawee of a time draft and that becomes the acceptor of the draft.

Account party. (See Applicant.)

Advising Bank. A bank which receives a LC issued by the applicant’s bank and forwards it to the beneficiary without

assuming any responsibility or liability other than to ensure their advice accurately reflects the terms and conditions of

the credit (and to verify the credit’s authenticity).

At XX days after date. A term used to indicate that the maturity date of a draft is determined by the date on which it

was drawn and is not determined by the date of acceptance by the drawee.

At XX day after sight. A term indicating that the maturity date of a draft is determined based on a specified number

of days after presentation of the draft to the drawee or payee.

Air Waybill. A transport document/bill of lading which serves as a receipt for goods, (contract to transport the goods,

and which indicates to whom the goods are to be delivered). Generally, air carriers do not allow Air Waybills to be

issued in negotiable form. Air Waybills should not be consigned to order of a named party, but should be consigned

directly to a named party.

All Risks Coverage. The broadest type of standard marine insurance coverage; may show exclusions for damage

caused by war, terrorism, strikes, riots and civil commotion.

Alongside. Place that is at the side of the vessel. Goods to be delivered alongside are to be delivered to the dock

from which they can be loaded aboard the ship.

Applicant. The buyer/importer/account party who applies to its bank to issue a LC in favor of the beneficiary/seller/

exporter.

At Sight. The tenor of a draft or availability term of a credit indicating that payment is due upon presentation or

demand.

Aval. A time draft drawn by an exporter on the buyer under which the buyer’s bank has guaranteed that the draft will

be paid at maturity.

Banker’s Acceptance. A time draft drawn on a bank, usually by an importer or exporter, which, once accepted by the

drawee bank, becomes an unconditional obligation of the bank to pay at maturity.

Beneficiary. The person or company in whose favor a LC is issued. Usually the beneficiary is the seller/exporter.

Bill of Exchange. (See Draft.)


Chapter 12


Bill of Lading. A transport document which serves as a receipt for goods, a contract to transport the goods, and

engagement to deliver the goods at the prescribed destination to the lawful holder of the bill of lading. While this term

is frequently used to describe an ocean/marine bill of lading, its legal definition is much broader. (See also, Air Waybill,

Ocean Bills of Lading, Inland Bills of Lading.)

Boycott. A refusal to deal commercially with a person, firm, or country.

Carnet. A customs document that permits the holder to temporarily bring goods into a country (e.g. for a trade show),

and then take them back out without having to pay customs duties.

Cash in Advance. The payment by a buyer to a seller prior to the purchased goods having been shipped.

Cash Against Documents. (See Documents Against Payment.)

Central Bank. A government-owned or controlled bank that oversees other banks in the nation, issues currency, and

serves as a depository for government funds.

Certificate of Analysis. A certificate issued regarding the quality and composition of food products or

pharmaceuticals.

Certificate of Inspection. A document certifying that merchandise was in good condition immediately prior to its

shipment.

Certificate of Origin. A document, often issued by a Chamber of Commerce, certifying the origin of the goods being

shipped. It is used to satisfy import regulations and to determine customs duties.

Clean Transport Document. A transport document that bears no clause or notation, indicating that goods were

received in apparent good order and were not damaged or had other irregularities.

Clean Draft. A draft to which no shipping documents are attached.

Commercial Invoice. A document issued by a seller listing goods being sold to a named buyer, including the price and

shipping terms.

Confirmed Letter of Credit. An obligation assumed by one bank (the confirming bank) on behalf of the issuing bank, of

a LC under which the confirming bank undertakes to honor or negotiate drafts and/or documents which are presented

in compliance with the credit’s terms and conditions.

Consignee. The person or firm named in a freight contract to whom merchandise is to be delivered.

Documentation differentiates between an intermediate consignee and an ultimate consignee for export control

purposes.

Consular Invoice. A commercial invoice that has been reviewed by the Consulate of the buyer’s country for the

purpose of verifying the value and quantity of the shipment and to ensure that no indigenous laws or regulations are

being broken.

Container. A uniform-sized, sealed, reusable metal box in which goods are shipped by vessel, truck, rail or air.

Country Risk. The risks inherent in doing business in a foreign country over and above commercial risks, which are

generally beyond the local company’s ability to control.

