EXPORTER'S HANDBOOK

7/31/2019 EXPORTER'S HANDBOOK

1/67

EXPORTERS

HANDBOOK

PAYMENT OPTIONS

DOCUMENTARY COLLECTIONS

LETTERS OF CREDIT

INCOTERMS

EXPORT FINANCE


2/67

BANK OF THE WEST

Exporters Handbook

This information is supplied for educational purposes only, and should not be relied on for any specifictransactions. This material is not a complete discussion of the practices, customs, policies orprocedures of Bank of the West or any other party, nor of any law, regulation, or rule of any governmentor trade association. This material was believed to be accurate at the time of preparation. Laws andthe processes they affect change over time. Bank of the West is not a tax or legal advisor. Pleaseconsult your tax or legal advisor regarding the tax or legal impact of any law, regulation, document ortransaction.

See the additional Terms and Conditionshttps://www.bankofthewest.com/privacy-security/terms-conditions.html

Member FDIC Loans and other products are subject to credit approval. Equal Housing Lender

BANK OF THE WEST

GLOBAL TRADE SERVICES1977 SATURN ST. (SC-MPK-02-G)

MONTEREY PARK, CA 91755

888-600 TRADE (8723)

August 2010

Form ID: 075-05325
https://www.bankofthewest.com/privacy-security/terms-conditions.htmlhttps://www.bankofthewest.com/privacy-security/terms-conditions.htmlhttps://www.bankofthewest.com/privacy-security/terms-conditions.html


3/67

BANK OF THE WEST

Exporters HandbookTable of Contents

Topic ......................................................................................................................................... Page

International Services ................................................................................................................. 1Determining Payment Terms & Comparing Payment Terms.................................................... 3

Foreign Credit Checking ............................................................................................................. 4

Incoming International Wire Transfers (Foreign Drafts) ............................................................ 5

Documentary Collection.............................................................................................................. 6

D/P vs. D/A.................................................................................................................................. 8

Export Letter of Credit ................................................................................................................. 9

Export Letter of Credit Communication, Payment and UCP 600 ...........................................11

Example of Export Letters of Credit

Sight in Swift Format ...................................................................................................... 13Usance in Swift Format - Paid at Sight ..........................................................................14

Deferred Payment in Swift Format................................................................................. 15

Deferred Payment Usance in Swift Format and Shipped Ex-Works..........................16

Export Quotation Sheet .............................................................................................................. 18

Sight Export Letter of Credit Instructions to Buyer..................................................................... 19

Usance (Time) Export Letter of Credit Instructions to Buyer..................................................... 21

Export Letter of Credit Checklist.................................................................................................23

Drafts Under Export Letters of Credit ......................................................................................... 25

Sample Drafts .................................................................................................................27

Transport Documents ................................................................................................................. 32

Ocean Bill of Lading Example........................................................................................ 34

Air Waybill Example........................................................................................................ 35

Export Documents ...................................................................................................................... 36

Export Letters of Credit - Payment and Discrepancies.............................................................. 39

Fees Charged on Export Letters of Credit` ................................................................................ 45

Export Letters of Credit as Loan Collateral..............................................................................48

Choosing a Freight Forwarder....................................................................................................50

International Commercial Terms (INCOTERMS) ......................................................................51

Financing Foreign Sales - The Export Usance Letter of Credit.................................................53

Letters of Credit - Advised vs. Confirmed ..................................................................................55

Authorizations to Pay (Assignment of Proceeds).................................................................... 56

Transferable Letters of Credit .....................................................................................................57

Standby Letters of Credit ............................................................................................................ 59

Standby Letters of Credit Procedures ........................................................................................ 61

Export Financing Assistance............................................................................................... 63


4/67

BANK OF THE WEST

INTERNATIONAL SERVICES

Bank of the West serves middle-market companies in the western United States, bringing the internationalresources of its parent, BNP Paribas, to its customers. BNP Paribas is one of the largest banks in theworld and has an extensive overseas network. At Bank of the West, the Global Trade Services teamoffers advice on a wide range of trade finance products to assist our customers importing and exportingactivities.

GLOBAL TRADE SERVICES 1(888) 600-TRADE

IMPORT SERVICES

Bank of the West Trade/Import L/C, a web-based product which allows our customers to issue andtrack letters of credit directly from their files in Global Trade Services.

Advice on the terms and conditions of an import letter of credit and the rules governing those letters ofcredit, the Uniform Customs and Practice for Documentary Credits (2007 Revision), International

Chamber of Commerce Publication No. 600 (UCP 600).

Advice on structuring a line of credit for import letters of credit and related financing.

Advice on import documentary collections as an alternative to letters of credit.

Advice on bankers acceptances arising from usance letters of credit.

Using bankers acceptances to finance payments under sight letters of credit.

EXPORT SERVICES

Structuring export letters of credit to enhance timeliness of payment.

Advices on export documentary collections as an alternative to export letters of credit.

Advice on using the export usance letter of credit to extend terms to overseas buyers.

Advice on the usefulness of a confirmation of an export letter of credit.

Bank of the West/DCL (Export Direct Collection Letter), a web-based product which allows customersto process their export collections directly to the buyers bank, speeding receipt of funds.

EXPORT FINANCING SERVICES

Pre-export financing to provide working capital for exporters under 90% guarantee from Ex-Im Bank.

Lending against eligible foreign receivables, which are covered by foreign credit insurance.

Providing medium-term financing to overseas buyers of U.S. exports under either an Ex-Im Bankinsurance policy or guarantee.

(1)

Back to Top


5/67

BANK OF THE WEST

STANDBY LETTERS OF CREDIT

Advice on the wording for standby letters of credit issued for our customers covering: unpaid invoices;backing of credit facilities to related parties; bids and performance on overseas contracts.

Advice on the wording for standby letters of credit received in favor of our customers or in the banksfavor to provide security for the bank extending a credit facility.

If you need general advice about letters of credit/collections or import/export finance, we encourage you to

contact us by calling toll-free at 1 (888) 600-TRADE.

Our address and communication references for international transactions are:

Bank of the WestGlobal Trade ServicesSC-MPK-02-G

1977 Saturn StreetMonterey Park, CA 91755SWIFT: BWSTUS66 LAX

(2)

Back to Top


6/67

BANK OF THE WEST

DETERMINING PAYMENT TERMS

CASH IN ADVANCE LETTER OFCREDIT

DOCUMENTARYCOLLECTION

RELATIONSHIP NEW NEW WELL ESTABLISHED

TYPE OF GOODS CUSTOM-MADE CUSTOM-MADE STOCK ITEMS

POLITICAL UNSTABLE UNSTABLE* STABLE

ECONOMIC UNSTABLE UNSTABLE* STABLE

TIMING OF CASHFLOW AND DELIVERY YES YES NO

CONFIRMATION BY U.S. OR OTHER MAJOR BANK SUGGESTED

WHAT METHOD OF PAYMENT SHOULD BE USED? DEPENDS ON EVALUATION OF RISK.

CUSTOMER RISK: COUNTRY RISK:

FINANCIAL STRENGTH POLITICAL STABILITY CREDIT RATING EXCHANGE RESTRICTIONS RELIABILITY

(3)


7/67

BANK OF THE WEST

COMPARING PAYMENT TERMS

METHOD OF PAYMENT TIMING OF PAYMENT GOODS AVAILABILITY SELLER'S RIS

CASH IN ADVANCE Before shipment At destination arrival None

SIGHT L/C Presentation of documents aftershipment

When L/C is paid Minimal, Issuing/confibank obligation to paydocuments conform t

USANCE (TIME) L/C Maturity of B/A or at discount of thedraft

At acceptance of draft drawnunder the L/C

Minimal, bank obligatpay if documents conL/C terms

D/P COLLECTION* When documents received at thepresenting bank

When payment is made Non-payment of draft

D/A COLLECTION** When accepted Trade Draftmatures

At time Trade Draft is accepted Non-payment of draftthough buyer has themerchandise

OPEN ACCOUNT Buyer's discretion Upon arrival 100% reliance on buy

* Also known as: Documents against Payment, Cash against Documents (CAD), and Sight Draft** Also known as: Documents against Acceptance, Time Draft and Trade Acceptance .

Note: With Letters of Credit and Collections, banks deal only with documents, not with the merchandise.

Resources for foreign credit checking may be found at http://www.creditworthy.com/provide

(4)
http://www.creditworthy.com/providers/agency.asphttp://www.creditworthy.com/providers/agency.asp


8/67

BANK OF THE WEST

INCOMING INTERNATIONAL WIRE TRANSFERS& FOREIGN DRAFTS

Incoming International Wire Transfers

If you are an exporter selling on open account or prepaid terms, you should instruct your buyer to sendthe wire transfer to Bank of the West, ABA# 121100782 with the following instructions:

Name of your companyAccount Number at Bank of the WestName of Bank of the West branch where your account is domiciled

Please note that the wire transfer should be directed to Bank of the West. Foreign banks typically sendtheir U.S. dollar wire transfers to one designated U.S. correspondent bank for this purpose, where theycan concentrate balances and ease their reconcilement work. This U.S. correspondent bank in turnsends the money to its final destination by a wire transfer through the Federal Reserve. Thus, the foreignbank does not need a direct correspondent bank relationship with Bank of the West to effect a wiretransfer.

The Global Trade Services (GTS) staff is not responsible for wire transfers coming in directly to youraccount. Questions about incoming wires going directly to your account should be directed to your localbranch or cash management service staff; alternatively, you can subscribe to cash management balancereporting services.

Foreign Drafts

If you are an exporter selling merchandise for small dollar amounts on an open account basis and thebuyer is sending you a check in dollars drawn on a non-U.S. or non-Canadian bank, insist that yourbuyer purchase a foreign draft (i.e. check) for the prescribed dollar amount from its local bank. Since thisforeign draft expressed in dollars will be drawn on a U.S. bank, you can deposit it in your bank accountwith us and it will clear through the U.S. check clearing system. If your buyer sends you a U.S. dollarcheck drawn, for example, on its bank in Italy, you will have to use our Collections Department to sendthis item back to Italy for collection, which will be a time consuming and costly process.

