Al-Sameer International
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Al-Sameer International FZE
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"Frequently Asked Question" will help you to find answers to all queries you might have:
FAQ - Soft Commodity Trade Terms
(Term or Acronym Description)
Glossary of Terms
We have established glossaries that define the most commonly used
words that you may encounter in your work in credit and
collections management.
Letter of Credit Glossary
Acceptance
Draft - payable at a fixed or determinable future date,
upon the face of which the drawee has acknowledged in
writing his or her obligation to pay at maturity. See also "banker's
acceptance" and "trade acceptance".
Account Party - The
party instructing the bank to open a letter of credit and on whose behalf
the bank agrees to make payment. In most cases, the account party is
the importer/buyer, and is also known as the applicant.
Advice of Fate -
Notification of the status of a collection that is still outstanding. When a
draft bears this phrase, the time begins to run from its date. The date of maturity
is therefore fixed and does not depend on the date of acceptance of the draft.
Advising Bank - A
bank that accepts a letter of credit from the issuing bank, verifies
its authenticity, and forwards it to the beneficiary. The advising bank does not
take on any payment obligations.
After Sight - When a
draft bears this phrase, the time begins to run from the date of
its acceptance.
Air Waybill (of lading) - A
signed receipt and a contract to deliver goods by air. Such
bills are non-negotiable and do not convey title to the goods as do “To Order”
bills of lading used by ocean and land carriers. The title passes to the party to
whom the goods are consigned (the Consignee).
Amendment - Change
to terms of a letter of credit. Beneficiary has the right to refuse
the amendment under an irrevocable letter of credit.
Applicant - See
"account party".
Assignment of Proceeds - A
request by the beneficiary to pay all or part of the funds due
to him to a third party. This instrument does not transfer rights in the letter of
credit nor the title to the goods.
Back-to-Back Letter of Credit (L/C) - Letter
of credit issued for the account of a buyer who is already holding an L/C in his or her
favor. The back-to-back L/C is issued in favor of the supplier to cover the same
shipment as stipulated in the credit already held by the buyer. Terms of both
L/Cs, except for the amount and expiration date, are so similar that the same
documents presented under the back-to-back credit are subsequently applied against the
credit in favor of the buyer. However, the buyer/beneficiary of the first
credit substitutes this draft and invoice for those presented by the supplier. See
also “letter of credit”.
Banker’s Acceptance - Form
of credit created when a bank “accepts” a time draft
typically drawn on the bank by a seller of goods. By accepting a draft,
the bank is obligated to pay the face amount at a specified
time in the future, usually six months or less after acceptance. A seller of
merchandise can sell the banker's acceptance for an amount less than face value and have
immediate use of funds. See also “acceptance”.
Bank Draft - A
check drawn by a bank on another bank payable to the seller at the
request of the buyer. The check may be denominated in U.S. Dollars or most foreign
currencies.
Beneficiary - The
party who receives payment as stipulated in a letter of credit. This
party is usually the seller/exporter.
Bill of Exchange - Formal
written order addressed by one person (drawer) to another
(drawee), signed by the drawer, and directing the drawee to pay on demand or
at a fixed or determinable future time, a certain sum in money to the order of
a specified person (payee).
Bill of Lading (Air, Ocean, Railroad, Truck) - A
document of title issued by the carrier (transport company) or its agent. Bill of
lading is a receipt for the merchandise in transit, as well as a contract for
delivery to a specified party at a specified destination.
“BLANK ENDORSED” - A negotiable bill of lading in
which the title to the merchandise is passed on to another party by means of an
endorsement. The holder of the “blank endorsed” bill of lading is
entitled to take possession of the merchandise.
“CLEAN BILL OF LADING” - One in which the goods
are described as having been received by the carrier in “apparent good order and
condition” and without qualification. “LATE PRESENTATION” (STALE): A bill of
lading is presented to a bank for payment or negotiation after the stipulated
date in the letter of credit, or later than 21 days after the date of its issuance.
“NEGOTIABLE OR ‘TO ORDER’” - A bill of lading in
which the merchandise is consigned directly “to order” or “to the order of” a
designated party, usually the shipper or a bank. The phrase “to order” or “to the
order of (a designated party)” signifies negotiability permitting the title of the
merchandise to be transferred many times by means of appropriate endorsements.
“NOTIFY” - This phrase requires the carrier to
notify a designed party upon arrival of the merchandise, but does not transfer title
of the merchandise to that party.
“STRAIGHT OR NON-NEGOTIABLE” - A bill of lading in
which the merchandise is consigned directly to a designated party,
generally the buyer, but not to his “order”. Delivery of the merchandise is made
only to the designated party, usually without surrendering the bill of lading.
“THROUGH” - A bill of lading issued by a shipping
company or their agent covering more than one mode of transportation.
Cash Against Documents (CAD) - Payment
for goods in which an intermediary (usually a bank) releases title documents
to the buyer upon payment
in cash.
Cash in Advance (CIA) - A
term of trade in which the exporter does not ship goods
until payment is received; offers the least risk to sellers and the most risk to
buyers.
Clean Draft - A
sight or time draft (bill of exchange) which is not accompanied by
additional documents. Also referred to as "Clean Collection".
Collecting Bank - Bank
that acts as an agent for a remitting bank that wishes to have its collections
handled. The collecting bank demands payment from the buyer and
handles the funds received as instructed; generally the funds are sent back to
the remitting bank.
Commercial Invoice - A
written and signed list of merchandise and/or services with
associated quantities, prices and expenses. It contains the terms of the sale and is
prepared by the seller to show the total amount owed by the buyer.
Confirmed Credit - A
letter of credit in which the issuing bank’s obligation to pay is
backed (confirmed) by a second bank.
Deferred Letter of Credit (L/C) - Letter
of credit that calls for payment at a future date, but does not require a draft. See also
“letter of credit” and “usance letter of credit”.
Direct Collection - Method
of payment for goods in which the seller sends a draft
drawn on the buyer, the shipping documents, invoices, insurance certificates,
other appropriate documents directly to the buyer’s bank for collection.
Only an information copy of the advice is sent to the exporter’s bank to
establish and monitor the collection transaction for the seller.
Discrepancy - Any
deviation from the terms and conditions of a letter of credit or from
the documents presented under the letter of credit.
Documentary Credit - A
letter of credit issued to support the movement of merchandise
supported by shipping documents presented by the beneficiary to the
Issuing Bank for payment or acceptance.
Documents Against Acceptance (D/A) -
Instructions given by a shipper to his or her acceptance bank that the documents attached to a
time draft for collection are deliverable to the drawee/payer against his or her
acceptance of the draft.
Documents Against Payment (D/P) -
Instructions given by a shipper to his or her bank
that the documents are deliverable to the drawee/payer only against his or her
payment of the draft.
Draft - A
draft is a formal demand for payment. It is an unconditional order in writing,
addressed by one party (drawer) to another party (drawee), requiring the
drawee to pay, at a designated or determinable future date, a specified sum in lawful
currency (either in dollars or other currency) to the order of a named party
(the Payee). In international trade, drafts are also known as “Bills of Exchange.”
Eurodollars - A
term used for U.S. dollars held on deposit or traded anywhere else in
the world except in the USA.
Eximbank (Export-Import Bank of the United
States) - A U.S. government agency
that offers insurance/guarantees of commercial or political risks associated
with U.S. export transactions. These programs encourage U.S. exports
by reducing the exporter’s risk.
Expiry or Expiration Date - The
date on which the draft and documents drawn under a
letter of credit must be presented to the negotiating, accepting, paying, or
issuing bank in order to effect payment. The issuing bank’s obligation ceases on that
date if the letter of credit is a “straight credit.” If the letter of credit is
a “negotiable credit,” the issuing bank must honor the
credit, provided the complying documents were submitted prior to the expiry
(or expiration) date.
Foreign Exchange - The
process of trading the currency of one country for that of
another.
Foreign Exchange Exposure - A
situation in which a U.S. company, selling/purchasing in a currency other than U.S.
Dollars, runs the risk of receiving a reduced dollar amount or paying an increased
dollar amount due to a
fluctuating exchange rate.
Forward Transactions - Foreign
exchange transactions settling between three business
days and one year (and sometimes longer).