Credit Risk Insurance. Insurance purchased through either the Export-Import Bank of the United States, or private

sector companies, to provide protection against non-payment due to country or commercial risks.

Customs. National government authorities that regulate the flow of goods to or from a country and collect duties

levied on imports and exports.


Chapter 12


Customhouse Broker. A private firm that arranges to clear goods through customs. Customhouse brokers also

commonly act as freight forwarders.

Demurrage. Additional storage charges incurred as a result of excessive delays in clearing cargo off a vessel, wharf,

freight car or air cargo facility.

Devaluation. The official lowering of a country’s currency in relation to one or more currencies of other countries.

It tends to make imports in that country more expensive, and to make exports more attractively priced to overseas

buyers.

Discharge. To unload cargo.

Dock Receipt. A receipt for goods issued by an ocean carrier or their agent at their dock or warehouse, but not

covering the loading on a vessel.

Documentary Collection. The presentation through banking channels for payment or acceptance by a buyer of

documents relating to the shipment of goods.

Documents Against Acceptance (D/A). A documentary collection wherein shipping documents are released to buyers

in exchange for them obligating themselves to future payment via execution of a trade acceptance. (See also Aval.)

Documents Against Payment (D/P). A documentary collection wherein shipping documents are released to the buyer

in exchange for payment for the amount of the draft.

Draft. An unconditional order in writing from drawer (exporter) to drawee (importer) directing the drawee to pay a

specific amount of money to the payee on demand or at a fixed or determinable future date. (See also, Sight Draft,

Time Draft.)

Drawee. The person, company or bank upon which a draft is drawn.

Drawer. The person, company or bank that creates the draft and generally is entitled to receive payment.

Durable Goods. Furniture, machinery, appliances and similar goods that are not processed or consumed by their

users.

Duty. A tax on imported goods imposed by the customs authorities in that country.

Economic Sanctions. A foreign policy tool used to punish and/or influence a target nation. Sanctions can include

prohibiting trade, economic assistance, financial transactions or even all economic relations.

Embargo. A restriction or prohibition on exports or imports with respect either to specific products or specific

countries.

Exchange Rate. The value or price of one currency when used in relation to its value in another currency, for example,

the number of units of currency A that is required to be exchanged for one unit of currency B.

EXIM-Bank. The U.S. Export-Import Bank. The U.S. Eximbank is an independent agency that finances the export of

U.S. goods and services through loans, guarantees, working capital guarantees and insurance.

Exporter. The person or company that sells or arranges to transport goods out of a country.

Export License. A government document used in some countries that allows the export of certain controlled products

to specific destinations.

Export Management Company. A private firm that serves as the export department for a number of companies. The

firm typically do not take title to the goods and is paid on a commission basis.


Chapter 12


Export Trading Company. A firm that serves as the export department for a number of companies that takes title to

the goods. They make their money by making a profit margin on the goods being exported.

Force Majeure. Conditions such as floods, earthquakes, hurricanes or other events beyond the control of various

parties involved in transporting goods. Marine contracts typically exempt the affected parties from their contractual

obligations as a result of Force Majeure.

Foreign Exchange. The currency of a foreign country and/or the conversion from one currency to another.

Forward Exchange. The setting of an agreed-upon exchange rate between a foreign exchange trader and a client

whereby the trader contracts with the client to buy/sell a specific amount in foreign currency at a future date at a

predetermined exchange rate. (See also, Spot Exchange.)

Foul (not clean) Bill of Lading. A receipt for goods issued by a carrier with an indication that the goods or the

packaging were in damaged condition when received.

Free (Foreign) Trade Zone. An enclosed and secured area, usually designated by a port, into which goods may

be taken and customs duties may be deferred or waived until such time as the goods are removed for domestic

distribution or re-exported.

Freight Forwarder. A private company that arranges cargo space on a carrier, as well as the logistics for delivering the

goods to the carrier (e.g. ship, airplane etc.). They also frequently assist in the preparation of shipping documents for

presentation, either under a LC or collection basis.

Free of Particular Average (FPA). A clause used in marine insurance indicating that partial loss or damage to a

shipment is not covered. Loss resulting from conditions such as the ship sinking or burning may be exempted from the

clause. (See also, With Particular Average.)