(5)

Back to Top


9/67

BANK OF THE WEST

DOCUMENTARY COLLECTION

WHAT IS A DOCUMENTARY COLLECTION?

This payment mechanism is the collection by a bank of funds due from a buyer against the delivery ofdocuments. The bank, acting as agent for the seller (exporter), presents documents to the buyer(importer) through that party's bank and in exchange receives payment of the amount owed, or obtains

acceptance of a time draft for payment at a future date. The liability of the bank under a documentarycollection is primarily restricted to following the seller's instructions in forwarding and releasingdocuments against payment or acceptance.

HOW IS A COLLECTION DIFFERENT FROM AN L/C OR OPEN ACCOUNT?

Unlike a letter of credit, the bank does not assume any liability to pay if the buyer does not want or isunable to pay. Compared to open account sales, the documentary collection offers more security to theseller, but less than a letter of credit.

WHEN SHOULD A DOCUMENTARY COLLECTION BE USED?

Numerous criteria are applied by businesses when determining which payment instrument to offer as aterm of sale. However, in general, a documentary collection may be appropriate where:

The seller and the buyer know each other to be reliable There is no doubt about the buyer's willingness or ability to pay The political and economic conditions of the buyer's country are stable The importer's country does not have restrictive foreign exchange controls

WHAT ARE THE ADVANTAGES OF A DOCUMENTARY COLLECTION?

Simple and inexpensive handling compared to letters of credit Often faster receipt of payment than open account terms

Seller retains title to the goods until payment or acceptance is made

ARE THERE ANY DISADVANTAGES?

If the buyer refuses or is unable to pay, the seller has three options, which could be expensive:

Find another buyer Pay for return transportation Abandon the merchandise

WHO ARE THE PARTIES INVOLVED?

PRINCIPAL - exporter, seller, remitter, drawer of the draft

REMITTING BANK - exporter's bank handling the collection PRESENTING OR COLLECTING BANK - usually the buyer's Bank of the West DRAWEE - importer, buyer, payee

(6)

Back to Top


10/67

BANK OF THE WEST

WHAT TYPES OF DOCUMENTARY COLLECTIONS ARE THERE?

.Documents against Payment (D/P) also known as "Sight Draft" or "Cash against Documents(CAD). The buyer must pay before the collecting bank releases the title documents

Documents against Acceptance (D/A). The buyer accepts a time draft, promising to pay for thegoods at a future date. After acceptance, the title documents are released to the buyer.

WHAT IF SHIPMENT IS BY AIR FREIGHT?

An Air Waybill (AWB) is a straight consignment; it is not negotiable. The buyer does not need the AWBto pick up the goods. In other words, he can obtain the merchandise without paying for it. To avoid thispossibility, when shipping by air, it is recommended that the AWB be consigned to the buyer's bank.This prevents release of the merchandise until such time as the buyer's bank issues an Air Release tothe carrier. This is done only after the buyer has made payment or accepted the draft.

WHAT ARE THE STEPS IN A DOCUMENTARY COLLECTION?

1. The buyer (importer) and seller (exporter) agree on the terms of sale, shipping dates, etc., and thatpayment will be made on a documentary collection basis.

2. The exporter, through a freight forwarder, arranges for the delivery of goods to the port/airport ofdeparture.

3. The forwarder delivers the goods to the point of departure and prepares the necessarydocumentation based on instructions received from the exporter.

4. Export documents and instructions are delivered to the exporter's bank by either the exporter or thefreight forwarder.

5. Following the instructions of the exporter, the bank processes the documents and forwards them tothe buyer's bank.

6. The buyer's bank, on receipt of documents, contacts the buyer and requests payment or acceptanceof the trade draft.

7. After payment or acceptance of the draft, documents are released to the buyer, who utilizes them topick up the merchandise.

8. The buyer's bank remits funds to the seller's bank or advises that the draft has been accepted.9. On receipt of good funds, seller's bank credits the account of the exporter.

WHAT IS THE URC 522?

URC 522 stands for The Uniform Rules for Collections, 1995 Revision, International Chamber ofCommerce Publication No. 522, the rules that banks apply to the handling of collections.

Any company importing or exporting on a documentary collection basis should be familiar with the URC522, as it has a direct impact on how the collection is handled and what procedures the banks follow.

The URC 522 may be ordered from ICC Business Bookstore USA, 1212 Avenue of the Americas, NewYork, NY 10036 (212) 703-5066 www.iccbooksusa.com.

(7)

Back to Top
http://www.iccbooksusa.com/http://www.iccbooksusa.com/


11/67

BANK OF THE WEST

DOCUMENTARY COLLECTIONSD/P VS D/A

COLLECTION D/P

PAYMENT AT SIGHT AT

CONTROLOCEAN AIR DOCUM

P

NEGOTIABLE NON-NEGOTIABLE

RISK BUYER REFUSES

SHIPMENT

BUYERAND DO

IF THE AIR WAYBILL IS CONSIGNED TO BUYER, MERCHANDISE MAY BE PICKED UP WITHOUT RELNEITHER THE SELLER OR BANK CONTROL RELEASE OF THE MERCHANDISE.

COLLECTIONS ARE GOVERNED BY THE UNIFORM RULES FOR COLLECTIONS, I.C.C. PUBLICATION

(8)


12/67

BANK OF THE WEST

EXPORT LETTER OF CREDIT

WHAT IS AN EXPORT LETTER OF CREDIT?

It all depends on your point of view. From the seller's (beneficiary's) perspective, a commercial letter ofcredit from a foreign country is an export credit. To the buyer (applicant), the same letter of credit is an

import credit. An export credit is a conditional payment mechanism whereby the issuing bank irrevocablypromises to pay the seller, if presented documents comply with all of the L/Cs terms and conditions. Asthe issuing bank's undertaking is conditional, a commercial letter of credit is not a guarantee of payment.

HOW IS THE EXPORT L/C PROCESS INITIATED?

Once the buyer (importer) and the seller (exporter) agree on price and terms of sale, the importerarranges for its bank to open an irrevocable letter of credit. The buyer's bank prepares a letter of creditbased on instructions from the buyer, which are in agreement with the previously arranged terms of sale.The buyer's bank sends the letter of credit by either wire or mail to its U.S. correspondent bank. Theexporter may request that a specific U.S. bank be the advising bank, such as Bank of the West or if noadvising bank is requested, the issuing bank will select one of its correspondents.

WHAT IS THE ADVISING BANK'S ROLE?

The U.S. advising bank verifies the authenticity of the letter of credit, prepares a cover letter containingpresentation instructions, and forwards the L/C to the exporter (beneficiary). The advising bank has noobligation to pay. Unless the advising bank has added its confirmation to the L/C, it will pay thebeneficiary only after it has received good funds from the issuing bank.

The letter of credit should be advised to the International Department of the exporters bank, not to theexporters local bank branch. Local bank branches do not have the ability to authenticate letters of creditfrom overseas.

WHAT ARE THE BENEFICIARY'S RESPONSIBILITIES?

The beneficiary reviews the letter of credit to make sure it conforms to all of the terms of sale and that allrequirements, such as latest shipping date, can be met. If the exporter cannot comply with any of thecredit terms, the buyer is contacted directly and an amendment is requested. The advising bank has noresponsibility in the amendment process except to forward received amendments to the beneficiary afterverifying their authenticity.

The exporter contacts a freight forwarder to arrange delivery of the merchandise to the port/airport ofdeparture. The goods are delivered to the departure point and the forwarder prepares the necessarydocumentation in compliance with the L/C terms and conditions. Either the exporter or the forwarderpresents complying documents and the original letter of credit to the advising bank.

WHAT IS "NEGOTIATION"?The U.S. bank reviews the documents for compliance with the letter of credit terms and conditions. Iffound to be in order, they are forwarded to the foreign bank for review and transmission to the buyer. Ifthe documents are not in compliance with all the terms and conditions of the letter of credit, the bank canact only in the following ways:

(9)

Back to Top


13/67

BANK OF THE WEST

a. Return the documents to the exporter for correction, if possible, and time permitting.

b. Send the documents to the issuing bank on an approval basis.

c. Cable the issuing bank for authority to pay.

d. Accept an indemnity from the exporter covering discrepancies. This is an extension of credit.

e. Pay under reserve with recourse to the exporter if buyer refuses documents. This is also anextension of credit.

f. Return the documents to the seller for their disposition.

HOW LONG DOES IT TAKE FOR THE EXPORTER TO GET PAID?

The timeliness of payment to the exporter is dependent on the reimbursement instructions in the letter ofcredit. Unless the credit has been confirmed, the U.S. bank is under no obligation to pay. It will pay onlyafter receiving funds from the issuing bank. Listed below are the three methods of settlement fromfastest to slowest. The issuing bank determines the settlement method, though it is always appropriateto request the L/C be payable in the USA per either a or b below.

a. Negotiating bank is authorized to debit issuing bank's "DUE TO" account.b. Negotiating bank is authorized to claim reimbursement from the issuing bank's U.S.

correspondent/settling agent.

c. Documents are payable at the counters of the issuing bank and must be forwarded to them.After examining the documents, the issuing bank remits payment.

WHAT IS THE UCP 600?

The Uniform Customs and Practice for Documentary Credits, 2007 Revision, International Chamber ofCommerce Publication No. 600 is the set of rules that banks apply to the handling of documentary lettersof credit.

Any company using letters of credit for importing or exporting should be familiar with the UCP 600 as ithas a direct impact on how the letter of credit is handled and what procedures the banks will follow.

The UCP 600 may be ordered from ICC Business Bookstore USA, 1212 Avenue of the Americas, NewYork, NY 10036 (212) 703-5066 www.iccbooksusa.com .