Freight Forwarder - An
independent business that arranges for the shipment of export
cargo and completes the necessary export documentation on behalf of the exporter.
Irrevocable Letter of Credit (L/C) - Letter
of credit that cannot be changed or cancelled without the consent of all parties involved.
Almost all L/Cs are irrevocable unless otherwise stated on L/C. See also
“letter of credit”.
Issuing Bank - Bank
that draws up and issues the letter of credit and that makes
payment according to the conditions
Letter of Credit - An
instrument issued by a bank, at the request of the applicant,
promising to pay the beneficiary upon his presentation of stipulated documents
in accordance with the terms and conditions of the credit.
“CONFIRMED”: A letter of credit issued by one bank
to which another bank added its irrevocable confirmation to pay, thereby
obligating itself in the same manner as the opening bank.
“STAND-BY”: A letter of credit that generally
guarantees payment due for an unfulfilled obligation on the part of the applicant or
another party. It is payable upon presentation of a draft, as well as a signed
statement or certification by the beneficiary that the applicant has failed in his
obligation.
Maturity Date - The
date on which negotiable instruments become due for payment.
Negotiate - Take
action to verify that the documents presented under an L/C conform
to the requirements in order to release funds to the seller.
Negotiating Bank - The
bank that reviews the documents required in the letter of credit for compliance
with its terms and remits payment to the beneficiary. The bank
may be specifically named in the letter of credit, or may be a bank chosen by
the seller.
Opening Bank - See
"Issuing Bank".
Paying Bank - Bank
that effects payment of documents negotiated under a letter of
credit, customarily the buyer's bank. It is usually also the negotiating bank, unless
the L/C allows another bank to negotiate or the paying bank is unable to negotiate.
See also "negotiating bank".
Presentation -
Presentation for acceptance or payment on a collection or letter of
credit.
Proforma Invoice - An
invoice sent in advance of shipment, to enable the buyer to obtain
an import permit or exchange permit or both. The proforma invoice gives a
close approximation of the weights and values of the intended shipment.
Protest -
Legal process of demanding payment of a negotiable item from the maker who
has refused to pay.
Red Clause - Clause
in a letter of credit that authorizes the advising/negotiating bank to make an
advance payment to the beneficiary before presentation of shipping
documents, usually against a simple receipt.
Reimbursing Bank - The
bank names in a letter of credit as the bank authorized by the
issuing bank to honor claims presented by the paying, accepting, or negotiating
bank.
Revocable Letter of Credit (L/C) - A
letter of credit that can be modified or canceled
by the issuing bank without the beneficiary’s consent unless the negotiation
of complying documents has already taken place. The issuing bank must
honor the draft(s) negotiated before the notice of revocation has been made.
Spot Transaction - Foreign
exchange transaction in which foreign currency is bought at
the current rate of exchange and delivered within two business days after the
transaction date.
Spread - The
difference between the buying (bid) rate and the selling (offer) rate of any foreign
currency for any particular period.
Standby Letter of Credit (L/C) - Letter
of credit issued to back an obligation of the applicant, but typically not intended to be the
primary method of payment. Usually payable against drafts and statements, but not
against commercial documents. See also “letter of credit”.
Trade Acceptance - Draft
drawn by the seller of goods on the buyer and accepted
by the buyer for payment at a specified future date. See also “acceptance”.
Transferable Letter of Credit (L/C) - Letter
of credit that permits the beneficiary to transfer all or some of the rights and
obligations under the credit to a second beneficiary. See also “letter of credit”.
UCP - Uniform
Customs and Practices for Documentary Credits. Publication issued by
the International Chamber of Commerce (2007 revision, ICC Publication
No. 600, or “UCP 600”) that outlines the rules and guidelines involved
in a letter of credit transaction.
Usance (Time) Credit - Letter
of credit that calls for payment against drafts calling
for payment at some specified date in the future. Gives buyers time to sell the goods
to get the funds to reimburse the issuer.
Usance Letter of Credit (L/C) - Letter
of credit that calls for payment at a future date -- generally within six months -- and
requires a draft drawn on the issuing/paying bank for the amount of the invoice. See
also “letter of credit”.
Value (Settlement) Date -
Contracted date on which the foreign exchange is to be
delivered or received.
International Trade Glossary
Abusive
Draw - Drawing on a standby letter of credit when no violation
of the underlying contract has occurred.
Acceptance - Acceptance
constitutes an unconditional obligation on the part of the
accepting party to pay the draft at maturity. A draft accepted by a bank is called a
"banker’s acceptance" where as
one accepted by a Company is called a "trade acceptance."
Account Party - Party
for whom a letter of credit is opened. "Account party" and "applicant"
are the same, but sometimes one party will agree with the issuing bank to make
all payments under a letter of credit showing the name of another party (as in
the case of affiliated companies). Banks may refer to one of these parties as the
applicant and the other as the account party.
Advance Payment - Payment
made by the buyer to the seller prior to shipment. It is
customary to only pay an agreed percentage of the value of the goods with the
remainder paid after shipment.
Advance Payment Bond - Bond,
guarantee, or standby letter of credit given by a seller
receiving an advance payment (or contract) to the buyer to assure that the funds
will be returned if goods are never shipped or the services are not performed.
Advising Bank - Bank
that receives a letter of credit from the issuing bank for authentication
and delivery to the beneficiary. The advising bank is usually a correspondent
of the issuing bank located in the same country as the beneficiary.
Airway Bill - Document
signed by an airline to show receipt of goods for air transportation
from and to the airports indicated.
Ancillary Guarantee - Type
of guarantee where the guarantor joins with one of the
parties to the contract and agrees to fulfill that party’s obligations if
necessary, effectively co-signing the contract. (Sometimes
referred to as a "Bank Guarantee" in
foreign countries.) As opposed to an independent or demand guarantee,
under an ancillary guarantee the guarantor also acquires
rights under the contract and may resort to terms in the contract to dispute claims
against the guarantee. Also called a "contract guarantee." It should be
noted that banks in the USA are generally prohibited by law from issuing ancillary
guarantees, banks in other countries are not. US banks instead issue demand guarantees
or standby letters of credit.
Applicant - Party
requesting that a letter of credit be opened.
Approval, Documents Sent on - Treatment
of letter of credit documents wherein the negotiating bank does not certify that the
documents meet the requirements of the L/C, but rather forwards the
documents to the issuing bank with a request that it examine the documents, obtain
waiver of any discrepancies, and pay, or, in the case of time drafts, accept the
drafts, if drawn on them, or authorize acceptance by the paying/drawee bank.
Assignment of Proceeds - Legal
mechanism by which the beneficiary of a letter of credit
may pledge the proceeds of future drawings to a third party. Assigning proceeds
involves giving the letter of credit to a bank, which will hold the L/C until
drawn upon, along with irrevocable instructions to the bank to disburse proceeds,
when generated, in a specified way, (such as, "pay 50% of each drawing
to Acme Corporation.") The bank will acknowledge the assignment to the assignee
but has no obligation actually to pay any funds to the assignee unless the L/C is
drawn upon by the beneficiary and payment is received from the issuing or confirming
bank. An assignment of proceeds is not an assignment or transfer of the
letter of credit and the assignee acquires no rights to perform under the L/C
in order to generate funds.
Authority to pay - See
"cable for authority to pay."
Aval - Guarantee
added by a bank to an accepted time draft by endorsing the front of
the draft "per aval." The avalizing bank becomes obligated to pay the
draft at maturity if the drawee/acceptor fails to do so.
Avalized Draft - Trade
acceptance to which an aval has been added.
B/A - Abbreviation
for "banker’s acceptance."
B/L - Abbreviation
for "bill of lading."
Banker’s acceptance - Time
draft that has been drawn on and accepted by a bank. In
a large and active market, investors buy and sell bankers’ acceptances at rates
similar to, and often below, LIBOR. Rates are low due to the low risk of default
on the part of a bank and the fact that there is generally an underlying trade
transaction, the proceeds of which are pledged to cover the acceptance when it
matures.
Beneficiary - Party
in whose favor a letter of credit is issued, who is entitled to present
documents required by the L/C and receive payment.
