Chapter Seven

Payment

Section 1 Introduction

• Understand the various methods of payment in order

of decreasing risk to the seller and increasing risk to t

he importer (See Table 7-1, p.79)

• Understand the procedures of documentary credit tran

sactions (See Figure 7-1 The three phases of docume

ntary credit,p.81)

Section 2 Specimen Documents

• Specimen 1: Advice of payment

We have instructed our bank to arrange for a letter of cre

dit for $8 789.90 to be paid against your pro-forma invoi

ce No. H1167/G, and the proceeds will be credited to yo

u as soon as Bank of China receive the documents.

Specimen 2: Advice of payment • Thank you for being so prompt in sending the document

s for our last order, No. 15879. We have accepted the sight draft, and the bank should be sending you an advice shortly.

• We have been dealing with you on a D/P basis for over a year and would like to change to payment by 40-day B/E, D/A.

• When we first contacted you last February you told us that you would be prepared to reconsider terms of payment once we had established a trading association. We think that sufficient time has elapsed for us to be allowed the terms we have asked for.

• As we will be sending another order within the month, could you please confirm that you agree to these new terms of payment?

Specimen 3: Advising the seller of credit issuance

• A confirmed, irrevocable letter of credit against S/C No. 2235 has been issue

d through the National Bank, London. The amount is GBP 20 000 and the ex

piry date July 15, 2012. Please approach your bank with this matter.

• You are authorized to draw a 45 days’ draft on the opening bank against this

credit for the invoice amount, including the cost of freight and insurance, pay

able against a complete/full set of shipping documents, consisting of• a full set of clean shipped on board ocean bills of lading made out to order and blank endorsed, marked “Freig

ht Prepaid”, notifying the Applicant

• certificate of origin in duplicate

• signed invoice in triplicate

• insurance policy in triplicate covering All Risks and War Risk for full invoice value plus 10% as per China In

surance Clauses

• With the sales season approaching, we are badly in need of the goods ordere

d. Please arrange for shipment immediately upon receipt of the L/C and let u

s know at your earliest convenience the name of the vessel and its sailing dat

e.

A possible reply to the above letter • Thank you for your letter of May 10, 2012. We are pleas

ed to learn that the L/C covering our S/C No. 2235 has b

een opened and sent.

• When we receive your L/C, we will make proper shippin

g arrangements and then draw a 45 days’ draft on your b

ank. We will answer your request for the name of the ves

sel and sailing time as soon as they are available.

• We look forward to hearing of the safe arrival of your or

der and to doing further business with you.

Specimen 4: Urging the opening of L/C

• May we draw your attention to the covering L/C agains

t our S/C No. 2145 for 5 000 dozen men’s T-shirts? Th

e L/C is due to reach us before July 10 for our August s

hipment. However, it has not arrived yet, though the go

ods have long been ready for shipment.

• Could you please find out what has happened to the L/

C? Your attention to this matter would be greatly appre

ciated.

Specimen 5: Request to extend the L/C

• L/C No. 20060715• The above L/C covering 4 000 dozen poplin shirts arrived here yes

terday. However, we have to ask you to extend it because of the unavailability of any vessels.

• As stipulated in our S/C ABT234, shipment was to be effected in July provided your L/C reached us not later than July 5. Unfortunately, the only vessel available this month is leaving in a day or two, and the deadline for booking shipping space on it has passed. This means that it is now impossible for us to ship the goods in July.

• Would you therefore please extend the above L/C to 1 September and to 15 August for shipment and have the amendment advice reach us by August 5 at the latest. Only in this way can we make the earliest shipment possible.

• With anticipation of your cooperation in this matter.

Possible reply (negative)

• In reply to your letter of July 9, we feel that it will be difficult to extend the validity of L/C No. 20060715 to 1 September and shipment date to 15 August.

• The present L/C is already the earliest possible because the application for the relevant import license involved a lot of formalities. The import license was not issued until July 1, and becomes invalid after August 15. Arranging another L/C or amending the existing one may not be possible by 5 August.

• Under these circumstances, could you please try your best to ship the goods within the time limit of the L/C. We would appreciate your cooperation in this respect and are looking forward to hearing from you about the shipment of the goods.

Possible reply (positive)

• We have received your fax of July 9 requesting us to

extend the shipment date and the validity of L/C No.

20060716 to August 15 and September 1 respectively.

• We have instructed our bank to amend the above L/C

as requested in your fax. We hope that everything is n

ow in order and you will be able to ship the goods by

August 15.

Specimen 6: Request to amend the L/C • We have received L/C No. 06AM720 issued by the C

hartered Bank, London for our S/C No. 195. However, on examining the clauses, the following points are found not to be in conformity with the terms stipulated in the S/C:

the commission rate stated in the S/C is 3% rather than 6% shipment is to be made during July/August instead of “on or b

efore August 1” as in the above L/C. the goods should be insured for 110% of the invoice value, not

120%.

• As the goods are ready for shipment, your amendment to the L/C would be appreciated.

Section 3 Useful Expressions • All bank charges are for the beneficiary’s account.• We have debited your account with the amount plus our

charges of USD 250.• Enclosed is our bank draft for USD 2 500 drawn on the Bank

of China in payment of your invoice No. 232. • We have not received your letter of credit against our S/C No.

29984 up to now, although it should have reached us by the end of May, as stipulated.

• We regret that we have been unable to effect shipment according to the price and other terms originally agreed upon owing to the delay in receiving your L/C, and the responsibility for any loss arising subsequently will wholly rest with you.

• As you have failed to establish the letter of credit in time, we regret being unable to effect shipment within the stipulated time limit.

• We hope you will take action and open the L/C at once. Otherwise you will be responsible for all losses ensuing.

• Please amend the credit as “Transshipment is allowed”.• Please amend the credit to read “Partial shipments and tra

nsshipment are allowed.”• On examination, we find that the amount of your L/C is i

nsufficient. Please increase the unit price from USD 25.00 to USD 28.00 and total amount to USD 85 000.00 as stated in our S/C.

• Owing to the late arrival of the container vessel on which we have booked space, we would appreciate your extending the shipment date and the validity of your L/C No. 567 to 31 January and 15 February 2007 respectively and arrange for the amendment advice to reach us by 5 January.

• As you have failed to establish the L/C covering our S/C No. 1023 in time, we have to cancel this sales confirmation and hold you responsible for all the losses ensuing.