(10)

Back to Top


14/67

BANK OF THE WEST

EXPORT LETTERS OF CREDIT

COMMUNICATION AND PAYMENT

Letters of credit in favor of exporters in the United States are usually sent by SWIFT and in aprescribed format. A SWIFT format indicates the issuing bank at the top (received from) and has

numbers at the left for specific information such as:

MT700: Issue of a Documentary CreditReceived: XX/XX//2008From Institution40A: Form of Documentary Credit20: Documentary Credit Number31C: Date of Issue40E: Applicable Rules (UCP 600 or ISP98 if a standby letter of credit)31D: Date and Place of Expiry50: Applicant (Buyer)59: Beneficiary (Seller)

32B: Currency Code, Amount (U.S. Dollars or foreign currency)39A: Percentage (variance if any allowed for amount)41A: Available With (Nominated Bank Name) By (Sight Payment, Deferred Payment,

Acceptance, or Negotiation)43P: Partial Shipments (Allowed or not allowed)43T: Transshipment (Allowed of not allowed)44E: Port of Loading/Airport of Departure44F: Port of Discharge/Airport of Destination44C: Latest Date of Shipment45A: Description of Goods and/or Services (Goods being shipped and applicable INCOTERM)46A: Documents Required47A: Additional Conditions71B: Charges (Who pays bank charges outside the issuing banks country? Customary

practice is for seller to pay their banks charges.)48: Period for Presentation (If silent, 21 days max after shipment date)49: Confirmation Instructions (A request, a credit consideration for the Confirming Bank)53A: Reimbursement Bank (Issuing Banks U.S. Correspondent which will act as reimbursing

bank)78: Instructions to the Paying/Accepting/Negotiating Bank (Instructions to the Advising Bank:

includes information on where and how documents are to be sent, charges fordiscrepancies, etc.)

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication and is a bankgroup which has set up global standards for sending and receiving authenticated instructions for wiretransfers and letters of credit. SWIFT is increasingly replacing the tested telex. Some letters of creditare sent by tested telex, and these usually are in a free format without the numbered designations at

the left.

Banks around the world have set up authentication arrangements with each other on a telex andSWIFT basis. This is the basic level of a correspondent banking relationship to allow the sending ofletters of credit and payment under these letters of credit.

(11)

Back to Top


15/67

BANK OF THE WEST

Most foreign banks have cut back on the number of accounts maintained in the United States toeliminate idle balances and reduce the cost of reconcilement of numerous unnecessary accounts.Foreign banks are increasingly maintaining specialized dollar accounts at selected banks to handlespecific kinds of transactions: L/C reimbursement account; foreign exchange clearing account; wiretransfer payment account; and cash letter (check clearing) account. By setting up specializedaccounts for specific kinds of transactions, the foreign banks have greatly simplified theirreconcilement process and their ability to control these accounts.

Presenting conforming documents, specifying that the L/C is available by negotiation, andreimbursement instructions are all important considerations for an exporter being paid on a timelybasis. Instructions in a letter of credit may call for the documents to be sent back to the issuing bankfor a final examination before allowing payment to be made. For example, when U.S. banks issueletters of credit, they may require documents to be sent back to the U.S. bank for a final examinationbefore payment is made (available by payment with issuing bank - see 41.A on the SWIFT).

Many export letters of credit in favor of U.S. beneficiaries are available by negotiation and allow forTT (tested teletransmission) reimbursement which is done by an authenticated SWIFT message. Ifthe U.S. bank examining the documents for strict compliance to the terms of the letter of credit per theUCP 600 finds no discrepancies, the U.S. bank can request reimbursement from the issuing banksU.S. correspondent for this purpose (often the issuing banks New York or Los Angeles branch).Since payment is made before the issuing bank sees the documents, this method of payment is morerisky and in many instances the issuing bank will not authorize TT reimbursement. For example, ifpayment is made to the beneficiary under TT reimbursement and the issuing bank later does finddiscrepancies in the documents, the issuing bank can require that the U.S. paying bank return themoney (if the importer does not waive the discrepancies).

If the export letter of credit does not allow for TT reimbursement and documents are sent back to theissuing bank with drafts to its U.S. reimbursing bank, the examination process at the issuing bank mayslow down the payment process. The exporters documents may sit in a stack waiting to be examinedand when they are examined, discrepancies may be found which necessitates calling the importer forpermission to waive the discrepancies. This waiver may not be made immediately which will also

slow down the payment process.

Exporters often mistakenly believe that requesting the advising bank to confirm the letter of credit willspeed up their payment. However, a confirmation by a U.S. bank is a promise to pay by the U.S.bank in the event the issuing bank does not make payment under the letter of credit when clean (i.e.no discrepancies) documents are presented. Thus, the confirmation typically protects the exporteragainst the issuing bank failing to pay because the issuing bank is bankrupt or adverse economiccircumstances have occurred (such as foreign exchange controls). For usance letters of credit wherethe drafts are drawn on a U.S. reimbursing bank, once the drafts have been accepted by the U.S.bank, the exporter has the credit risk of the U.S. bank. Thus, if an exporter requests a confirmation ona usance letter of credit where the drafts are drawn on a U.S. bank, the confirmation is basicallyprotecting the exporter during the period from the date of issuance on the letter of credit to the date

when the time draft is accepted by the U.S. bank. If the time draft were drawn on the issuing bank,the confirmation would still protect the exporter during the acceptance period.

(12)

Back to Top


16/67

BANK OF THE WEST

EXAMPLE OF SIGHT EXPORT L/CIN SWIFT FORMAT

RECEIVED FROM: JAPANESE BANK, LTD., TOKYO

:31C :crdt issued :081225:40E applicable rules :UCP600:31D :expiry :090615 COUNTERS OF NEGOTIATING BANK:50 :ord customer :TOKYO MEAT CO., LTD.

2-24-80, HORIKARA, TOKYO:59 :ben customer :CALIFORNIA BEEF, INC. 1412 FLANK STREET

LOS ANGELES, CA 91107:32B :currency amount :USD 70822.50:39A :amount spec :5/5:41A :available with :ANY BANK

:by NEGOTIATION:42C :drafts :SIGHT FOR FULL INVOICE COST:42A :drawee :BISHUS6L

:43P :part shipment :PROHIBITED:43T :transshipment :PROHIBITED:44A :ship-disp-take :U.S. PORT:44B :ship-dispatch-to :TOKYO, JAPAN:44C :latest ship date :090606:45A :shipment of :9,950 LBS (5 PCT MORE OR LESS ALLOWED) OF FROZEN BEEF FLAP

STEAK AT USD3.55 PER LB AND 10,000 LBS (5 PCT MORE OR LESSALLOWED) OF FROZEN DICED BEEF AT USD3.55 PER LBCANDF JAPAN

:46A :docmt required :+SIGNED COMMERCIAL INVOICE IN 3:2/3 SET OF CLEAN ON BOARD BILLS OF LADING MADE OUT TO THEORDER OF SHIPPER AND BLANK ENDORSED MARKED FREIGHT PREPAID

NOTIFY APPLICANT.+PACKING LIST IN 3+USDA FSIS FORM 9060-5 AND 9290-1 EACH IN 1 COPY

:47B :addtnl cond :ONE SET OF NON-NEGOTIABLE DOCUMENTS INCLUDING 1/3 ORIGINALBILL OF LADING AND THE ORIGINAL OF USDA FSIS FORM 9060-5 AND9290-1 TO BE AIRMAILED DIRECTLY TO TOKYO MEAT CO., LTD. IMMEDIATELYAFTER SHIPMENT AND BENEFICIARY'S CERTIFICATE TO THIS EFFECT IS

REQUIRED.:48 :presentation :WITHIN 15 DAYS AFTER DATE OF SHIPMENT BUT WITHIN VALIDITY OF CREDIT:49 :confrmtn instr :WITHOUT:53A :senders corr :[SWIFT], JAPANESE BANK, LTD., LOS ANGELES BRANCH, LA, CA:78 :instr to bank :REIMBURSEMENT BY TELECOMMUNICATION IS PROHIBITED

ALL THE DOCUMENTS MUST BE FORWARDED US, I.E. THE JAPANESE BANK

LTD. 5 MARUNOUCHI, 3-CHOME, CHIYODA-KU, TOKYO JAPAN BYREGISTERED AIRMAIL(S) IN 1.THE DRAFTS MUST BE PRESENTED TO THE DRAWEE BANK,ATTN: L/C REIMBURSEMENT DEPT. FOR REIMBURSEMENT CLAIMS.

57D :acct with bank :BANK OF THE WESTTORRANCE BRANCH

:72 :bk to bk info :THIS CREDIT IS ISSUED SUBJECT TO UNIFORM CUSTOMS AND PRACTICEFOR DOCUMENTARY CREDITS (2007 REVISION) ICC PUBLICATION NO.600.

(13)

Back to Top


17/67

BANK OF THE WEST

EXAMPLE OF USANCE L/CIN SWIFT FORMAT/PAID AT SIGHT

RECEIVED FROM: PEOPLES NATIONAL BANK - SEOUL, KOREA

:31C :credit issued :080423

:40E applicable rules :UCP600

:31D :expiry :010221 AT THE NEGO BANK

:50 :ord customer :SOUL MAN MARKETING CO., LTD.

RM 100 HANIL BLDG.

18-KA, CHUNG-KU, SEOUL KOREA

:59 :ben customer :DHARMA TRADING, INC.

P.O. BOX 60, SAN FRANCISCO

CA 94120, USA

:32B :currency amount :USD 100,000:41D :available with :ANY BANK

:by :NEGOTIATION

:42C :drafts :90 DAYS AFTER SIGHT

:42A :drawee :BWSTUS66LAX

:43P :part shipment :ALLOWED

:43T :trans shipment :PROHIBITED

:44A :ship-disp-take :US PORT

:44B :ship-dispatch to- :BUSAN PORT, KOREA

:44C :ship-dispatch to :080510

:45A :shipment of :SHIPMENT OF 10,200 T-SHIRTS F.O.B. ANY U.S.A. PORT

:46A :docmt required :+SIGNED COMMERCIAL INVOICE IN 3 COPIES

+SIGNED PACKING LIST IN 3 COPIES

+FULL SET OF CLEAN ON BOARD OCEAN B/L MADE OUT TO ORDER

AND BLANK ENDORSED MARKED FREIGHT COLLECT, NOTIFY APPLICANT:71B :charges for :ALL BANKING CHARGES AND COMMISSIONS INCLUDING REIMBURSEMENT

CHARGES OUTSIDE KOREA ARE FOR ACCOUNT OF BENEFICIARY

:48 :presentation :WITHIN 20 DAYS AFTER THE DATE OF SHIPMENT BUT WITHIN VALIDITY OFTHE CREDIT

:49 :confrmtn instr :WITHOUT

:53A :senders corr :BWSTUS66LAX

BANK OF THE WEST

LOS ANGELES, CA

:78 :instr to bank :ALL DOCS MUST BE MAILED TO PEOPLES NATIONAL BANK, FOREIGNBUSINESS DEPT. 8, 3-GA, NAMDAEMUN, CHUNG-KU SEOUL, KOREA BYCOURIER IN ONE LOT.