GATT. “General Agreement on Tariffs and Trade.” A multilateral treaty designed to reduce trade barriers, and to

provide a forum for resolution of trade disputes.

General Export License. Authority to export without the need for a specific or validated export license.

Gross Weight. The full weight of a shipment, including goods, packaging and container.

Import. To bring goods into a country whose origin is in another country. The importer is usually the buyer or the

buyer’s agent.

Import License. A government document required in some countries for importing specific goods originating in specific

countries.

Incoterms. International rules published by the International Chamber of Commerce for the interpretation of foreign

trade terms.

Inland Bill of Lading. A bill of lading used to cover the transport of goods within a country’s borders, such as by rail or

truck.

Insurance Policy/Certificate. A document that assures the consignee that the merchandise is insured to cover loss

or damage while in transit.

International Chamber of Commerce (ICC). An organization founded to promote free trade and private enterprise and

to represent business interests at the national and international level. The ICC is composed of national councils from

over 90 countries.

Issuing Bank. The bank that issues a LC; also called the opening bank.


Chapter 12


Letter of Credit. A conditional undertaking by a bank on account of a buyer (applicant) of goods in favor of a seller

(beneficiary) under which payment is effected against presentation of stipulated documents in compliance with the

LC’s terms and conditions.

Marine Risk Insurance. Insurance covering loss or damage while goods are at sea. Typical coverage includes losses

sustained due to fire, shipwreck, piracy, strikes, riots or civil commotion, as well as the standard losses caused as a

result of the cargo being damaged.

Marks. Letters, numbers or symbols used on packaging so as to identify the cargo.

Marks of Origin. Physical markings on a product indicating the country where the merchandise was produced.

MERCOSUR (Mercado Comun del Sur—Southern Cone Common Market). A preferential trade agreement among

countries of the southern cone of South America that aims to establish free trade and increased economic

cooperation among members.

Most-Favored-Nation Treatment. A commitment that a country will extend to another country the lowest tariff rates

or the most favorable non-tariff policies it applies to any third country. All GATT contracting parties undertake to apply

such treatment to each other.

Multimodal Transport. The movement of freight using two or more different kinds of transport such as ocean and

truck, ocean and rail etc. (May also be called combined transport bill of lading, intermodal bill of lading or through bill

of lading)

NAFTA (North America Free Trade Agreement). A regional preferential trade agreement that aims to eliminate tariffs

and other trade, services and investment barriers among its constituents.

NAICS Code. The North American Industry Classification System—the industry classification system used by the

statistical agencies of the United States

Net Weight. Weight of the goods with any immediate wrappings.

Ocean Bill of Lading. A document issued by a shipping line that serves as (a) a receipt for goods, (b) a contract to

transport goods, and (c) a means to transfer title from the shipper to a designated party. Most often, the carrier will

issue three original bills of lading. Ocean bills of lading may either be “negotiable” or “straight.” Under a negotiable bill

of lading, one original bill of lading must be surrendered to the shipping line in order for the consignee to take delivery.

The bill of lading is consigned to the order of a named consignee. Ownership in the goods may be transferred through

endorsement of the bill of lading. Under a straight bill of lading, the consignee may take delivery by surrender of either

an original or copy of the bill of lading or in some instances by simply proving their identity. Straight bills of lading are

consigned to a consignee with no possibility of transferring ownership through endorsement.

Open Account. A selling arrangement whereby goods are shipped to a buyer prior to payment being made, and where

the seller’s risk is entirely with the buyer and the buyer’s country.

Open Insurance Policy. A marine insurance policy that applies to all shipments over a period of time rather than on a

single shipment.

Opening Bank. The bank that issues the LC. Same as issuing bank.

OPIC. Overseas Private Insurance Corporation. AU.S. government agency that provides risk protection on capital

investments made in foreign countries.

Packing List. A document that lists the various packages or cartons being shipped and their contents.

Particular Average. Partial loss or damage to goods.


Chapter 12


Phytosanitary Certificate. A certificate typically issued by a country’s agricultural department to satisfy import

regulations in various countries certifying that specified perishable food, weed and plant items are free from

contamination, pests and plant diseases.

Pro-Forma Invoice. A draft or sample of what the final invoice will look like. Used by sellers in the negotiating process

with potential buyers in order to ensure that all parties understand what costs are included in the quoted price.

