Results for category "Letter of Credit"

10 Articles

Common discrepancies in L/C and their solutions at a glance

What are the common discrepancies in letters of credit?

Some of the most common documentary discrepancies are found in the following fields under a letter of credit transaction:

Related to the documents in general

  • Documents inconsistent with each other. That means inconsistency of information between documents.
  • Original documents not marked “original”.
  • Absence of signature where required, on documents presented
  • Late presentation–documents presented more than 21 days after shipment or as specified in the LETTER OF CREDIT

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Procedures to open a Letter of Credit

A business deal between a Seller (Exporter) and a Buyer (Importer) for an international commodity transaction needs to be established prior to open a letter of credit. For export or sale of any particular commodity to a foreign buyer, it is the primary duty of a Seller to find out a suitable overseas buyer who is willing to purchase his brand of commodity. Then the Seller starts and continues negotiation with the chosen buyer till a Contract is finalized.

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Role of a Freight Forwarder in the Export & Import shipment

What is the role of a Freight forwarder in the export and import shipment?

Export and Import shipment in the international trade necessitate involvement of following parties and institutions.

  • Importers
  • Exporters
  • Shipping line & their Agents
  • Customs Authority
  • Port Authority
  • Freight Forwarders
  • Stevedores or Cargo handling agents
  • C&F Agent

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The role of Bank in the international trade

The role of Bank in the international trade with particular reference to documentary credit

Banks as an intermediary agency play a key role to finance and execute international trade. They extend credit facilities to their clients in different forms i.e. short-term, self liquidating, secured, on the basis of the nature of trade transaction. Sometimes bank recommends the use of letter of credit in some trade negotiation to facilitate trade under low risks. However there are some risk factors involved in the international trade which bank has to assess faithfully to safeguard the interest of the customer. Basically banks do not have any liability to check the authenticity of the quantity, quality and actual shipment status of goods rather they have the responsibility to examine the required documents with due diligence before effecting payment.

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Contributions of various institutions of ICC in formulating UCP 600 & its details

Contributions made by various institutions of ICC in developing the revised version of UCP 600 and the detail description of articles included in the UCP.

UCP 600 is the sixth revision of the Uniform Customs and Practice for Documentary Credits which comes into effect on 01 July 2007. There are 39 articles in UCP 600 which provides necessary guidance to bankers, lawyers, importers, and exporters, transport executives, educators, and everyone involved in the handling of letter of credit transactions.

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Would the revision of UCP 600 make the use of documentary credit more secured for payment settlement to exporters than before?

How far the new rules under UCP 600 can ensure reduction of documentary discrepancy & disputes which UCP 500 failed to solve effectively? How the new rules would resolve this problem?

The new rules under UCP 600 have brought minor adjustments / improvements in the time frame of bank to check documentary compliance which is beneficial to the exporters. The period for documentary check under article 13(b) of the UCP 500, was maximum seven banking days. Under article 14(b) of UCP 600 the period has been reduced to five clear banking days.

The addition of article 2 & 3 in UCP 600 provide clarification about definitions and interpretations of good number of terms which helps clarity and better understanding to the users with regard to formulation of credit.

But the major concerns of UCP 500 were centered around the articles which focus on following important issues.

  • The description of goods on the commercial invoice;
  • Transport documents; and
  • The standards for examination for documents.

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Major amendments under UCP 600 & its impact on documentary credit.

What concerned ICC to revise UCP 500? What are the major areas of amendments brought under new rules of UCP 600 compared to UCP 500? Impact of new rules on the operation of documentary credit.  

The revised version of UCP 500 (Fifth revision) came into force on January 01, 1994 which governed the documentary credit transactions for a consecutive period of twelve years. Its main objective was to facilitate the effective use of letter of credit in order to reduce documentary discrepancy & dispute in commodity trade and thereby enhance international trade. The latest revision is UCP 600 (Sixth revision) of Uniform Customs and Practice for Documentary Credits which has become effective from July 01, 2007. Now the question is why ICC felt the necessity to revise UCP 500?

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Basic documents used in the international trade

What are the basic documents commonly used in the international commodity trade? Explain in details.

In the exporting and importing trade, proper presentation of documents by the seller is not less important than the physical delivery of goods to the buyer in good condition. All the parties involved in the international commodity trade transaction initially deal with the documents that have been mutually agreed before the goods arrive at the destination. As a corollary to this international trade practice, documents also play key role in a letter of credit transaction. Banks as a majo players in the documentary credit, exclusively depend on documents alone to decide whether payment or negotiation/rejection of credit is to be effected. If proper documents are presented, bank will make payment without any hesitation whether or not actual goods shipped do comply with the sales contract. Therefore it is of prime importance for both the seller and the buyer to decide clearly on the documents that are required for the accomplishment of sale transaction before issuance of letter of credit.

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General guidelines for implementation of Letter of Credit

General guidelines to be followed by the Sellers and the Buyers for smooth and successful implementation of Documentary Letter of Credit

Documentary credit discrepancy is considered as the single challenging factor which stands as an obstacle in the implementation of credit transaction. Therefore the issue of documentary compliance need to be focused on top priority basis to overcome the failures in the implementation of commodity transaction under letter of credit. Accordingly the Sellers and the Buyers should take utmost care to study the terms and conditions of Letters of Credit and the governing rules of the current UCP 600 before issuance of L/C so that no discrepancy arises during implementation.

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Define Documentary Credit & highlight its role in the global trade

Details of Documentary Credit – how it works in commodity transaction

‘Sale Contract’ is the prima facie evidence of contract between a Seller and a Buyer to effect an international commodity transaction. A seller primarily starts negotiation with an overseas buyer for sale or export of any particular commodity in order to mutually finalize the undernoted fundamental issues connected with the contract of sale:

  • Description of the commodity to be traded highlighting the quantity, quality and unit price.
  • Details of shipment terms which include place and form of shipment, the place of final destination & delivery terms and other shipping issues like transhipment, partial shipment and the latest shipment date etc.
  • The full & correct description of the documents to be presented for payment including the information whether the payment to be made immediately (at sight) or at some future date ( after one months of acceptance of documents).
  • Detail terms and conditions of the letter of credit including the maximum amount payable, the expiry date, the type of credit to be applicable etc.

Once Sale Contract is finalized, between a Seller and a foreign buyer, it establishes a firm basis and guideline for the construction of any subsequent legal document needed for implementation of such business deal. If any flaws and loopholes exist in the Sale Contract it will have adverse effects on the construction of legal documents such as ‘Letter of Credit document’ which may result in trade disputes for settlement of payment.

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