CREDIT IS TO BE NEGOTIATED AT SIGHT BASIS, WITH THE ACCEPTANCECOMMISSION AND DISCOUNT CHARGES FOR ACCOUNT OF BENEFICIARY.

:72 :bk to bk info : THIS IS OPERATIVE INSTRUMENT.

THIS CREDIT IS SUBJECT TO UCP(2007REV) I.C.C. PUB 600

(14) Back to Top


18/67

BANK OF THE WEST

EXAMPLE OF SIGHT DEFERRED PAYMENT L/CIN SWIFT FORMAT

RECEIVED FROM: BANCO AMERICANO, S.A.

:40A :form of d/c :IRREVOCABLE

:31C :crdt issued :081004:40E applicable rules :UCP600

:31D :expiry :081231 LOS ANGELES, CA

:51A :appl bnk :BANCO AMERICANO

GRANADA SPAIN

:50 :ord customer :MARIO COMMA, S.A.

BARRIO DE DORMIR NO. 92

VIZCAYA, SPAIN

:59 :ben customer :SUMP PUMPS, INC.43 ROMAN STREET

OAKLAND, CA USA

:32B :currency amount :USD

amount 105000:39B :amount spec :MAXIMUM

:41A :available with :BWSTUS66LAX

:by : DEF PAYMENT

:42P :drafts :120 DAY AFTER BILL OF LADING DATE

:43P :part shipment :ALLOWED

:43T :transshipment :NOT ALLOWED

:44A :ship-disp-take :ANY USA AIRPORT

:44B :ship-dispatch-to :MADRID-BARAJAS AIRPORT, SPAIN

:45A :shipment of :CIF-MADRID: 45 SUMP PUMPS. STRICTLY IN ACCORDANCE WITHPROFORMAINVOICE/603/E DD 9511.16

:46A :docmt required :BL-ORIGINAL 3 FOR SHIPPER-ISSUED TO THE ORDER OF MARIO COMMA S.A.

NOTIFY THE SAME, MARKED FREIGHT PREPAID.+SIGNED COMMERCIAL INVOICE, THREE FOLD.

+CERTIFICATE OF ORIGIN ISSUED BY CHAMBER OF COMMERCE, IN COPY.

+BENEFICIARIES CERTIFICATE, STATING THAT THE ORIGINALS OF THEABOVE DOCUMENTS HAVE BEEN SENT TOGETHER WITH THE GOODS.+POL/CERT OF INSURANCE IN FAVOR OF APPLICANTS, COVERING ALL RISKSFROM WAREHOUSE TO WAREHOUSE CLAUSED 'CLAIMS PAYABLE IN BILBAO'

:47A :addtnl cond :DOCUMENTS MUST BE SENT TO: BANCO AMERICANO,

GRAN VIA. 6, 88001 GRANADA, SPAIN

:71B :charges for : ALL BANKING CHARGES OUTSIDE OF SPAIN.

FOR BENEFICIARIES ACCOUNT

:49 confrmtn instr :MAY ADD

:53A senders corr :[SWIFT]BANCO AMERICANO, S.A., NEW YORK, NY

(15)

Back to Top


19/67

BANK OF THE WEST

BANK OF THE WEST

EXAMPLE OF DEFERRED PAYMENT USANCE L/CIN SWIFT FORMAT AND SHIPPED "EX-WORKS"

(SAMPLE OF A TYPICAL DETAILED MIDDLE EASTERN L/C)RECEIVED FROM: BANK OF BETHLEHEM

:40A :form of d/c :IRREVOCABLE:20 :tran reference :412-01-051884645:40E applicable rules :UCP600:31D :expiry :080712 CALIFORNIA (USA):50 :ord customer :ICES AND SORBET, LTD.

80 BEN GURION STREETHERZLIYA 46603

:59 :ben customer :ICE SCREAM, INC.43 MELTDOWN STREETMOUNTAIN VIEW, CALIFORNIA 94040

:32B :currency amount :USD 28432.80:41A :available with :BANK OF BETHLEHEM

:by :DEF PAYMENT:42P :drafts :AT 90 DAYS AFTER DATE OF B/L WITHOUT INTEREST AND CHARGES:43P :part shipment :PROHIBITED:43T :trans shipment :PERMITTED:44A :ship-disp-take :USA PORT:44B :ship-disp-to :ASHDOD PORT:44C :latest ship-date :080811:45A :shipment of :FROZEN DESERTS PER P.O. 803A, INCOTERMS 2000: EX-WORKS GEORGIA

GOODS OF U.S. ORIGIN:46A :docmt required :1) MARINE BILL OF LADING 2/3 ORIGINALS PLUS 3 NON-NEGOTIABLE

COPIES CLEAN ON BOARD MADE OUT TO THE ORDER OF BANK BETHLEHEMTEL AVIV MAIN BRANCH NOTIFY APPLICANT MARKED FREIGHT PAYABLEAT DESTINATION SPECIFYING THAT IN VIEW OF THE DANGER OFCONFISCATION WARRANTED VESSEL IS NOT TO CALL AT PORTS AND NOTTO ENTER THE TERRITORIAL WATERS OF SYRIA, LEBANON, IRAQ, IRAN,SAUDI ARABIA, YEMEN, SUDAN, LIBYA OR OTHER ARAB COUNTRIESEXCEPT EGYPTAND JORDAN PRIOR TO UNLOADING IN ISRAEL UNLESS IN DISTRESS ORSUBJECT TO FORCE-MAJEURE2) ORIGINAL INVOICE SIGNED BY BENEFICIARY IN 6 COPIES3) PACKING LIST IN 6 COPIES4) PHOTOCOPY OF ORIGINAL U.S. CERTIFICATE OF ORIGIN FOR EXPORTSTO ISRAEL MARKED 'P' IN BOX 8 SIGNED BY BENEFICIARY, NOTARIZED BY ANOTARY PUBLIC, AND CERTIFIED BY AN APPROPRIATELY CONSTITUTEDLOCAL BUSINESS ORGANIZATION, SUCH AS A CHAMBER OF COMMERCE ORBOARD OF TRADE5) BENEFICIARY'S SIGNED DECLARATION STATING THAT 1/3 ORIGINAL B/LORIGINAL U.S. CERTIFICATE OF ORIGIN FOR EXPORTS TO ISRAEL AND ONESIGNED ORIGINAL OF EACH DOCUMENT (INCLUDING CERTIFICATE OFANALYSIS) PRESENTED AT THE BANK WERE SENT DIRECTLY TO ICES ANDSORBETS, LTD., BY SPECIAL COURIER6) PHOTOCOPY OF CERTIFICATE OF ANALYSIS.

(16)

Back to Top


20/67

BANK OF THE WEST

EXAMPLE OF DEFERRED PAYMENT USANCE L/CIN SWIFT FORMAT AND SHIPPED "EX-WORKS"

(SAMPLE OF A TYPICAL DETAILED MIDDLE EASTERN L/C)Continued...

:47A addtnl cond :1) ALL DOCUMENTS TO MENTION OUR L/C NUMBER 386-432) ADDITIONS, CORRECTIONS, ERASURES, AMENDMENTS MUST BE DULYSTAMPED AND INITIALED BY THE PARTY/AUTHORITY ISSUING THEDOCUMENT IN QUESTION3) A CHARGE OF USD 100.00 (OR ITS COUNTERVALUE)PLUS RELATEDTELEXCOSTS WILL BE APPLICABLE IN CASE DISCREPANT DOCS ARE PRESENTED.4) INVOICE TO STATE INCOTERMS AND ORIGIN OF GOODS, IF MENTIONEDIN FIELD 455) INVOICES TO STATE THAT GOODS ARE OF FIRST QUALITY AND MADE INU.S.A.6) FORWARDER'S B/L ISSUED WITH ALL PARTICULARS AS PER FIELD 46ADOC.NO. 1 ACCEPTABLE

7) ALL DOCUMENTS, EXCEPT MARINE B/L, TO BE ISSUED IN THE NAME OFPROGRESS (1984) LTD. P.O. BOX 529, INDUSTRIAL AREA, ASHKELON.

:71B :charges for :ALL BANKING CHARGES AND COMMISSIONS OUTSIDE ISRAEL INCLUDINGREIMBURSING BANK'S CHARGES ARE FOR BENEFICIARY'S ACCOUNT.

:49 :confrmtn instr :WITHOUT:78 :instr to bank : AFTER RECEIPT OF DOCUMENTS BY US STRICTLY CONFORMING WITH

CREDIT TERMS WE SHALL AUTHORIZE YOU TO CLAIM REIMBURSEMENTON MATURITY DATE ON BANK OF BETHLEHEM 80 WALL STREET, NYC, NY10036 WHOM WE SHALL AUTHORIZE TO HONOR YOUR CLAIM. PLEASEADVISE US BY TESTED TELEX/ SWIFT AMOUNT INVOICED, NAME OFSTEAMER, DATE, AND NUMBER OF B/L. ALTERNATIVELY, ADVISECANCELLATION IF CREDIT UNUTILIZED, FORWARD US DOCS BYREGISTERED AIRMAIL TO OUR ADDRESS 444 BALTHAZAR ST.,

HAIFA 61000 ISRAEL FOR THE ATTENTION OF L/C DEPARTMENT.:72 :bk to bk info :L/C SUBJECT TO UCP DC 2007 (ICC 600)

(17)

Back to Top


21/67

BANK OF THE WEST

SAMPLEEXPORT QUOTATION WORKSHEET

Date: Pro Forma Invoice No.