Purchasing Agent. An agent who purchases goods on behalf of a foreign buyer.

Quota. A limitation placed by a government on the quantity of specific goods that may be imported or exported without

the imposition of additional customs duties.

Rate of Exchange. The value of one country’s currency in terms of another.

Shipper’s Export Declaration (SED). A U.S. Treasury form required to be completed for all shipments leaving the

United States. It indicates the value, nature of the goods, weight, destination, etc. It is not an export license. Very few

products leaving the United States require an export license.

Shipping Weight. The gross weight of a shipment, including moisture content, wrappings, crates, boxes and

containers (other than cargo vans and similar substantial outer containers).

Sight Draft. A draft which is payable by the drawee at the time of presentation. (See also, Draft, Time Draft.)

Spot Exchange. The immediate conversion of one currency to another at the prevailing exchange rate.

(See also, Forward Exchange.)

SIC Codes (Standard Industry Classification). A numerical coding system formerly used in the United States to

classify various types of businesses, goods and services. Replaced by NAICS Code.

Tare. Weight of the package in which merchandise is contained and/or packing materials used to protect it. Gross

weight minus tare gives net weight.

Tenor. Terms fixed for payment of a draft; e.g., sight, 90 days after sight, 60 days after shipment date.

Through Bill of Lading. See multimodal transport document.

Time Draft. A draft which is payable at a determinable future date. It is drawn on a buyer (importer) or bank and, once

signed as accepted by the drawee becomes the drawee’s obligation to pay at maturity.

(See also, Trade Acceptance.)

Trade Acceptance. A time draft that has been accepted across the face of the instrument, in writing, by the drawee

(generally the buyer/importer) thus signifying the drawee’s undertaking to honor the acceptance at maturity. (See also,

Documents Against Acceptance.)

UCP (Uniform Customs and Practice for Documentary Credits). Globally accepted (by all member nations of the

International Chamber of Commerce) set of rules governing LC transactions.

Warehouse Receipt. A receipt issued by a warehouse operator for goods received for storage.

With Average. A Marine Insurance term meaning that a shipment is protected from partial damage whenever the loss

exceeds a stipulated percentage.


Chapter 12


Table of Weights and Measures

BARREL = 36 British Imperial gallons9987.12 cubic inches

BOARD FOOT =144 cubic inches2360 cubic centimeters

BUSHEL =2150.42 cubic inches35.2390 liters

CARAT =200 milligrams3.0865 grains

CENTIARE (square meter) =10.764 square feet1.196 square yards

CENTIMETER =0.3937 inch

CORD =128 cubic feet3.625 cubic meters

DRAM (fluid) =60 minims3.697 milliliters4 grams (approx.)

GALLON (U.S.) =231 cubic inches4 quarts8 pints3.785 liters128 fluid ounces

GALLON (British Imperial) =277.42 cubic inches1.201 U.S. gallons4.546 liters

GRAIN =0.00014 pound avoirdupois0.0648 grams

GRAM =15.43 grains0.0353 ounce0.0022 pound

HUNDREDWEIGHT (British) =112 pounds50.80 kilograms

KILOGRAM =2.2046 pounds35.274 ounces15432.36 grains0.0011 short ton0.00098 long ton

LITER =1.000027 cubic decimeter0.2642 gallon1.057 quarts61.02 cubic inches0.035 cubic foot33.8147 fluid ounces270.518 fluid drams

METER =39.37 inches3.28 feet1.09 yards

OUNCE (Avoirdupois, ordinary) =

437.5 grains0.911 troy ounce0.0000279 long ton28.3495 grams

OUNCE, FLUID =1.805 cubic inches29.58 milliliters

OUNCE, FINE =troy ounce480 grains31.104 grams

POUND =16 ounces7000 grains454 grams0.454 kilogram14.58 troy ounces

QUARTER (British) = Quarter hundredweight

28 pounds12.68 kilograms

QUINTAL =100 kilograms220.46 pounds

STERE =1 cubic meter

STONE (British) =14 pounds6.35 kilograms

TON (short) =2000 pounds907 kilograms

TON (long) =2240 pounds1016 kilograms

TON (metric) =1000 kilograms2204.62 pounds

©2012 Bank of America Corporation. AA-AE-0890ED 050071