Bid Bond - Bond,
guarantee, or standby letter of credit that accompanies a bid, issued for an
amount that will be forfeited if the bidder wins the bid but then reneges.
Bill of Exchange - A
draft.
Bill of Lading - Document
signed by a transportation company (carrier) to show receipt
of goods for transportation from and to the points indicated. Although US law
recognizes such a thing as a non-negotiable bill of lading, international law distinguishes
bills of lading from waybills in that a bill of lading is a title document issued to
order of a "consignee," who can then transfer title (legal ownership
of the goods) by endorsement and delivery
("negotiation") of the bill of lading.
Someone must present the bill of lading at the
point of delivery in order to claim the goods. A waybill is not negotiable in this way and
the transportation company will simply deliver the goods to the consignee. A
transport document issued "consigned to order of..." is a negotiable
bill of lading; one issued simply "consigned to..." is a nonnegotiable waybill.
See also "multimodal bill of lading,"
"ocean
bill of lading," "port-to-port bill of lading."
Bond - See
specific types: "advance payment bond," "bid bond,"
"performance bond."
C&F - Abbreviation
for "cost and freight (...named port of destination)." Also CFR.
CAD - Abbreviation
for "cash against documents."
CFR - Abbreviation
for "cost and freight (Named port of destination)." Also C&F.
CIF - Abbreviation
for "cost, insurance, and freight (Named port of destination)."
CIP -
Abbreviation for "carriage and insurance paid to (Named place of destination)."
CPT - Abbreviation
for "carriage paid to (Named place of destination)."
Cable for Authority to Pay - Request
for permission to pay a letter of credit drawing
despite discrepancies, sent electronically by the negotiating bank to the issuing
bank.
Carriage and Insurance Paid to (Named place of
destination) - Shipping term included in a contract of sale (abbreviated as CIP)
meaning that the seller agrees to arrange and pay for transportation and cargo
insurance over the goods to the named destination, such costs being included in the
price of the goods. Nonetheless, all risk of loss of or damage to the goods,
as well as any additional costs due to events occurring after the time the goods
have been delivered to the carrier, is transferred from the seller to the buyer
when the goods have been
delivered into the custody of the carrier.
Carriage Paid to (Named place of destination) - Shipping
term included in a contract of sale (abbreviated as CPT) meaning that the
seller agrees to arrange and pay for transportation of the goods to the named
destination, such costs being included in the price of the goods. Nonetheless, all
risk of loss of or damage to the goods, as well as any additional costs due to events
occurring after the time the goods have been delivered to the carrier, is
transferred from the seller to the buyer when the goods have been delivered into the
custody of the carrier, at
which point the buyer must arrange for cargo
insurance if so desired.
Carrier - Any
person who, in a contract of transportation, undertakes to perform,
or to procure at his own responsibility the performance of, transportation
by rail, road, sea, air, inland waterway or by a combination of such modes.
See "multimodal bill of lading" for further discussion.
Case-of-Need -
An agent of the exporter located in the country of the importer who is to
be notified by the presenting bank under a draft collection of any difficulties
in collecting payment. The case-of-need may be given the power to change
the collection instructions or even the draft amount, or may just be expected
to make arrangements to store the goods and locate an alternate buyer.
Whatever authority the case-of-need has should be
specified in the collection instructions letter.
Cash Against Documents - Term
(abbreviated as CAD) for documentary collection instructions requesting the presenting bank
to deliver documents only upon receipt of payment from the drawee/importer. (The
same as, "documents against payment.")
Certificate of Origin -
Document that is required in certain countries. It is a signed
statement as to the origin of the export item. Certificates of origin are usually
signed through an official organization, such as a local chamber of commerce,
or can simply be a statement signed by the manufacturer or exporter as to the
source of the goods.
Clean Bill of Lading - Bill
of lading that bears no clause or notation which expressly
declares a defective condition of the goods and/or the packaging.
Clean Draft - Draft
which is not accompanied by documents.
Clean letter of credit - Letter
of credit that calls for presentation of nothing more than
a draft to trigger payment. This term is sometimes used incorrectly to mean
"standby letter of credit with all documents presented correctly".
Collecting Bank - Any
bank other than the remitting bank involved in the collection
of a draft and/or documents.
Combined transport - See
"multimodal bill of lading."
Commercial Invoice - A bill
for the goods from the seller to the buyer. These invoices
may be used by governments to determine the true value of goods when assessing
customs duties.
Commercial Letter of Credit - Letter
of credit intended to act as the vehicle of payment
for goods sold by one party to another.
Commercial Risk - Risk
that the buyer of goods cannot or will not pay the seller when
payment is due.
Confirmed Letter of Credit - Letter
of credit to which the advising bank has added its
own, independent undertaking to honor presentation of the required documents,
i.e., pay the beneficiary at sight or at maturity, as specified by the L/C. See
also "silent confirmation."
Confirming Bank - Bank
that has added its confirmation to a letter of credit. This term
is also sometimes used loosely to refer to a bank that has issued a commitment
to purchase letter of credit documents without recourse, a practice called
"silent confirmation."
Consignee - Party
into whose possession goods are to be delivered.
Consignment - Term
of sale wherein a seller delivers goods to the buyer but retains
legal ownership of the goods until they are re-sold by the buyer. The buyer is
responsible for remitting payment to the seller at time of re-sale.
Consular Invoice - A
document that is required in some countries. It describes the
shipment of goods and shows information such as the buyer and seller, and value of
the shipment. Certified by the consular official of the foreign country stationed
in the USA, it is used by the country's customs officials to verify the value,
quantity, and nature of the shipment.
Contract Guarantee - See
"ancillary guarantee."
Contract Risk - Risk
that the buyer of goods will renege on the contract (as opposed
to simply being unable to pay).
Cost and Freight (Named port of destination) - Shipping
term included in a contract of sale (abbreviated as CFR or C&F) meaning
that the seller agrees to take full responsibility for delivering the goods to the
port of loading, clear the goods for export, and arrange and pay for transportation
of the goods to the named port of discharge, such costs being included in
the price of the goods.
Nonetheless, all risk of loss of or damage to the
goods, as well as any additional costs due to events occurring after the time the goods
have been delivered on board the vessel, is transferred from the seller to the
buyer when the goods pass the ship’s rail at the port of loading. It is up to the
buyer to arrange marine insurance for the ocean voyage and transportation from
the port of discharge.
Cost, Insurance and Freight (Named port of
destination) - Shipping term included in a contract of sale (abbreviated as CIF)
meaning that the seller agrees to take full responsibility for delivering the goods to
the port of loading, clear the goods for export, and arrange and pay for transportation
and marine insurance over the goods to the named port of discharge, such costs
being included in the price of the goods. Nonetheless, all risk of loss or
damage to the goods, as well as any additional costs due to events occurring after the
time the goods have been
delivered on board the vessel, is transferred from
the seller to the buyer when the goods pass the ship’s rail at the port of loading. It is
up to the buyer to arrange transportation from the port of discharge.
Country Risk - Risk
incurred by a seller of goods that a buyer in a different country
will not be able to pay for the goods due to political or economic conditions
in his country. The two components of country risk are "political
risk" and "transfer risk."
Credit Insurance - Insurance
against losses due to inability or failure of customers
to pay. There is usually a high deductible amount involved before the insurance
will pay.
Credit Risk - Risk
incurred by a seller of goods that the buyer cannot or will not pay for
them. See also "commercial risk," "contract risk,"
"financing risk," "political risk," "transfer risk."
Cumulative Revolving Letter of Credit - Revolving
letter of credit that permits the seller to carry over any amounts not drawn into
successive periods.
D/A - Abbreviation
for "documents against acceptance."
D/P - Abbreviation
for "documents against payment."
Days of Grace -The number of days the
acceptor of a draft may go past due before being judged in default and triggering any
guarantor to pay on the acceptor’s behalf. When an avalized draft is sold to a
forfaiter, the forfaiter will impute the days of
grace into the financing period.
Deferred Payment - Payment
a set time after shipment or presentation of shipping
documents, as opposed to immediately or "at sight." A distinction is drawn
between a letter of credit that is available for deferred payment and one that is
available for acceptance of time drafts in that no drafts are involved under a deferred
payment L/C. Without accepted drafts, the beneficiary’s ability to sell, or "discount,"
his right to payment to another lender or investor is restricted.