Customer Country:

Purchase Order No. Date Received:

Merchandise: ______

Gross Weight Cubic Measurement:

Ship by Air Ocean Truck/Rail

From To:

Export Selling Price $

Export Packing

Inland Freight to Departure Point

Consular / Legalization Fees

Inspection Fees

Freight Forwarders Fees

Banking Fees

Other Charges

FOB - OCEAN PORT OF LOADING orFCA - AIRPORT OR PLACE OF LOADING $

Ocean Freight

Air/Truck/Rail Freight

CFR - OCEAN PORT OF UNLOADING orCPT - AIRPORT OR PLACE OF UNLOADING $

Insurance Premium

CIF - OCEAN PORT OF UNLOADING orCIP - AIRPORT OR PLACE OF UNLOADING $

This quote is based on current prices and is valid until

Terms: Prepaid L/C Documentary Collection Open Account

Prepared by _______________________ Authorized by: __________________________

(18)

Back to Top


22/67

BANK OF THE WEST

SAMPLE

SIGHT EXPORT LETTER OF CREDIT

INSTRUCTIONS TO BUYER

Please instruct your Bank to open an Irrevocable Letter of Credit by SWIFTin accordance with the following terms and conditions:

Beneficiary: American Exporter, Inc.Balance of Payments St.Anywhere, California 90000

Advising Bank: Bank of the WestGlobal Trade Services1977 Saturn St. (SC-MPK-02-G)Monterey Park, CA 91755 SWIFT: BWSTUS66LAX

Drafts are to be drawn at sight and are to be available by Negotiation or Payment at the counters of Bankof the West, Los Angeles with TT Reimbursement allowed.

Amount: Currency / US $ ___________________________________

To be invoiced: FOB FCA CFR CIF OTHER

(Refer to INCOTERMS for more information on shipping terms)

Expiry Date: _________________________ Place: _______________________________________

Merchandise Description:_____________________________________________________________

From: _________________________________To: ________________________________________

Latest Ship Date:___________________

LADING: (Refer to Transport Documents section for more information)

Full set original clean on board ocean bills of lading issued to order of ________________________________________________________________________ Marked freight: Collect PrepaidMarked notify: __________________________________________________________________________________________________________________________________________________________

Air Waybill consigned to _________________________________________________________

Marked freight Collect Prepaid, Marked notify: _____________________________________________________________________________________________________________________________

Full set original clean multimodal transport document issued to order of_____________________________________________________ Marked freight: Collect PrepaidMarked notify: __________________________________________________________________________________________________________________________________________________________

(19)

Back to Top


23/67

BANK OF THE WEST

DOCUMENTS: (Refer to Export Documents section for details) Signed Commercial Invoice in ___________________ copies Packing list in ___________________ copies Certificate of ____________________ Origin issued by ______________________________ Inspection Certificate in ____________________ copies, issued by _____________________

certifying that ________________________________________________________________ Other document (s) ___________________________________________________________

INSURANCE: Covered by: Applicant Beneficiary

Documents to be presented to the negotiating bank within _____ days after the date of shipment. (Ifblank, 21 days.)

Transshipment: Permitted Not PermittedPartial Shipments: Permitted Not Permitted

Confirmation required: Yes No (Confirmation requires a credit decision by Bank of the West.Please check with us prior to having the L/C opened.)

L/C to be Transferable: No Yes, with Bank of the West as transferring Bank.

Charges other than issuing bank's charges are for account of: Applicant Beneficiary

OTHER INSTRUCTIONS:Letter of credit is to be issued at least _____ days prior to the latest shipment date.

L/C is to be subject to the Uniform Customs and Practice for Documentary Credit (2007 Revision)International Chamber of Commerce Publication No. 600.__________________________________________________________________________________________________________________________________________________________________

Shipment will be effected after our receipt of a satisfactory Letter of Credit. If you are unable to complywith any of the foregoing, please advise us by e-mail at ________________________________FAX No. ____________________________ Phone No. _________________________

ANY DEVIATION FROM THE ABOVE TERMS WITHOUT OUR CONSENT WILL DELAY SHIPMENTUNTIL SUCH TIME AS THE LETTER OF CREDIT IS AMENDED.

THIS IS A SAMPLE ONLY.DO NOT SEND THIS FORM TO YOUR BUYER.

USE THIS FORM AS A GUIDE TO PREPARE YOUR OWN INSTRUCTION LETTER.DELETE THE INFORMATION THAT IS NOT APPLICABLE TO YOUR TRANSACTION.

(20)

Back to Top


24/67

BANK OF THE WEST

SAMPLEUSANCE (TIME) EXPORT LETTER OF CREDIT

INSTRUCTIONS TO BUYER

Please instruct your Bank to open an Irrevocable Letter of Credit by SWIFT in accordance withthe following terms and conditions:

Beneficiary: American Exporter, Inc.Balance of Payments St.Anywhere, California 90000

Advising Bank: Bank of the WestGlobal Trade Services1977 Saturn St. (SC-MPK-02-G)Monterey Park, CA 91755 SWIFT: BWSTUS66LAX

Drafts at: ________ days sight, ________ days from shipment date

Drafts drawn on and available by acceptance with: Issuing Bank Advising Bank Reimbursing Bank(Acceptance requires a credit decision on the part of the drawee bank.Please check with us for details.)

Acceptance Commission for account of: Applicant Beneficiary

Discount charges (if any) for account of: Applicant Beneficiary

Acceptance and discount are for buyers account, therefore L/C to be paid at sight.

Amount: Currency / US $ _____________________________________________________

To be invoiced: FOB FCA CFR CIF OTHER

(Refer to INCOTERMS section for more information on shipping terms)Expiry Date: _________________________ Place: ______________________________

Merchandise Description:

From: _______________ To: ________________ Latest Ship Date: ________________

LADINGS: (Refer to Transport Documents section for more information)

Full set original clean on board ocean bills of lading issued to order of __________________________________________________________________ Marked freight: Collect Prepaid,Marked notify: _________________________________________________________________

Original clean Air Waybill consigned to ______________________________________________Marked freight Collect Prepaid, Marked notify: ____________________________________

Full set original clean multimodal transport document issued to order of __________________________________________________________________ Marked freight: Collect Prepaid,Marked notify: _________________________________________________________________

(21)

Back to Top


25/67

BANK OF THE WEST

DOCUMENTS: (Refer to Export Documents section for details) Signed Commercial Invoice in _____ copies.

Packing list in _____ copies.

Certificate of Origin issued by __________________________________________________

Inspection Certificate in copies, issued by _________________________________________certifying that _______________________________________________________________

Other document (s)___________________________________________________________

INSURANCE: Covered by: Applicant Beneficiary

Documents to be presented to the negotiating bank within days after the date of shipment. ( If blank, 21days.)

Transshipment: Permitted Not PermittedPartial Shipments: Permitted Not Permitted

Confirmation required: Yes No (Confirmation requires a credit decision by Bank of the West.Please check with us prior to having the L/C opened.)

L/C to be Transferable: No Yes, with Bank of the West as transferring Bank.

All charges other than issuing & reimbursing banks charges are for account of: Applicant Beneficiary

OTHER INSTRUCTIONS:Letter of credit is to be issued at least _____ days prior to the latest shipment date.

L/C to be subject to the Uniform Customs and Practice for Documentary Credit (2007 Revision)International Chamber of Commerce Publication No. 600.

Shipment will be effected after our receipt of a satisfactory Letter of Credit. If you are unable to complywith any of the forgoing, please advise us by: Fax _______________ Phone _______________

ANY DEVIATION FROM THE ABOVE TERMS WITHOUT OUR CONSENT WILL DELAY SHIPMENTUNTIL SUCH TIME AS THE LETTER OF CREDIT IS AMENDED.

THIS IS A SAMPLE ONLY.DO NOT SEND THIS FORM TO YOUR BUYER.

USE THIS FORM AS A GUIDE TO PREPARE YOUR OWN INSTRUCTION LETTER.DELETE THE INFORMATION THAT IS NOT APPLICABLE TO YOUR TRANSACTION.

(22)

Back to Top


26/67

BANK OF THE WEST

EXPORT LETTER OF CREDIT CHECKLIST

BUYER: DATE:

PURCHASE ORDER NO. PRO FORMA INV. NO.

L/C NO. DATED:

ISSUING BANK:

I. TERMS:

Subject to UCP 600 Yes Needs amending

Letter of Credit has been Advised Confirmed

Seller's Name & Address O.K. Needs Amending

Buyer's Name & Address O.K Needs Amending

Amount O.K. Needs Amending

Expiry Date & Place O.K. Needs Amending

Draft Tenor O.K. Needs Amending

Goods Description O.K. Needs Amending

Latest Shipping Date O.K. Needs Amending

Documents Required O.K. Needs Amending

Document Presentment Days O.K. Needs Amending

Banking Charges O.K. Needs Amending

(23)

Back to Top


27/67


28/67


29/67

BANK OF THE WEST

European credits usually do not call for drafts as stamp tax on drafts in Europe is common. Usancecredits in Europe usually take the form of a deferred payment credit with no draft required.

A draft should not have any corrections, deletions, or erasures.

You can make your own draft on your personal computer. The more sophisticated and efficientexporters duplicate the bill of exchange form on their PCs and fill in the information accordingly. This,of course, makes it very easy to correct mistakes and prepare a perfect draft. Although drafts aresimilar to checks, they do not possess any special characteristics such as micro encoding and thusthe easiest method of preparing drafts is to use your PC.

The following draft examples provide for an original and a copy which differs only in that the originalstates THIS FIRST BILL OF EXCHANGE (SECOND UNPAID) and the carbon copy states THISSECOND BILL OF EXCHANGE (FIRST UNPAID). The reason for the two drafts goes back to thedays when the documents were sent in separate mailings in the event that one set was lost.

First Example: a sight drawing. A $500,000 sight letter of credit is opened by Big Gifu Bank Limited inGifu, Japan on September 1, 2010 with reference number LC137045. Big Gifu Bank advises theletter of credit through Bank of the West and specifies XYZ American Bank as its designated U.S.reimbursing bank. The account party under the L/C is Kwa Corporation, 3-12 Hokka Street, Gifu,Japan. The beneficiary (exporter) of the letter of credit is Snowboards and Skis, Inc. (SSI). The L/Cpermits partial drawings covering the shipment of snowboards to Japan. The first drawing is for$100,000. On October 2 the exporter, Snowboards and Skis, Inc., assembles the required documentsto be presented under the letter of credit and dates the draft accordingly. Since SSI numbers draftsdrawn under letters of credit consecutively for all drawings under export letters of credit, its internalreference number is 43.

