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.
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.