Deferred Reimbursement - Arrangement
under a letter of credit where the issuing bank agrees up front with its customer, the
applicant, to pay the beneficiary upon presentation of the documents required
in the L/C but to defer charging the applicant until a later date, thereby
financing the purchase of goods under the L/C, usually for the expected amount of time
the applicant needs in order to re-sell the goods.
Demand Guarantee - Type
of guarantee that is payable immediately upon presentation
of documents specified, without regard to the validity of the documents
or compliance with the underlying contract, as opposed to an
"ancillary guarantee." Also called an
"independent guarantee." Although there are separate rules
of practice for demand guarantees and letters of credit, they are both
considered letters of credit under US law.
Destination Control Statement - This
item appears on the commercial invoice, and ocean
or air waybill of lading to notify the carrier and all parties that the
item can be exported only to certain destinations.
Direct Collection - Service
for handling export draft collections in which the exporter’s
bank provides the forms that bear the bank’s own letterhead for mailing
documents to the buyer’s bank for collection. To the buyer’s bank, it will appear
that the documents were sent from the exporter’s bank, but time and expense
can be saved by bypassing unnecessary processing at the exporter’s bank.
Discrepancies - Term used to describe
deviations between documents presented and requirements set in the letter of credit or
inconsistencies among the documents themselves.
Dishonor - Failure
or refusal by the drawee/payer to accept a draft presented for acceptance
or to pay a draft presented for payment.
Documentary Credit - Synonymous
with "letter of credit."
Documentary Draft Collection - Process
for collecting payment in a sale of goods wherein a legal demand for payment from the buyer
is made by a bank acting as collecting agent for the seller. Demand is
made by presenting a draft.
The collecting bank is also entrusted with
documents to deliver in accordance with accompanying instructions, usually once the draft
is either paid or accepted.
These
documents are generally needed by the buyer to show title to the goods before they will be released by a freight
forwarder and customs.
Documentary Letter of Credit - Another
way to refer to commercial letters of credit.
Documents Against Acceptance - Term
for documentary draft collection instructions requesting the presenting bank to deliver
documents only upon acceptance of the draft by the drawee/importer. See also
"acceptance."
Documents Against Payment
Term for documentary collection instructions
requesting the presenting bank to deliver documents only upon receipt of payment from the
drawee/importer. Synonymous with "cash against documents."
Draft - Written
demand for payment of a specified amount addressed to a named party,
called the "drawee," and signed by the "drawer." A draft
may demand payment immediately upon presentation ("at
sight") or on a specified maturity date and must
also specify a party to be paid (the "payee"). Most drafts are "negotiable,"
meaning the payee’s right to payment can be transferred by the payee to
another party by endorsement and delivery of the draft.
Draft Collection - Process
for collecting payment in a sale of goods wherein a legal
demand for payment from the buyer is made by a bank acting as collecting agent for
the seller. Demand is made by presenting a draft. See also "draft"
and "documentary draft collection."
Drawee - Party
to whom a draft is addressed and from whom payment is demanded,
or, in a documentary collection with no draft, party from whom payment
is requested in exchange for delivery of documents.
EMC - Abbreviation
for "export management consultant."
ETC - Abbreviation
for "export trading company."
EXW - Abbreviation
for "ex works (Named place)."
Evergreen Letter of Credit - Letter
of credit with an initial expiration date but containing
a clause that states that it will be automatically extended for additional periods
unless the issuing bank provides notice to the beneficiary stating otherwise.
Ex Factory - Synonymous
with "ex works."
Ex Works (Named place) - Shipping term
included in a contract of sale (abbreviated as EXW) meaning that the
seller fulfills his obligation to deliver when he has made the goods available
at his premises (i.e., works, factory, warehouse, etc.) to
the buyer. In particular, he is not responsible for loading the goods for export,
unless otherwise agreed. The buyer bears all costs and risks involved in taking the
goods from the seller’s premises to the desired destination.
Expiry Date - Last
date on which documents may be presented or corrected in order to
comply with a letter of credit. Presentation must be made to the bank indicated
in the L/C.
Export Letter of Credit - Term
used by an exporter to describe a commercial letter of
credit in his favor or by a bank to describe a letter of credit issued by a bank
other than itself. The same L/C will be called an "import letter of
credit" by the importer/buyer and the issuing bank.
FCA - Abbreviation
for "free carrier (Named place)."
FCR - Abbreviation
for "forwarder’s cargo receipt."
FOB - Abbreviation
for "free on board (Named port of shipment)."
Factoring - Service
of assuming the credit risk of another party’s sales, generally including
collecting payment when due. Factors often provide or arrange limited-recourse
financing against the accounts receivable they are guaranteeing, referred to as
"purchasing receivables."
Fed Funds Rate - Interest
rate at which banks in the United States lend each other
dollars for next-day repayment ("overnight loans").
Financing Risk - Term
used to describe the increasing uncertainty that the buyer of goods
will have the capacity to pay when payment is due the longer the time period he
is given to make payment.
Forfait - Purchase
of negotiable instruments, most often avalized drafts, without recourse.
The forfaiter assumes the credit risk of being able to collect payment when due.
Forwarder’s Cargo Receipt - Document
issued by a freight forwarder or freight consolidator
indicating goods have been received from the seller and are being held on
behalf of the buyer. Goods are generally received in the seller’s country and the
forwarder/consolidator will arrange shipment to the buyer according to the
buyer’s instructions.
Free Carrier (Named place) - Shipping
term included in a contract of sale (abbreviated as FCA) meaning that the seller fulfills
his obligation to deliver when he has handed over the goods, cleared for export, into
the charge of the carrier, freight consolidator, or freight forwarder named by the
buyer at the named place or point.
Free on Board (Named port of shipment) - Shipping
term included in a contract of sale (abbreviated as FOB) meaning that the
seller fulfills his obligation to deliver when the goods have passed over the ship’s
rail at the named port of shipment, all costs of inland transportation and loading
being included in the price of the goods. The buyer has to bear all costs and risks
of loss of or damage to the goods from that point.
Freely Negotiable Letter of Credit - Letter
of credit that indicates it is "available with any
bank by negotiation." By including this wording, the issuing bank authorizes
the beneficiary to present documents to the bank of his choice for examination
and collection of payment.
Freight Forwarder - Company
that, as an agent for the shipper, arranges transportation
for goods. Many freight forwarders offer additional services such as
preparing export documentation, arranging for goods to be packed into shipping
containers, arranging for goods to clear customs, etc.
Full Set - All
signed originals of a document. For example, bills of lading are often
issued in three originals, all having the same validity for claiming goods at the place
of delivery.
Grace Period - See
"days of grace."
Import Letter of Credit - Term
used by an importer to describe a commercial letter of
credit he has asked a bank to issue or by a bank to describe a letter of credit it
has issued. The same L/C will be called an "export letter of credit"
by the exporter.
Independent Guarantee - See
"demand guarantee."
Inspection Certificate - A
document that is required by some purchasers and countries
in order to attest to the specifications of the goods shipped. This is usually
performed by an independent third party that will inspect the goods for conformity.
Installment Letter of Credit - Letter
of credit calling for multiple shipments within
specified date ranges.
Insurance - see
"credit insurance" and "marine cargo insurance."
Irrevocable Letter of Credit - Letter
of credit that cannot be amended or canceled without agreement of both the beneficiary and
the issuing bank. Any letter of credit subject to the UCP500 or to US law is
irrevocable unless it specifies otherwise.
Issuing Bank - Bank
that has issued a letter of credit. The issuing bank is obligated
to pay if documents are presented that comply with the L/C requirements.
Letter of Credit -
A letter on the part of a bank and at the request of one of the bank’s
customers, to pay a named beneficiary a specified amount of money (or to deliver
an item of value) if the beneficiary presents documents in accordance with the terms
and conditions specified in the letter of credit.
Letter of Guarantee - Undertaking,
usually on the part of a bank, either to fulfill the obligations
of another party (see "ancillary guarantee") or to pay a specified amount of
money upon presentation of specified documents stating that the party being
guaranteed has defaulted on certain obligations (see "demand
guarantee").