Second Example: a usance L/C calling for drafts to be drawn at 90 days after sight. The details of theletter of credit are the same as above except for the fact that it is now a usance credit.

Third Example: a usance L/C calling for drafts to be drawn at 90 days after bill of lading date.

(26)

Back to Top


30/67


31/67

BANK OF THE WEST

BILL OF EXCHANGENUMBER: 43

AMOUNT: $100,000.00 DATE: October 2, 2010

AT SIGHT OF THIS FIRST BILL OF EXCHANGE (SECOND UNPAID)

PAY TO THE ORDER OF BANK OF THE WEST THE SUM OFU.S. dollars one hundred thousand

VALUE RECEIVED AND CHARGE THE SAME TO ACCOUNT OF Kwa Corporation,3-12 Hokkaido Street, Gifu, Japan

DRAWN UNDER Letter of Credit issued by Big Gifu Bank Ltd., Gifu, Japan

L/C NUMBER LC137045 DATED September 1, 2010

TO: XYZ American Bank DRAWER Snowboards and Skis, Inc.New York, New York

_______________________________Authorized Signature



AT SIGHT OF THIS SECOND BILL OF EXCHANGE (FIRST UNPAID)






_________________________________Authorized Signature

(28)

Back to Top


32/67

BANK OF THE WEST



AT Ninety Days afterSIGHT OF THISFIRST BILL OF EXCHANGE (SECOND UNPAID)

PAY TO THE ORDER OF

BANK OF THE WESTTHE SUM OF

U.S. dollars one hundred thousand





_________________________________

Authorized Signature



AT Ninety Days afterSIGHT OF THISSECOND BILL OF EXCHANGE (FIRST UNPAID)






_______________________________Authorized Signature

(29)

Back to Top


33/67

BANK OF THE WEST

Sample draft with a tenor of 90 days after B/L date



AT Ninety Days afterSIGHT OF THIS FIRST BILL OF EXCHANGE (SECOND UNPAID)

Bill of Lading Date





TO: XYZ American Bank DRAWER Snowboards and Skis, Inc.

New York, New York__________________________________

Authorized Signature

For sight letter of credit calling for drafts at sight

BILL OF EXCHANGE

NUMBER: Exporters internal ref. numberAMOUNT: $ (amount of drawing under L/C) DATE: Date documents are presented to bank

AT(Leave blank if sight L/C) SIGHT OF THIS FIRST BILL OF EXCHANGE (SECOND UNPAID)

PAY TO THE ORDER OF BANK OF THE WEST THE SUM OFSpell out amount of drawing under L/C

VALUE RECEIVED AND CHARGE THE SAME TO ACCOUNT OF: Name of account partyon the letter of credit (buyer of merchandise) and address

DRAWN UNDER Letter of credit issued by (name of issuing bank and city)

L/C NUMBER given by issuing bank DATED (date when L/C was issued)

TO: Name of issuing bank or itsDesignated U.S. bank upon

Which the drafts are to beDrawn; city and country

DRAWER Name of exporter exactly as it appears in the letter of credit

__Signed by Exporters Authorized SignerAuthorized Signature

(30)

Back to Top


34/67

BANK OF THE WEST

For Usance Letter of Credit calling for Time Drafts

BILL OF EXCHANGE

NUMBER: Exporters internal ref. numberAMOUNT: $ (amount of drawing under L/C) DATE: Date documents are presented to bank

AT(Specify # of days after) SIGHT OF THIS FIRST BILL OF EXCHANGE (SECOND UNPAID)

PAY TO THE ORDER OF BANK OF THE WEST THE SUM OFSpell out amount of drawing under L/C

VALUE RECEIVED AND CHARGE THE SAME TO ACCOUNT OF Name of account partyon the letter of credit (buyer of merchandise) and address

DRAWN UNDER Letter of credit issued by (name of issuing bank and city)

L/C NUMBER given by issuing bank DATED (date when L/C was issued)

TO: Name of issuing bank or itsDesignated U.S. bank uponWhich the drafts are to beDrawn; city and country DRAWER Name of exporter exactly as it appears in the letter

of credit

__Signed by Exporters Authorized SignerAuthorized Signature

(31)

Back to Top


35/67

BANK OF THE WEST

TRANSPORT DOCUMENTS

The transport document is issued by the Carrier whether a shipping line, airline, trucking company orrailroad. They come in various forms and each serves several, but not necessarily all of the followingfunctions:

1. Receipt for the goods, evidencing loading, dispatch, or taking in charge and indicating thegeneral condition of the goods received for shipment.

2. Contract for carriage between the shipper and the carrier3. Invoice from the carrier for charges.4. Negotiable document exchangeable for money, allowing goods to be sold in transit.5. Title Document representing ownership of the goods, which will only be released by the

shipping company against presentation of a signed original document.

A negotiable bill of lading for example, serves all five functions. For the exporter, selling on a letterof credit or documentary collection basis, the last two functions are the most important. A negotiabletitle document means that the buyer can only obtain the merchandise if he surrenders an original billof lading to the carrier. On L/C or D/P collection sales, where documents move through the banks,the buyer must first pay the bank for the bill of lading or signs a promissory note in the case of a D/Acollection. Only then will the bank release the bill of lading.

Negotiable bills of lading come in two forms:

1. Marine bills of lading convey title to the goods and are negotiable title documents when issuedTO ORDER. This would be expressed in the Consignee block on the B/L as TO ORDER OFSHIPPER, TO ORDER OF ABC BANK, or TO ORDER OF 123 COMPANY. When shipment ismade with an order B/L, the buyer only gets the merchandise if he surrenders an original B/L to thecarrier. All other copies marked Original then become void.

CAUTION: If an export L/C calls for the B/L to be consigned to the buyer or for 1/3 original B/Lto be sent directly to the buyer. The buyer will obtain the merchandise and if the L/C

documents contain discrepancies the buyer may refuse payment to the beneficiary eventhough he already has the goods.

Less common is the straight consigned marine bill of lading which does not convey title and isnot negotiable. As such, the buyer does not need an original to obtain the merchandise from thecarrier. This negates the utility of the letter of credit and documentary collection.

2. Multimodal bills of lading are used when two or more forms of transport are involved from placeof receipt to place of delivery. In other respects they are the same as marine bills of lading and maybe issued either in negotiable or straight form.

NON-NEGOTIABLE TRANSPORT DOCUMENTS INCLUDE:

Charter Party bills of lading are contracts between the ship owner and the chartering party underwhich the vessel is put at the disposal of the charterer.

Sea Waybills are not negotiable. They simply evidence that goods have been received for shipmentand should only be used when title and payment/financing are not issues. Their function is contract,receipt, and invoice as discussed earlier.

(32)

Back to Top


36/67

BANK OF THE WEST

Air Waybills are never negotiable. They are always straight consignments even if TO ORDER istyped in the Consignee block. Not being a title document, but merely a receipt for shipment, theimporting buyer can pick up the merchandise at the airport simply by providing proper identification tothe carrier, without the need for even a copy of the Air Waybill.

Question: When a letter of credit or documentary collection is used, how does the exporter preventthe buyer from getting the merchandise without paying for it? Answer: The Air Waybill consignee isthe buyers bank. That bank will transfer the goods to the buyer through an Air Release, but onlyafter the buyer has paid or obligated himself to pay for the merchandise.

Air Waybills should only be consigned to the buyers bank with that banks permission.

Truck and Rail Waybills are both receipts for goods, contracts for carriage and invoices. They arealways straight consignments, never negotiable, and should only be used when the exporter isprepared to allow the buyer to get the goods irrespective of payment being made.

Courier & Postal receipts are always addressed to a specific consignee; are not negotiable andshould only be used if getting paid is not a consideration. They are basically delivery instructions for aspecific consignee at a specific address. Almost all banks will refuse to accept a parcel consigned tothem. Shipments by courier or post should only be consigned to a bank if that banks L/C so instructsor if the bank has specifically authorized delivery to them under a documentary collection.

Forwarding Agents Certificates of Receipt or Transportation (FCR/FCT) are not transportdocuments. They do not evidence shipment of the goods; only their receipt by the forwarder.

IN SUMMARY, when the payment method is letter of credit or documentary collection make sure theappropriate transport document and consignment are used. Otherwise, the unfortunate situation mayarise where the buyer obtains the merchandise and never pays for it. Remember, under a waybill alla consignee has to do to secure delivery is to identify himself to the carrier as the manifestedconsignee and claim delivery. Documentation (other than proof of identity) is not required.

Please consult with your freight forwarder about the nuances of transport documents and therelationship of payment versus control of goods.

(33)

Back to Top


37/67

BANK OF THE WEST

SUNDAEMerchant Marine Co.

ORIGINAL080941234BBILL OF LADING

(34)

Document N0.WATC123456

B/L No. HDMU

TCNG12345678

Ex ort References

Shipper / Exporter (complete name and address)

THE GLUTTONOUS GOURMAND

1234 LIPIDS LANE

MANTECA, CA 93309 U.S.A. A12345-2

Consignee (Complete name and address) Forwarding Agent ReferenceOUTBOUND ASSOCIATES INC. FMC-1234

ONE EXPORT LANE, UNIT 10

SAN FRANCISCO CA 94107

TO ORDER OF SHIPPER

Point & Country of Origin USSEA

Notify Party (complete name and address) Domestic Routing/Export instructionsFAT CHANCE TRADING LTD.

