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  • 1.
    • International Trade Settlement & Payment System
  • - Akshay Samant

2.

  • Advance Payment
  • Open Account / On Account
  • Sales Consignment Basis
  • Collection Method
  • - Documentary Collection
  • * Demand Bills
  • * Usance Bills
  • - Clean collection
  • Documentary Credit / Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM 3.

  • An arrangement at the request and on instructions of a customer
  • To make payment / authorise other bank to pay or negotiate
  • Against stipulated documents
  • Provided terms and conditions are complied with

DOCUMENTARY CREDITS 4.

  • Applicant (Opener / Importer)
  • Issuing Bank
  • Beneficiary (Exporter)
  • Advising Bank
  • Confirming Bank
  • Negotiating Bank
  • Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT 5.

  • Revocable / Irrevocable
  • Confirmed
  • Restricted / Unrestricted
  • Transferable
  • Back-to-back
  • Revolving
  • Deferred
  • Red Clause / Green Clause
  • Standby

TYPES OF CREDIT 6. COMPARING PAYMENT TERMS METHOD OF PAYMENT TIMING OF PAYMENT GOODS AVAILABILITY SELLERS RISK BUYERS RISK Advance Before Shipment At Destination Arrival None 100% Reliance on Seller Sight L/C Presentation of Docs after shipment When L/C is paid Minimal issuing / confirming bank obligation to pay if docs conform to L/C Assurance of Shipment, but depends on seller to supply goods ordered Usance L/C Maturity date or at discount of the draft At acceptance of draft drawn under the L/C Minimal bank obligation to pay if docs conform to L/C terms Regardless of product quality, payment due at maturity Collection Demand Bills When docs received are presented to the drawee When payment is made Non-payment of draft Assurance of shipment, but depends on seller to supply goods ordered Usance bills on D/A basis When accepted B/E matures At time B/E is accepted Non-payment of B/E, even though buyer has the merchandise Minimal, may refuse to pay at maturity Open A/c As per the arrangement Upon arrival Reliance on buyer Zero 7. UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS UCP 600 8. INTERNATIONAL TRADE ICCS PUBLICATIONS

  • International Standard Banking Practice (ISBP) for the examination of documents under Documentary Credits Publication No.681
  • International Standby Practices (ISP 98) Publication No.590

9. INTERNATIONAL TRADE ICCS PUBLICATIONS

  • Uniform Customs and Practice for Documentary Credits UCP 600
  • and
  • Supplement to UCP 600 for electronic presentation (eUCP 1.1 version)
  • Uniform Rules for Bank-to-Bank Reimbursement (URR 525)

10. INTERNATIONAL TRADE ICCS PUBLICATIONS

  • Uniform Rules for Collection (URC 522)
  • INCOTERMS 2000
  • Uniform Rules for Demand Guarantees (URDG) Publication No.458

11.

  • Universally recognised set of guidelines governing Letters of Credit
  • Brochure framed by ICC, HQ at Paris.
  • ICC World Business Organisation of non-govt. nature working towards Trade Liberalisation, Free & Fair competition
  • 1933 revised in 1951, 1962, 1974, 1983,1993

UCPDC UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS 12.

  • Latest Publication No.600, 2007 revision adopted w.e.f. 01/07/2007
  • L/C being one of the safe methods of settlements is commonly used in trade, hence UCPDC has become indispensable. Constructive delivery of goods since matching physical delivery with payment is not possible.
  • By handing over documents or transferring title or to control over the goods is possible under L/C mechanism.
  • UCPDC balances the interests of all parties to L/C and gives maximum possible guidance and assistance.

13. TRIANGULAR CONTRACTUAL ARRANGEMENT EXPORTER SALE CONTRACT DEFINING TERMS IMPORTER ISSUING BANK ADVISING BANK L/C APPLICATION ISSUANCE OFTHE LETTER OF CREDIT ADVICE OF OPENING LETTER OF CREDIT 14. Letter Of Credit 15. Letter of Credit

  • Instrument for settlement of trade payments
    • Payment made against documents
  • An undertaking
    • of a bank to make payments
      • subject to certain terms/ conditions
      • as per UCPDC guidelines
    • given on behalf of its clients (buyer/Importer)
    • given to a third party (Seller/ Exporter)

16. Letters of Credit - Types

  • Revocable LC
    • can be cancelled / amended without beneficiarys consent
  • Irrevocable LC
    • cannot be amended without the consent of all parties of LC
    • definite payment by LC issuing bank
    • LC construed as irrevocable unless specified as Revocable
  • Revolving LC
    • amount of drawings reinstated
    • to allow further drawings during the validity period of the LC

17.

  • Usance LC
    • documents delivered against acceptance (DA)
    • payment made on due date of bill
  • Sight LC
    • documents delivered only against payment (DP)
  • Transferable LC
    • transferable to others by the first beneficiary

18. Letters of Credit Income Potential

  • Source of fee income for the bank
  • Charges/commission collected upfront

Usance Charges Commitment Charges Retirement Charges Swift Charges Advising Charges Confirmation Charges Source offee income 19. Parties concerned with a credit

  • Applicant:means the party on whose request the credit is issued. It is normally the Buyer or Importer of goods
  • Beneficiarymeans the party in whose favour a credit is issued .Is is the seller or exporter of goods.
  • Advisingbank means the bank that advises the credit at the request of the issuing bank

20. Parties concerned with a credit

  • Confirming Bankmeans the bank that adds its confirmation to a credit upon the issuing banks authorization or request.
  • Issuing Bankmeans the bank that issues a credit at the request of an applicant or on its own behalf
  • Nominated Bankmeans the bank with which the credit is available or any bank in the case of a credit available with any bank.

21. Parties concerned with a credit

  • Confirming Bankmeans the bank that adds its confirmation to a credit upon the issuing banks authorization or request.
  • Issuing Bankmeans the bank that issues a credit at the request of an applicant or on its own behalf
  • Nominated Bankmeans the bank with which the credit is available or any bank in the case of a credit available with any bank.

22. Definition of Certain terms

  • Honourmeans
  • to pay at sight if the credit is available by sight payment.
  • To incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.
  • To accept a bill of exchange (draft) drawn by the beneficiary and pay at maturity if the credit is available by acceptance.

23. Definition of Certain terms

  • Negotiationmeans the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

24. Definition of Certain terms

  • Banking daymeans a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed.
  • Presentationmeans either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered

25. Basic Documents used in International Trade 26. Basic Documents used in International Trade

  • In any trade, documents are used to record a written evidence of having carried out a transaction.
  • International trade is no exception.
  • Normally documents are required to satisfy two basic requirements.
    • Operational / commercial requirements
    • Regulatory requirements, trade / exchange control authorities.

27.

  • Classification of documents
    • Financial documents, (drafts / bill of exchange)
    • Commercial documents (invoice)
    • Transport documents (bill of lading, airway bill)