One must be careful to discern which type of
guarantee one is dealing with as they both require presentation of documents but work
very differently thereafter.
US
law forbids banks from making guarantees, so they use letters of credit to accomplish the same goal.
LIBOR - Acronym
for the London Interbank Offered Rate. The interest rate at which
banks in London place Eurocurrency/Eurodollar deposits with each other for
specified, fixed periods of time, most commonly six months.
Marine Cargo Insurance - Insurance
covering loss of or damage to goods in the course of
international transportation. The term is used for both air and land transportation
as well as ocean transportation.
Marine Bill of Lading - Synonymous
with "ocean bill of lading."
Multimodal Bill of Lading - Bill
of lading covering shipment of goods by more than one
means of transportation but including an ocean leg. The two major forms of
multimodal bill of lading are the combined transport bill of lading and the through
bill of lading. In a "combined transport bill of lading", the carrier
signing the bill of lading (the "contractual carrier")
frequently subcontracts the various legs to other carriers (the "actual
carriers"), but still takes responsibility for delivery
of the goods to the "place of delivery" and for any damage that might occur
during carriage. In a "through bill of lading", the carrier takes
responsibility for the goods only up to a specified point (still called
the "place of delivery") and then passes responsibility to a second carrier for
"on-carriage" to the "final
destination."
Multimodal Transport - Shipment
of goods by more than one means of transportation but including an ocean leg (see
"multimodal bill of lading").
Negotiable - Quality
belonging to a document that enables it to transfer the ownership
of money, goods, or other items of value specified in the document by endorsement
and/or delivery of the document. Checks, drafts, promissory notes, bonds,
stock certificates, bills of lading, and warehouse receipts are examples of documents
often issued in negotiable form.
Negotiate - To
"buy" documents representing ownership of money, goods, or other
items of value. The seller is also said to "negotiate to" the buyer.
Unless otherwise agreed between the buyer and seller (such as,
by negotiating "without recourse"), the seller continues to be fully
responsible for the enforceability of the documents.
For example, a bank that negotiates documents under a letter of credit advances
funds to the presenter before submitting the documents to the issuing bank for
payment.
Negotiating Bank - Bank
to which letter of credit documents are presented by the
beneficiary for collection of payment. The name derives from the fact that the negotiating
bank is normally authorized by the issuing bank to negotiate documents
(see "negotiate"), but it may or may not choose actually to do so.
Furthermore, realizing that this bank may be
authorized to pay or accept drafts, rather than negotiate them, UCP500 now uses the term
"nominated bank" rather than "negotiating bank." Unless otherwise
instructed, negotiating banks in North America generally examine the documents for
discrepancies before forwarding
them to the issuing bank, but this is properly
viewed as a service separate from negotiating and is not necessary when negotiating with
recourse.
Non-Cumulative Revolving Letter of Credit - Revolving
letter of credit that does not permit the seller to carry over any amounts not
drawn upon in previous periods.
Notify Party - Party
to be notified by the carrier of arrival of the goods at their destination.
Normally the notify party is the importer and/or the importer’s agent for
clearing goods through customs.
Ocean Bill of Lading - Bill
of lading including shipment on an ocean vessel, also called a
"marine bill of lading".
Performance Bond - Bond
issued at the request of one party to a contract in favor of
the other party to the contract to protect the other party against loss in the event
of default on the contract by the requesting party. The bonding agent may
undertake to fulfill the contract or may simply undertake to pay a specific amount in
monetary damages. A standby letter of credit or demand guarantee is often
used as a performance bond with the latter characteristics.
Political Risk - Risk
in a sale of goods that the government in the buyer’s country
may take some action that prevents the buyer from paying. This covers possibilities
such as foreign exchange controls and nonpayment due to war or insurrection.
Port-to-Port Bill of Lading - Bill
of lading covering shipment by ocean only. The shipper/seller
is responsible for transporting the goods to the port of loading and the buyer
is responsible for picking the goods up at the port of discharge.
Multimodal,
rather than port-to-port, bills of lading should generally be used for containerized shipments and other shipments
where the place of receipt and/or the place of delivery is inland.
Pre-Export Financing - Specific
form of working capital lending in which the borrower
is given funds needed to obtain or manufacture goods that have been ordered
by a buyer in another country. As such financing is normally earmarked to
individual sales, documentation of each sale must be provided to the lender, often in
the form of a letter of credit with proceeds assigned to the lender.
Presenting Bank - In
a draft collection transaction, the bank that contacts the drawee/buyer
of goods, for acceptance and/or payment.
Principal - Party
entrusting a draft and/or documents to a bank for collection of payment; usually the seller of goods.
Progress Payment - One
in a series of payments made at stages in the performance
of a contract. Examples would be payments made during the various
stages of construction.
Protest - In
a draft collection transaction, the formal legal process of registering that
payment or acceptance of the draft has been demanded but the drawee has refused
to pay or accept the draft.
Reimbursing Bank - In
a letter of credit transaction, the bank with which the issuing
bank maintains an account and which is authorized by the issuing bank to charge
that account to pay claims received from the negotiating bank for documents
that have been presented.
Remitting Bank - In
a draft collection transaction, the first bank in the chain of collection;
the principal’s or seller’s bank.
Retention of Title - Legal
arrangement under which a seller of goods delivers these
goods "on consignment" into someone’s custody but ownership remains with the
seller until he is paid. Retention of title allows the seller to repossess the goods
whenever desired and to establish a claim against the custodian if the goods are sold
or used without being paid for.
Revocable Letter of Credit - Letter
of credit that can be amended or canceled at any time
without notice to or consent of the beneficiary. A letter of credit that is subject
to the UCP500 or to US law is revocable only if it clearly states this on the L/C.
Revolving Letter of Credit - Letter
of credit that reverts to its original amount at specified
intervals, thereby preventing drawing too much in any one period. See also
"cumulative revolving letter of credit" and "non-cumulative
revolving letter of credit."
Shipper's Export Declaration -
The SED is used to control exports and act as a source
document for official US export statistics. SEDs must be prepared for shipments
through the U.S. Postal Service when the shipment is valued over $500.
SEDs are required for shipments not using other carriers, when the value of the
commodities, classified under any single Schedule B number, is over $2,500.
SEDs must be prepared, regardless of value, for all shipments requiring an export
license or destined for countries restricted by the Export Administration Regulations.
SEDs are prepared by the exporter or the exporter's agent and delivered
to the exporting carrier (the post office, airline, or maritime company ).
The exporting carrier will present the required
number of SED copies to the US Customs Service at the port of export.
Shipper’s Indemnity - Indemnity
given by the beneficiary of a letter of credit to the
negotiating bank to induce payment despite any discrepancies that may exist in the
documents.
Shipping Terms - That
part of a contract between a buyer and seller that specifies
who is responsible for each aspect of shipping the good; this may include
responsibility for packing, arranging and paying for transportation and insurance,
clearing customs, and so forth.
Sight - Time
of presentation, as in a draft payable "at sight" or "90 days
after sight."
Sight Draft - Draft
that demands payment "at sight," or immediately, as opposed to a time
draft, which may be payable "90 days after sight" or "30 days
after bill of lading date."
Silent Confirmation - Term
used for a bank’s commitment to negotiate documents under a letter of credit
without recourse at a future date. A silent confirmation
is not a confirmation in the true sense, and will not use the word "confirm,"
but is rather an equivalent form of protection for the beneficiary. The bank will
require that the letter f credit be negotiable or payable by itself in order to be
able to establish holder-in-due-course rights equivalent to those of a confirming
bank.
Standby Letter of Credit - As
opposed to a commercial letter of credit, a letter of credit
that does not cover the direct purchase of merchandise, so called because
it is often intended to be drawn on only when the applicant for whom it is issued
fails to perform an obligation. There is, nonetheless, a type of standby letter of
credit that is intended to be drawn on, referred to as a "direct pay
letter of credit." Standby letters of credit are based on the
understanding that payment is made against presentation of documents - usually a
statement from the seller indicating that the buyer has not paid for
merchandise/invoices on the due date.
Supplier Financing - Arrangement
where the seller/supplier of goods allows the buyer an
extended period of time after shipment to pay for the goods. Basically, open credit terms.