3-567 NIHON KAIZU-CHO KAIZU-CITY

GIFU-PREF JAPAN

*U.S.A PORT

**JAPAN PORT

Pre-Carriage by Place of ReceiptTACOMA, WA, CY

Ocean Vessel / Voyage / FlagHYUNDAI REPUBLIC V 078W

Port of LoadingTACOMA, WA

Onward Inland Routing

Port of Discharge For Transshipment to Place of Del ivery*NAGOYA, JAPAN NAGOYA, JAPAN, CY

Final Destination (Merchants Ref)

PARTICULARS FURNISHED BY SHIPPER

Container No./Seal No. No. of Containers Description of Packages and Goods Gross Weigh MeasurementMarks and Numbers or Other Pk s

HDMU1234560 SHIPPER'S LOAD, STOW & COUNT

SEAL: 1111111 5X40 HIGH CUBES S.L.A. C:

864 BALES VARIOUS ANIMAL FEED

52520 LBS "CPR JAPAN

4320 BALES 118.5703 MTS

HDMU2345678

SEAL: 2222222 LETTER OF CREDIT NO. 98/80134

864 BALES AES ITN X20080911025021

53600 LBS FREIGHT PREPAID - LADEN ON BOARD

HYUNDAI REPUBLIC 78 ON 9/28/06

DFSU3456789 S/C# 70233

SEAL: 3333333 NO SED REQUIRED-AES-OPT2!9ii711969

864 BALES .942766537-A20445-2

52560 LBS THESE COMMODITIES, TECHNOLOGY OR

SOFTWARE WERE EXPORTED FROM THE U.S. IN

ACCORDANCE WITH E.A.R DIVERSION CONTRARY

TO U.S. LAW PROHIBITED

Total Number of Containers or Packages (in words)

THREE - FORTY FOOT HIGH CUBE CONTAINERS

118,570.0000

KGS

261,400.0000

LBS

Freight & ChargesFREIGHT AS ARRANGED

Rate Unit Prepaid Collect

Declared Value(Optional) US $

Total

Number of Original B(s)/L

THREE(3)

On Board Date

SEP. 26, 2008

(OBD : SEPTEMBER TWENTY EIGHTH, 2008)

Dated at: PHOENIX AZ SEPT.28, 2008

Hyundai America Shipping Agent, Inc.

as agent for Hyundai Merchant Marine C.O. LTD. Carrier

(PACKAGE LIMITATION CLAUSE)Section 4 (5) of the U.S. carriage of Goods by Sea Act-1936: Neither the carrier of the shipshall in any event be or become liable for any loss or damage to or in connection with the

transportation of goods in an amount exceeding $500 per package lawful money of theUntied States. or in the case of goods not shipped in packages, per cust omaryfreight unit or the equivalent of that sum in other currency. unless the nature andvalue of such goods have been declared by the shipper before shipment and inserted in theBill of Lading and additional freight has been paid as required. This declaration ifembodied in the Bill of Lading, shall, shall be prima facie evidence, but shall not beconclusive on the carrier. THIS CLAUSE SHALL APPLY ONLY TO GOODSMOVING TO OR FROM PORTS OF UNITED STATES. IN ACCEPTING THISBILL OF LADING, the shipper., owner and consignee of the goodsand the holder ofthe Bil l of Lad ing exp ressly accept and agree to all its, stipulations, exceptions, andconditions, whether written, stamped, or printed as fully as if signed by such shipper,owner, consignee and/or holder. no agent is authorized to waive any of the provisions ofthe clause. IN WITNESS. WHEREOF, the master, or agency of said ship has affirmedto Bill of Lading all of this tenor and date. ONE of which being accomplished, the others tostand void.

* Applicable only when this document is used as an intermodal transport Bill of Lading.

By

Back to Top


38/67

BANK OF THE WEST

Shipper's AccountNumber

123456789

Not Negotiable

Air Waybi l l

Issued by

9 9 9 - 1 2 3 4 5 6 7 8

AIR EDENRAG TRADE EXPORT CO.123 RIP TORN ROAD BLOOMERS, CA 90001 Copies, 2, and 3 of this Air Waybill are originals and have the

same validity.

Consignee'sAccount Number

/

Consignees Name and Address

987654321

456 FIG LEAF PARKWAY

ADAM & EVE CLOTHES INC.

GARDEN CITY, TAIWAN

Issuing Carriers Agent Name and City

SERPENTINE SERVICES LTD., SAN FRANCISCO, CA

It is agreed that the goods described herein are accepted in apparentgood order and condition (except as noted) for carnage SUBJECT TO

THE CONDITIONS OF CONTRACT ON THE REVERSE HEREOF. ALLGOODS MAY BE CARRIED BY ANY OTHER MEANS INCLUDINGROAD OR ANY OTHER CARRIER UNLESS SPECIFIC CONTRARYINSTRUCTIONS ARE GIVEN HEREON BY THE SHIPPER, ANDSHIPPER AGREES THAT THE SHIPMENT MAY BE CARRIED VIAINTERMEDIATE STOPPING PLACES WHICH THE CARRIER DEEMSAPPROPRIATE. THE SHIPPERS ATTENT ION IS DRA WN T O THE NOTI CECONCERNI NG CARRIER'S LIMITATI ON OF LIABILITY. Shipper mayincrease such limitation of liability by declaring a higher value for carriageand paying a supplemental charge it required.

Agent's IATA Code Account No Accounting Information

12-34567-890Airport of Departure (Addr. of First Carrier) & Requested Routin g

SAN FRANCISCO AIRPORT USA

Reference Number Optional Shipping Information

ToTPE

By First Carriers

AIR EDEN to by Currency

USDCharge code

PPDDeclared Value for Carriage

MAX FREE

Declared Valuefor Customs

Airport of Destination Requested Fight / Date

CHIANG KAI-SHEK AE 123 10-10

Ins. Amt.

NIL

INSU RANC E - If carrier offers insurance, and suchInsurance is requested In accordance with theconditions thereof, indicate amount to be insuredin figures in box marked Ins. Amt (Amount ofInsurance).

Inland Routing Information FREIGHT PREPAID

NOTIFY APPLICANT

These commodities, technology or software were exported from the United Statesin accordance with the Export Administration Regulations. Ultimate destination

Diversion contrary toU.S. law prohibited.

SCI

Rate ClassRate/Chrg Total

Nature and Quantity of Goods(Incl. Dimensions or Volume)

kg/

lb

ChargeableWeight

No. ofPiecesRCP

GrossWeight

(35)

CommodityItem No.

1 23KAS ARRANGED

1 23K

G.C.R23K

AS ARRANGED

FICUS SYCOMORUS

PREPAID Weight Charge COLLECT

AS AGREED

Valua ti on Char e

Other Charges

Ta x

Shipper certifies that the particulars on the face hereof are correct and thatinsofar as any part of the consignment contains dangerous goods, such part isproperly described by name and is in proper condition for carriage by airaccording to the applicable Dangerous Goods Regulations.

Total Other Charges Due Agent

Total Other Charges Due Carrier

AS AGREEDSERPENTINE SERVICES AS AUTHORIZED AGENT FOR AIR EDEN

Signature of Shipper or his Agent

TOTAL PREPAID TOTAL COLLECT

AS AGREEDCurrency Conversion Rate Chrgs in Dest Currency SEPT 28-08 SFO INTL USA B.OEING

Executed on (date) at (place) Signature of Issuing Carrier or its Agent

For Carriers Use only Charges at Destination. Total Collect Charges 9 9 9 - 1 2 3 4 5 6 7 8

Back to Top


39/67

BANK OF THE WEST

EXPORT DOCUMENTS

Documents required for an international sale can vary significantly from transaction to transaction,depending on the destination and the product being shipped. At minimum, there will be twodocuments: the invoice and the transport document. The buyer will usually provide the seller with alist of documents needed to get the goods into his country as expeditiously and inexpensively as

possible. Some documentary requirements are not open to negotiation, as they are needed by theimporter to clear customs at the port of destination.

This presentation discusses documentation in relation to export letters of credit.

When the letter of credit payment method is used for an export sale, each document presented underthe terms and conditions of the letter of credit must:

Conform to all L/C terms and conditions Comply with the UCP 600 Agree with the data content of every other document

For the documents listed, the number in parenthesis refers to the relevant UCP 600 article.

THE BILL OF EXCHANGE / DRAFT

Almost every letter of credit presentation and documentary collection is accompanied by a draft. Thisdemand for payment is drawn by the seller on the payee. The payee on a letter of credit draft isalways a bank. For a documentary collection it would be the buyer. Refer to the section in thishandbook on Drafts under Export Letters of Credit for details.

COMMERCIAL INVOICE (14(e) & (i), 18)

The accounting document claiming payment from the buyer. Normally an export invoice would

include:

Sellers name and address Buyers name and address Issue Date Invoice Number Shipping marks and numbers Term of Sale: e.g. FOB, etc. Shipping information Info required by L/C Country of Origin L/C number Merchandise description, P.O. number, unit price, and total price

CONSULAR INVOICE / VISAED INVOICE (3)

For exchange control and balance of payments reasons, some countries do not allow the import of

merchandise unless accompanied by a certificate issued by one of its officials in the exporterscountry. These certificates evidence that the shipment meets certain statutory or other regulations ofthe importing country. A visaed invoice is an original or copy of an invoice, which has been originallysigned and/or stamped by a consulate official.

(36)

Back to Top


40/67

BANK OF THE WEST

INSURANCE POLICY OR CERTIFICATE (28)

Every export sale should be covered by insurance. Who provides the coverage depends on theINCOTERM used. Insurance coverage is outside the scope of this explanation. For specifics, contactyour insurance agent or freight forwarder as to who can provide insurance on anas needed basis orby blanket policy on an annual basis.

CERTIFICATESWhen a letter of credit calls for a document to be issued as a certificate, that document must be

signed and dated. Certificates come in a myriad of forms depending on the product and the countryof destination. L/Cs often require that certificates be issued by reputable third party inspectionsurveyors such as the Societe Generale de Surveillance (SGS) or the U.S. Department of Agriculture.It is important to remember that each certificate required by an L/C will increase the cost of goodssold. Some of the most common certificates are discussed below.

Certificates should always be issued before the goods are shipped. Certificates issued after thegoods arrived in the country of import defeat the purpose of the letter of credit.

CERTIFICATE OF ORIGIN (3, 14, 17)

A signed statement certifying the country of origin of the goods being sold is sometimes required byregulation in the buyers country; may be as simple as a certificate signed by the seller. Certaincountries may require it to be issued by a third party such a Chamber of Commerce, or be notarized,legalized, or visaed by their Embassy or Consulate.

