Documentary Letters of Credit

Methods of International Trade settlement 1. Advance payment 2. Open account system 3. Barter system / Counter trade 4. Bills for collection 5. Documentary letters of credit

Documentary Letters of Credit

ICCs banking commission drew up the first version of the UCP in 1933 and it was revised every 10 years or so since then. UCP are accepted by banks and trading partners in every country in the world. Dual purpose is to provide a code of good practice and to spell out a series of legally binding obligations. Issued by Banks as guaranteed payment instruments on export sales. Most engaged instrument in international trade.

Documentary Letters of Credit

UCP 600 replaced and superseded UCP 500 as the ICC set of rules governing letters of credit. Attempt is made to address the developments in banking, transport and insurance industries. More user friendly, both in structure and language. Attempt is made for overall reduction in documentary rejections.

Documentary Letters of Credit

one of the safe methods of international trade settlements Constructive delivery by handing over documents or transferring title to or control over the goods is possible It guides the buyer as responsible for stipulating the required documents and conditions stipulates the liabilities of the issuing bank, advising bank, confirming bank, negotiating bank, etc

Documentary Letters of Credit

Why letter of credits? Current financial crisis has driven many exporters to look to bank undertaking as a means of securing their exports. Those who have traded on open account terms for many years are looking out for more protection in certain markets. This has given rise to a demand in the need for issuance of documentary credits and confirmation thereof.

Documentary Letters of Credit

UCP 600 The new revision of uniform customs and practice of documentary credits, commonly referred as UCP 600, came into force on July 1, 2007 It was promulgated by ICCs commission on Banking techniques and practice. The commission were assisted by a consulting group, consisting of more than 40 experts from 26 countries.

Documentary Letters of Credit

Highlights of UCP 600 Simplified structure, easier to read New sections on definitions and interpretations Discounting of deferred payment credits Insurance document with an exclusion clause

Documentary Letters of Credit

Highlights of UCP 600 Addresses of the beneficiary and applicant Original documents at least one original of each stipulated document must be tendered. Transport articles clean on board stipulation 12 articles of e ucp

Documentary Letters of Credit

Highlights of UCP 600 Provides for five banking days to review the documents for compliance Dramatically liberalised the consistency requirement between the documents ( linkage issue ) UCP 600 establishes irrevocable L/C as the default credit The flight stamp shown on an Airway Bill will be the date of shipment Bank can hold documents, pending applicant waiver or receipt of additional instructions from the presenter

Documentary Letters of Credit

Highlights of UCP 600 39 Vs 49 General Provisions Liability Examination Documents Miscellaneous Issues Disclaimers Transfer & Assignment 15 6 13 14 17 18 28 29 33 34 37 38 39

Documentary Letters of Credit

Parties to A Letter Of Credit Transaction Applicant / Importer Beneficiary / Exporter Issuing Bank Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

Documentary Letters of Credit

Types of Credits Sight credit Deferred payment credit Acceptance credit Negotiation credit Confirmed credit

Documentary Letters of Credit

Types of Credits Freely negotiable credit Restricted credit Revolving credit Transferable credit Back-to- back credit Anticipatory credit Red clause credit , Green clause credit Standby letter of credit

Documentary Letters of Credit

Documents in international trade Financial documents Commercial documents Transport documents Risk covering documents

Documentary Letters of Credit

Financial Documents Bill of Exchange Sight Bill of Exchange Usance Bill of Exchange Commercial documents Commercial Invoice Consular Invoice Customs Invoice Legalised Invoice

Documentary Letters of Credit

Commercial documents Certificate of origin Generalised system of preferences (GSP) Packing list Weight certificate Certificate of analysis and quality Certificate of inspection Health certificate

Documentary Letters of Credit

Transport Document Bill of Lading (B/L) Received for shipment B/L On Board B/L Clean B/L Claused B/L Straight B/L Charter party B/L

Documentary Letters of Credit

Regulatory Documents Export Declaration Forms G R / SDF Form P P Form Softex Form Export Certificate

Documentary Letters of Credit

Transport Document Airway Bill Postal Receipt Courier Receipt Multimodel Transport Documents Risk Covering Documents Insurance Policy

Documentary Letters of Credit

Discrepancies An irrevocable LOC do not automatically assure payment for International trade An inexperienced business makes mistakes which results in rejection of claims by banks Excessive terms and conditions in the LC More ambiguous the context of the UCP Opening banks make more stringent reviews on documents Applicants engineer discrepancies in collusion with banks

Documentary Letters of Credit

Common Discrepancies Late shipment / Presentation Description of goods between invoice and LC Incorrect / incomplete Bill of exchange Inconsistent documents Unsigned B/L, AWB Faulty Insurance Overdrawing LC International standard banking practice (ISBP) 2007 will be applicable for UCP 600 credits