Tenor - Time
at which a draft indicates it is payable, such as, "at sight,"
"60 days after the bill of lading date," or "on January
31, 2007."
Time Draft - Draft
that demands payment at a specified future date rather than immediately
upon presentation.
Trade Terms -
Same as "shipping terms."
Transferable Letter of Credit - Type
of letter of credit that names a middleman as beneficiary and allows him to
give another party, the actual supplier, certain rights to
present documents and receive payment under the letter of credit.
Transfer
must be effected by a bank authorized to do so by the issuing bank and involves notifying the transferee (called the
"second beneficiary") of what documents he must present. The documents must
be the same as those required in the letter of credit itself but the price of the goods
may be reduced and the middleman’s name may be required to be listed in the
transferee’s invoices as the buyer, thereby allowing the middleman to substitute
invoices at a higher price and receive the difference without disclosing the name of the
actual end-buyer. The
transferring bank is not obligated to pay
documents presented under the transfer - such obligation remains with the issuing bank.
UCC - Abbreviation
for "Uniform Commercial Code."
UCP - Abbreviation
for "Uniform Customs and Practice for Documentary Credits."
The 1993 revision is referred to as "UCP500" as it is publication
number 500 of the International Chamber of Commerce.
Unconfirmed Letter of Credit - Letter
of credit that has not been confirmed (see "confirmed letter of credit").
Uniform Commercial Code - United
States statute covering the rights and obligations of the various parties involved in the
purchase and sale of goods. The UCC includes coverage of drafts and other negotiable
instruments, documents of title, transfers of funds between banks, and security
interests in assets as well as draft collections (in Article 4) and letters of credit
(in Article 5).
Uniform Customs and Practice for Documentary
Credits - International standards of letter of credit practice established for
bankers by the International Chamber of Commerce. The UCP is constantly being revised
to keep up with changing practices. Although the UCP defines rights and
obligations of the various parties in a letter of credit transaction, it is not law
and any given letter of credit is subject to the UCP only to the extent indicated in the
letter of credit itself.
Uniform Rules for Collections - International
standards of draft collection practice established for bankers by the International
Chamber of Commerce. The Uniform Rules are not law but are more properly viewed
as a handbook for banks used to establish common understanding of terminology
and expectations.
Without Recourse - Negotiation
of a draft, or other negotiable instrument, or letter of
credit documents without the normal warranty on the part of the seller of the
instrument/documents that the payer named in the instrument (the
"drawee," "payer," or "maker") will pay.
Although the seller is still responsible for the genuineness
of the instrument and documents, the purchaser takes on the credit
risk of being able to collect payment from the
payer when due. Unless negotiation is without recourse, the purchaser of the
instrument/documents has the right to recover the face amount from the seller if the
payer/drawee fails or refuses to pay for any reason.
Letters of Credit
Letters of credit can be divided into two major types.
and...
Documentary Letters of Credit – Which are typically used by importers and exporters to transact business between companies in foreign countries.
Experience Counts We do our best to take the mystery out of
managing credit and accounts receivables.
For additional resource information, you may also wish to review our
glossaries, which are:
Letter of
Credit Glossary
and
What is a standby letter of credit?
A Standby Letter of Credit (called“SLC or “LC” ) are
written obligations of an issuing bank
to pay a sum of money to a beneficiary on behalf of their customer in
the event that the customer does not pay the beneficiary.
It is important to note that standby letters of credit apply only whenever the
issuing bank's commitment to pay is not contingent on the existence,
validity and enforceability of it’s customer’s obligation; this is called an
“abstract” guarantee; that is, the bank’s obligation is to pay regardless of
any disputes between its customer and the beneficiary. The issuance of letters of
credit is a private transaction and does not result in the issuance of any public
trading securities.
Why do we have standby letters of credit?
The standby letter of credit comes from the banking
legislation of the United States,
which forbids US credit institutions from assuming guarantee obligations of
third parties. (Most other countries outside of the USA continue
to allow bank guarantees.) To circumvent this US banking rule, the
US banks created the standby letter of credit, which is based on the
uniform customs and practice for documentary credits. In 1998 the
International Chamber of Commerce (ICC) added ISP98 (International
Standby Practices 98) as the rules to guide standby letters of credit. These rules are slowly
being adopted; however, many of the standby letters of credit continue to rely
on the ICC’s older guide, Uniform Customs and Practices for Documentary
Credits, 1993 revision, ICC Publication 500.
Who are the parties to the standby letter of credit?
(1) The Applicant. This is the customer of the bank
who applies to the bank for the
standby letter of credit. He must provide collateral to the bank or have
sufficient credit to induce the bank to issue the instrument.
He also must pay the bank a fee for issuing the instrument.
(2) The Issuing Bank. This is the
applicant’s bank that issues the standby letter of credit.
(3) The Beneficiary. This is the party in
whose favor the instrument is issued.
(4) Confirming Bank. This is a bank
(usually located near the beneficiary) that agrees (confirms) to pay the
beneficiary rather than have the issuing bank pay the beneficiary. The
beneficiary pays the Confirming Bank a fee for this convenience. The
Confirming Bank then collects from the Issuing Bank the amount paid to the
beneficiary.
(5) Advising Bank. This is the bank
that represents the beneficiary. It may
accept the letter of credit on behalf of the beneficiary and collect on it on
behalf of the beneficiary. In order for the transaction to be a bank-to-bank
transaction, the advising bank works for the beneficiary to keep
the instrument in the banking system. Sometimes the Advising Bank also
is the Confirming Bank, but not always.
What is the purpose of the standby letter of credit?
The standby basically fulfills the same purpose as a bank
guarantee: it is payable upon
first demand and without objections or defenses on the basis of the
underlying transaction between the applicant and the beneficiary. It is
up to the beneficiary to decide whether he may accept a standby.
What are the types of standby letters of credit?
(1) Performance Standby. This instrument supports
an obligation to perform other than
to pay money including the purpose of covering losses arising
from a default of the applicant in completion of the underlying
transaction.
(2) Advance Payment Standby. This instrument
supports an obligation to account for an advance payment made by the
beneficiary to the applicant.
(3) Bid Bond/Tender Standby. This standby
supports an obligation of the applicant to execute a contract if the applicant is
awarded a bid.
(4) Counter Standby. This instrument
supports the issuance of a separate standby or other undertaking by the beneficiary
of the counter standby.
(5) Direct Pay Standby. This instrument
serves to support payment when due of an underlying payment obligation typically
in connection with a financial standby without regard to default.
This standby is also used to directly pay an obligation where the only
conditions of payment are the passage of the term and presentment of payment.
(6) Insurance Standby. This instrument is an
insurance or reinsurance obligation of the applicant.
(7) Commercial Standby. This is the most
used standby and it supports the obligations of an applicant to pay for
goods or services in the event of non-payment by a business debtor.
Are standby letter of credits transferable?
Assignment of Standby letter of credit proceeds -The
beneficiary can assign the proceeds
of a standby letter of credit. But this assignment does not assign
the rights of the beneficiary as “drawer” on the standby letter of
credit, and only the beneficiary may exercise the “drawer” rights
and present the demand for payment under the terms of the standby
letter of credit unless the terms of the instrument provide otherwise.
This means that the assignee may receive the proceeds of the
standby, but in order to obtain those proceeds the beneficiary must
first make the demand for payment. This also means that the
beneficiary can sell by assignment, at discount, the benefits of the standby.
An assignment of proceeds requires notice to the issuing bank of this
action; otherwise, the issuing bank would pay the beneficiary rather
than the assignee.
Transfer of Standby letter of credits.
Standby letter of credits can be transferred to a third party ONLY with the written
consent of the issuing bank AND the beneficiary.
Are standby letter of credits the subject of trading?
There is no public market for the trading of standby
letters of credits. Standby letters of
credits can only be transferred or the proceeds assigned in
private transactions (as previously noted above).
Standby letters of credit do not have CUSIP or
ISIN numbering. Standby letters of
credits are not trading securities, trading debt instruments,
or trading investment funds, and therefore are not subject
to the rules and regulations of the Security and Exchange Commission.
International Letter Of Credit
Buying & Selling Goods Internationally
International sales transactions between sellers and
buyers require an
agreement as to the form of payment for the goods.