INSPECTION CERTIFICATE (3, 14, 17)An independent firm would usually conduct the inspection to ensure that the merchandise conforms tothe buyers criteria. Inspection certificates should be based on quantifiable criteria. When an L/C isthe method of payment, the criteria should be specifically spelled out in the letter of credit.

WEIGHT LIST OR CERTIFICATE (3, 14, 17)Not synonymous to a packing list. This document breaks down the shipment by weight. Need be

signed only if a certificate is required.

USDA INSPECTION CERTIFICATE (14)This certificate is issued by the U.S. Department of Agriculture and covers grade and condition foragricultural products. It provides evidence that the produce was in good condition at the date andtime of inspection and can be useful in the event of a claim.

PHYTOSANITARY CERTIFICATE (3, 14, 17)Numerous foreign governments and buyers require a phyto for fresh plants and plant products. Thiscertificate states that the product has been inspected and is free of harmful pests and plant diseases.They are issued by the USDA Animal and Plant Health Inspection Service.

PACKING LIST (3, 14, 17)A mirror of the merchandise covered by the invoice, the packing list omits prices, but itemizes themerchandise by number of cartons, packages, etc. and the contents of each. Need not be signedunless called for in the L/C.

(37)

Back to Top


41/67

BANK OF THE WEST

OTHER MISCELLANEOUS DOCUMENTS (14d & 14f)

UCP 600 ARTICLE 14 items d & f state:

D. DATA IN A DOCUMENT, WHEN READ IN CONTEXT WITH THE CREDIT, THE DOCUMENTITSELF AND INTERNATIONAL STANDARD BANKING PRACTICE, NEED NOT BE IDENTICAL TO,BUT MUST NOT CONFLICT WITH, DATA IN THAT DOCUMENT, ANY OTHER STIPULATEDDOCUMENT OR THE CREDIT.

F. IF A CREDIT REQUIRES PRESENTATION OF A DOCUMENT OTHER THAN A TRANSPORTDOCUMENT, INSURANCE DOCUMENT OR COMMERCIAL INVOICE, WITHOUT STIPULATINGBY WHOM THE DOCUMENT IS TO BE ISSUED OR ITS DATA CONTENT, BANKS WILL ACCEPTTHE DOCUMENT AS PRESENTED IF ITS CONTENT APPEARS TO FULFILL THE FUNCTION OFTHE REQUIRED DOCUMENT AND OTHERWISE COMPLIES WITH SUB-ARTICLE 14 (D).

SELECTED DOCUMENT REFERENCES IN THE UCP 600

DOCUMENT TOPIC UCP 600 ARTICLE

Authentication requirements 3Copies of 17Complying Presentation 2, 14, 15, 16Content of 13, 14Documents v. Goods/ Services/ Performance 5Dated prior to L/C issuance 14Discrepancies 14, 15, 16Examination 14Fraudulent documents 34Issuer, ambiguity about 3, 17Lost documents 35Non-stipulated documents 14Originals 17Signature on 17Stale documents 14

(38)

Back to To


42/67

BANK OF THE WEST

EXPORT LETTERS OF CREDITPAYMENT AND DISCREPANCIES

Commercial Letters of credit issued by banks around the world are subject to the UCP 600 (2007Revision). UCP stands for Uniform Customs and Practice for Documentary Credits, which is a bodyof rules (not law) on letters of credit. The conventions under the UCP were first adopted by the

International Chamber of Commerce in 1933 and subsequently revised many times, with the mostrecent being in 2007. Federal laws and State laws, specifically Article 5 of the Uniform CommercialCode (UCC), also need to be taken into consideration.

In addition to understanding the rules of letters of credit, as outlined in the UCP 600, exporters shouldhave a basic understanding of International Commercial Terms (INCOTERMS) of trade such as FOB,CIF, CFR, DDP, etc. (Please see the reference sheet on INCOTERMS which provides a basicoverview.)

We recommend that the exporter order from ICC Book USA a copy of the UCP 600 and The Guide toIncoterms (phone: 212-703-5066; fax: 212-944-0012; www.iccbooksusa.com).

Strict versus Substantial Compliance

Under the UCP 600 issuing banks are obligated to make payment under letters of credit whenconforming documents (bill of lading, packing list, invoice, certificates, etc.) are presented. Thedocuments should be in strict compliance with the terms of the letter of credit. Generally, rulings inlegal cases, revolving around the issue of payment when discrepant documents are presented, havecome down on the side of strict compliance rather than substantial compliance. However, strictcompliance does not demand oppressive perfectionism such as the obvious misspelling of a word. Atypical discrepancy, which would fall under the strict compliance rule, is that the invoice does notdescribe the goods to correspond to the terms of the letter of credit.

Letters of Credit Deal in Documents Only

Another important principle underlying letters of credit is that all parties concerned deal withdocuments alone, and not with goods, services and/or other performances to which the documentsmay relate (UCP 600 Article 5). In practical terms this means that issuing banks make paymentsunder letters of credit based on the examination of documents, not on the examination of the goods.The letter of credit does not protect the applicant from paying for the shipment of shoddygoods. The applicant cannot wait until the goods arrive, examine the goods, and then approvepayment under the letter of credit.

Available by Payment or Negotiation

Payments under sight letters of credit are available by: payment or negotiation. Banks in the United

States typically issue letters of credit which are available by payment with payment made at theircounters in the U.S. This means that the exporters bank in the foreign country must send thedocuments to the issuing bank for examination and payment. Banks in foreign countries commonlyissue letters of credit which are available by negotiation with any bank, but are payable only at theircounters in the foreign country.

(39)

Back to Top


43/67

BANK OF THE WEST

In the event a U.S. exporter receives an L/C which is available with negotiation at any bank; theexporter may present the documents along with the original L/C to the advising bank or its ownbank. Many banks are reluctant to negotiate an original L/C if it was not advised through thembecause the letter of credit may have been amended and the negotiating bank would not be aware ofall the amendments.

If, after examination, the documents are found to be conforming, then the negotiating bank will courier

the draft to the U.S. reimbursing bank or send a teletransmission claim and courier the documents tothe foreign issuing bank. The negotiating bank then waits for the reimbursement bank to wire thefunds representing the L/C drawing to the negotiating bank. Once the funds arrive by wire transferfrom the reimbursing bank, the negotiating bank does the appropriate paperwork to indicate thesuccessful drawing by reducing the L/C liability and credits the customers (exporter) account.

If the L/C is negotiable and the documents have discrepancies, the U.S. negotiating bank can:

1. Return the documents to the exporter for correction, if possible and time permitting.2. Send the documents to the issuing bank on an approval basis.3. Cable the issuing bank for authority to pay.

The U.S. negotiating bank is accepting a higher level of risk on negotiable credits because paymentmay be made and when the documents arrive at the issuing bank, discrepancies are found and theissuing bank demands return of the funds.

Prompt Decision to Honor or Dishonor Presentation of Documents/Negotiable Credits

The responsibility of the negotiating bank under a letter of credit is to examine documents and make aprompt decision (see next section on time parameters set by UCP article 14.b) to honor or dishonordocuments based upon their examination. Since the letter of credit is the legal obligation of theissuing bank, the decision to honor payment upon document presentation rests with the issuing bankor its designated negotiating bank.

Prompt Decision to Honor or Dishonor Presentation of Documents/Payment

If the presented documents are not in compliance with the terms and conditions of the letter of credit,the documents may be sent to the issuing bank on an approval basis. The issuing bank must givenotice to the exporters negotiating bank by teletransmission (SWIFT) without delay, but no later thanthe close of the fifth banking day following the day of receipt of the documents (UCP 600 Article14(b)). Under the UCP issuing banks have a maximum of 5 banking days to give notice ofdiscrepancies (dishonor) to the exporters negotiating bank.

The issuing bank may contact the applicant to determine if the applicant wants to waive thediscrepancies and make payment under the letter of credit. If the applicant decides not to waive thediscrepancies, the consequences are serious. The issuing bank must give notice to the exportersbank, detailing all discrepancies and stating whether the issuing bank is holding the documents at the

disposal of instructions from the exporter or is returning the documents to the presenter. Since theexporter retains title to the goods, the exporter may have to arrange for disposal of the goods, clearcustoms, and pay demurrage charges. Once the applicant makes the decision not to waivediscrepancies, the underlying import/export transaction becomes more costly with the result that thebusiness relationship between buyer and seller will most likely not be a continuing one.

(40)

Back to Top


44/67

BANK OF THE WEST

If there are discrepancies in the documents and the exporter wants to be paid quickly, the exportermight e-mail its buyer in the foreign country and request that the buyer contacts its banks letter ofcredit department to waive the discrepancies. The buyer will always have more leverage over itsbank than a U.S. bank sending a SWIFT follow-up to the foreign bank. In addition, an e-mail to thebuyer will be much cheaper than a follow-up SWIFT sent by the U.S. bank.

Preventing Discrepancies

In order to prevent discrepancies from occurring when documents are presented under the letter ofcredit, the exporter should take the following steps as soon as the sale is concluded, but before theletter of credit is opened.

1. E-mail the buyer the terms of the letter of credit, which should conform to the underlying contractof sale between the exporter and importer.

2. After the buyer fills out the letter of credit application, which it will take to its bank, the exportershould insist that the buyer e-mail fax a copy of the letter of credit application to the exporter for itsreview. It is much cheaper to change the terms of the proposed letter of credit before it is issued;

after it is issued the buyer has to pay for amendments to change the terms of the letter of credit.

3. The exporter should make sure that the description of the merchandise as it appears in the letterof credit is stated exactly the same as in the invoice. The exporter must insure that itsaccounting department (invoice), shipping department (packing list), and freight forwarder (bill oflading) are all aware of the importance of describing the goods in conformance with the L/C, andprovide each with a copy of the letter of credit.

4. The exporter should request at least a 14-day period in which to present documents after theshipping date. If the L/C is silent on the presentation period, the period of time that is allowed byArticle 14(c) is 21 days. Since late presentation is one of the most common discrepancies, thissimple request should alleviate the possibility of a late presentation. Not only does a 14-day (or

more) period allow the exporter some extra time in putting together the documents, it also allowsfor time to fix correctable discrepancies identified by the U.S. negotiating bank. A 21-day periodis essential for transferable letters of credit since the pro