Various methods of payment settlement include but are not limited to open
account, foreign collection, cash in advance and documentary
credit. One of the most common forms of payment is documentary
credit, which is also known as a Letter of Credit.
What is a Letter of Credit?
A Letter of Credit is literally a "letter"
pertaining to a sales transaction
between a buyer and seller. The "letter" is initiated by the buyer and
is directed to the seller or beneficiary, in most cases. In some
cases, the beneficiary may not necessarily be the Seller but
would be the party possessing the right to receive payment for the
goods or services. (Please refer to the web-page dealing
with transferable letters of credit for additional information.)
A Letter of Credit is the traditional worldwide
risk management tool for international transactions. Issued by a foreign
bank (representing the buyer) and confirmed by a
corresponding bank usually in the country of the seller, a Letter of
Credit is the overseas bank's commitment to pay the seller's drafts. A
Letter of Credit is opened by an issuing or opening bank. The
buyer chooses the opening bank.
Revocable vs. Irrevocable Letters of Credit
A Letter of Credit may be revocable or irrevocable. In a revocable Letter
of Credit, the issuing bank (representing the buyer) has the
right to cancel or alter its obligation at any time before payment of
a sight draft or acceptance of a time draft. That situation
exists even if goods were shipped in reliance on the expectation of
payment.
An irrevocable Letter of Credit that is accepted
by the seller, however, cannot be altered or canceled without the
consent of the seller. Any change to an irrevocable Letter of
Credit requires the consent of all parties. Consent would include
any parties beyond the buyer and seller. For example the confirming
banks would be affected parties.
Confirmed vs. Unconfirmed
An irrevocable Letter of Credit can be either confirmed
or unconfirmed.
In a confirmed Letter of Credit, the issuing bank
(representing the buyer) agrees independently to the buyer's
commitments to pay the seller the agreed-up amount of money, as long as
all the requirements of the Letter of Credit are fulfilled.
A confirmed irrevocable Letter of Credit can
become very elaborate. A second bank (often specified as a prime
bank) may confirm or otherwise guarantee payment of the foreign
bank that initially opened the Letter of Credit. This requirement
originates from the seller and usually takes places only if the
bank of the buyer is not internationally established.
Other types of Letters of Credit
Other types of Letters of Credit may include straight or negotiation
credits. These types of Letters of Credit inform the seller whether any
bank, or only certain banks, can process the documents of the seller to receive
payment. All of the various types of Letters
of Credit can be combined in various ways with extended rights and/or
obligations, depending upon the exact type of Letter of Credit issued. A
Seller should be aware of rights under a
Letter of Credit before proceeding with a sale.
Letter of Credit rules- International Chamber of Commerce
A Standard Documentary Credit Application Form has been developed by the
International Chamber of Commerce (ICC), in Paris, France. The
ICC has also published a guide to Documentary Credit
Operations. Banks throughout the world adhere to the
rules developed by the ICC.
The rights and obligations of buyers, sellers and
participating banks in international Letters of Credit transactions
are presented in careful detail in publications made
available by the ICC. Under the Uniform Customs and Practices for
Document Credits (UCP), the International Chamber of Commerce has made
available in a publication called the UCP 600. The publication
is almost always referred to in international Letter of Credit
forms and is a part of the Letter of Credit contract. The ICC also
has available ICC Publication No. 511, which takes the reader
through UCP 600 on an article-by-article and clause-by-clause
basis. The ICC Publication No. 511 also explains
the reasoning that led the ICC Working Group to develop a
thoroughly revised sets of Rules for Documentary Credits
under UCP 600.
Benefits of using a Letter of Credit
By conducting export sales transactions under an
irrevocable Letters of Credit,
the seller does not have to determine the credit standing of
the foreign buyer. Letters of Credit are issued in many different forms from
foreign banks and financial institutions.
The variations are due to differences in customs and regulations of
trade and finance in the country of origin of the issuing bank or financial
institution. If, for any reason, a seller cannot
comply with one or more conditions of a Letter of Credit, it is absolutely
imperative for the seller to contact the buyer to arrange
for one or more amendments to the original agreement.
Letter of Credit Discrepancies
If there is a disagreement between a sale contract's
shipping and documentation
requirements and those in a Letter of Credit, the seller must
take immediate action before shipping to arrange for an amendment
to the Letter of Credit. If the seller does not arrange for such
an amendment, the seller may experience payment problems.
Full compliance with all conditions for payment are
interpreted by banks rigidly. Any disagreement, however small,
represents grounds to reject the payment of the draft.
On a worldwide basis, approximately 60% of
document presentations on Letters of Credit are presented with discrepancies.
Banks charge for EACH discrepancy. Therefore, it is
extremely important to ensure document presentations are accurate
and complete to avoid additional costs and delays in payment
processing.
Payment on a Letter of Credit
The documents listed in a Letter of Credit are presented
to the negotiating/paying
Bank with a draft, which is sometimes referred to as a
"bill of exchange". A draft resembles a check. In a Letter of
Credit sale, the drawee on the draft is the bank that issued the Letter
of Credit. The seller is the drawer of the draft.
Drafts are classified as either sight or time. A
sight draft requires a drawee to pay the amount shown in full upon proper presentation
of documentation. On a time draft, a payment date later
than the date of presentation would be stipulated (such as 60 days
after sight or 90 days after sight).
When properly presented, a time draft is accepted
by the drawee. This means the drawee indicates an acknowledgment that the necessary conditions to its payment were met
and the drawee is obligated to pay on the appointed date.
Paying a sight draft or accepting a time draft
when documents or goods have been presented is known as honoring the
draft.
If the Letter of Credit states "payment at
sight", the seller should receive payment within a reasonable time (usually not
exceeding seven days) after documents are presented within the validity period of
the Letter of Credit and accepted by the negotiating (paying)
bank.
Usual Letter of Credit conditions
The usual conditions included in a Letter of Credit
include delivery dates,
product specifications and receipt by the bank of specific documents
(such as negotiable bills of lading, inspection certificates,
commercial invoices and packing lists). Any required documents must be
presented to the bank within a specific period of time.
There may also be other terms and conditions as negotiated between
the buyer and seller.
Letter of Credit terms and conditions (and all
required documents) should be agreed upon between the buyer and
seller, in advance of opening of a Letter of
Credit. Letter of Credit issuance instructions should then conform to the
terms of such an agreement.
Exporters in the United States should request the
overseas buyer to open an Irrevocable Commercial Letter of
Credit, payable 100% at sight, freely negotiable or confirmed by
a bank.
If the Letter of Credit is to be confirmed, the
seller should also request the buyer to instruct the issuing bank to obtain
the Letter of Credit confirmed by a bank in the United
States.
DANGEROUS CARGO TABLE
|
IMO Class. |
Description |
|
Class 1 |
Explosives |
|
1.1 |
Substances and articles which have a mass
explosion hazard. |
|
1.2 |
Substances and articles which have a projection
hazard but not a mass |
|
|
explosion hazard |
|
1.3 |
Substances and articles which have a fire hazard
and either a minor blast |
|
|
hazard or minor projection hazard or both, but
not a mass explosion hazard. |
|
1.4 |
Substances and articles which present no
significant hazard |
|
1.5 |
Very sensitive substances which have a mass
explosion hazard |
|
1.6 |
Extremely insensitive articles which do not have
a mass explosion hazard |
|
Class 2 |
Gases: Compressed, Liquefied or Dissolved under Pressure |
|
2.1 |
Flammable gases |
|
2.2 |
Non-flammable gases |
|
2.3 |
Toxic gases |
|
Class 3 |
Flammable Liquids |
|
3.1 |
Low flash-point group of liquids (flash-point
below -18°C.) |
|
3.2 |
Intermediate flash-point of group of liquids
(flash-point of -18°C up to but not incl. +23°C.) |
|
3.3 |
High flash-point group of liquids (flash point of
+23°C. up to and incl.+61°C.) |
|
Class 4 |
Flammable Solids or Substances |
|
4.1 |
Flammable solids |
|
4.2 |
Substances liable to spontaneous combustion |
|
4.3 |
Substances which, in contact with water, emit
flammable gases |
|
Class 5 |
Oxidizing substances (agents) and organic peroxides |
|
5.1 |
Oxidizing substances (agents) by yielding oxygen
increase the risk and intensity of fire. |
|
5.2 |
Organic peroxides - most will burn rapidly and
are sensitive to impact or friction. |
|
Class 6 |
Toxic and infectious Substances |
|
6.1 |
Toxic substances |
|
6.2 |
Infectious substances |
|
Class 7 |
Radioactive Substances |
|
Class 8 |
Corrosives |
Container Dimensions
#Dry, HQ,
Reefer, OT, Flat Rack, Garmentainer
General
purpose (Dry Container)
|
General
purpose 20' x 8' x 8'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
5,898 |
19'4
13/64" |
|
Width |
2,352 |
7'8
19/32" |
|
|
Height |
2,393 |
7'10
7/32" |
|
|
Door
Opening |
Width |
2,340 |
7'8
1/8" |
|
Height |
2,280 |
7'5
49/64" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
Tare |
3,650 |
8,440 |
|
|
Max
Payload |
26,830 |
58,760 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
33.2 |
1170 |
|
|
General
purpose 40' x 8' x 8'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
12,032 |
39'5
45/64" |
|
Width |
2,352 |
7'8
19/32" |
|
|
Height |
2,393 |
7'10
7/32" |
|
|
Door
Opening |
Width |
2,340 |
7'8
1/8" |
|
Height |
2,280 |
7'5
49/64" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
Tare |
3,830 |
8,050 |
|
|
Max
Payload |
26,650 |
59,150 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
67.7 |
2,390 |
|
|
|
|
|
|
High
cube
|
High
cube 40' x 8' x 9'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
12,032 |
39'5
45/64" |
|
Width |
2,352 |
7'8
19/32" |
|
|
Height |
2,698 |
8'10
7/32" |
|
|
Door
Opening |
Width |
2,340 |
7'8
1/8" |
|
Height |
2,585 |
8'5
49/64" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
Tare |
3,830 |
8,440 |
|
|
Max
Payload |
26,500 |
58,760 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
76.4 |
2700 |
|
|
High
cube 45' x 8' x 9'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
13,556 |
44'5
45/64'' |
|
Width |
2,352 |
7'8
19/32" |
|
|
Height |
2,698 |
8'10
7/32" |
|
|
Door
Opening |
Width |
2,340 |
7'8
1/8" |
|
Height |
2,585 |
8'5
49/64" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
Tare |
4,700 |
10,360 |
|
|
Max
Payload |
25,780 |
56,840 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
86.1 |
3040 |
|
|
|
|
|
|
Refrigerated
|
Refrigerated
40' x 8' x 9'6" |
Steel |
|||
|
Millimetres |
Feet |
|||
|
Internal
Dimensions |
Length |
11,590 |
38'19/64" |
|
|
Width |
2,294 |
7'6
5/16" |
||
|
Height |
Norminal |
2,555 |
8'4
19/32" |
|
|
Usable |
2,445 |
8'21/32" |
||
|
Door
Opening |
Width |
2,290 |
7'6
5/32" |
|
|
Height |
2,569 |
8'5
9/64" |
||
|
|
Kilograms |
Pounds |
||
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
|
Tare |
4,880 |
10,760 |
||
|
Max
Payload |
25,600 |
56,440 |
||
|
|
Cube
Metres |
Cube
Feet |
||
|
Internal
Capacity |
Norminal |
67.9 |
2,399 |
|
|
Usable |
65.3 |
2,307 |
||
|
Refrigerated
20'x 8' x 8'6" |
Steel |
|||
|
Millimetres |
Feet |
|||
|
Internal
Dimensions |
Length |
5,455 |
17'10
3/4" |
|
|
Width |
2,292 |
7'6
1/4" |
||
|
Height |
Norminal |
2,274 |
7'5
1/2" |
|
|
Usable |
2,174 |
7'1
14/25" |
||
|
Door
Opening |
Width |
2,232 |
7'6
1/4" |
|
|
Height |
2,259 |
7'4
15/16" |
||
|
|
Kilograms |
Pounds |
||
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
|
Tare |
3,000 |
6,610 |
||
|
Max
Payload |
27,480 |
60,590 |
||
|
|
Cube
Metres |
Cube
Feet |
||
|
Internal
Capacity |
Norminal |
28.4 |
1,000 |
|
|
Usable |
27.2 |
958 |
||
|
|
|
|
|
|
Open
top
|
Open
top 40' x 8' x 8'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
12,036 |
39'5
55/64" |
|
Width |
2,352 |
7'8
19/32" |
|
|
Height |
2,248 |
7'8
7/16" |
|
|
Door
Opening |
Width |
2,340 |
7'8
1/8" |
|
Height |
2,280 |
7'5
49/64" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
Max
Payload |
26,680 |
58,820 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
65.9 |
2.330 |
|
|
Open
top 20' x 8' x 8'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
5,900 |
19'4
9/32" |
|
Width |
2,352 |
7'8
19/32" |
|
|
Height |
2,350 |
7'8
33/64" |
|
|
Door
Opening |
Width |
2.340 |
7'8
1/8" |
|
Height |
2,280 |
7'5
49/64" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
Tare |
2,120 |
4,670 |
|
|
Max
Payload |
28,360 |
62,530 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
32.6 |
1,152 |
|
|
|
|
|
|
Flatracks
|
Flatracks
40' x 8' x 8'6" |
Steel |
|||
|
Millimetres |
Feet |
|||
|
Internal
Dimensions |
Length |
12,180 |
39'11
17/32" |
|
|
Width |
2,230 |
7'3
51/64 |
||
|
Height |
Unfolded |
1,955 |
6'4
31/32 |
|
|
Folded |
647 |
2'1
15/32" |
||
|
|
Kilograms |
Pounds |
||
|
Weight |
Max
Gross |
45,000 |
99,210 |
|
|
Tare |
5,000 |
11,020 |
||
|
Max
Payload |
40,000 |
88,190 |
||
|
|
Cube
Metres |
Cube
Feet |
||
|
Internal
Capacity |
53.1 |
1876.6 |
||
|
Flatracks
20' x 8' x 8'6" |
Steel |
|||
|
Millimetres |
Feet |
|||
|
Internal
Dimensions |
Length |
5,618 |
18'5
3/16" |
|
|
Width |
2,230 |
7'3
13/16" |
||
|
Height |
Unfolded |
2,233 |
7'3
29/32" |
|
|
Folded |
370 |
1'2
9/16" |
||
|
|
Kilograms |
Pounds |
||
|
Weight |
Max
Gross |
30,480 |
67,200 |
|
|
Tare |
2,750 |
6,060 |
||
|
Max
Payload |
27,730 |
61,140 |
||
|
|
Cube
Metres |
Cube
Feet |
||
|
Internal
Capacity |
27.9 |
986 |
||
|
|
|
|
||
Garmentainers
|
Garmentainers
40' x 8' x 8'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
12,180 |
39'11
17/32" |
|
Width |
2,230 |
7'3
51/64" |
|
|
Height |
1,955 |
6'4
31/32" |
|
|
Door
Opening |
Width |
2,340 |
7'8." |
|
Height |
2,280 |
7'5.8" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
30.480 |
67,200 |
|
Tare |
3,885 |
8,565 |
|
|
Max
Payload |
26,595 |
58,635 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
67.7 |
2,390 |
|
|
Garmentainers
20' x 8' x 8'6" |
Steel |
||
|
Millimetres |
Feet |
||
|
Internal
Dimensions |
Length |
5,900 |
19'4.2" |
|
Width |
2,352 |
7'8.5" |
|
|
Height |
2,353 |
7'10.1" |
|
|
Door
Opening |
Width |
2,340 |
7'8" |
|
Height |
2,280 |
7'5.8" |
|
|
|
Kilograms |
Pounds |
|
|
Weight |
Max
Gross |
24,000 |
52,910 |
|
Tare |
2,240 |
4,490 |
|
|
Max
Payload |
21,760 |
47,970 |
|
|
|
Cube
Metres |
Cube
Feet |
|
|
Internal
Capacity |
33.2 |
1,172 |
|
|
|
|
|
|