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Trade Finance : Letter of credit


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Letter of Credit
Risk and operations

Published in: Economy & Finance
  • Dear sir/Ma We are project funder with our cutting edge and group capital fund we can finance your signatory projects and help you to enhance your business plan, our financial instrument can be used for purchase of good from any manufacturer irrespective of location. We specialized in BG, SBLC, MTN, CD,LC , Non collateral loan, confirmable Bank Draft and other financial assistance from AAA rated bank (Prime Bank). The financial instrument can be invested into High Yield Trading Program or Private Placement Programme (PPP). Please see our instrument description and leasing procedure as follow. DESCRIPTION OF INSTRUMENT: 1. Instrument: Bank Guarantee {BG} /StandBy Letter of Credit{SBLC} (Appendix A) 2. Total Face Value: Eur/USD 1M{Minimum} to Eur/USD 10B{Maximum} 3. Issuing Bank: AAA Rated Bank (Prime Bank). 4. Age: One Year and One Day 5. Leasing Price: 5.0% + 2% Broker commission 6. Delivery: S.W.I.F.T MT-760 7. Payment: MT103 (TT/WT) 8. Hard Copy: Bonded Courier Service We specialize in Bank Guarantee lease and sales, there are two types of bank guarantee which are Direct Bank Guarantee and Indirect Bank Guarantee. Its used as Bid Bond, Payment Guarantees, Letter of Indemnity, Guarantee Securing Credit Line, Advance Payment Guarantees, Performance Bond Guarantee E.T.C. Intermediaries/Consultants/ Brokers are welcome to bring their clients and are 100% protected. In complete confidence, we will work together for the benefits of all parties involved. Thank you Email: Skype:
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Trade Finance : Letter of credit

  1. 1. 1
  2. 2. Table of contents  Origin of LC  Definition of LC  Elements in LCs  Importance of LCs  Terms commonly used in LCs  Legal principles  Types of LCs  Risks in import LCs  Documents in LCs  Common defects in documents 2
  3. 3. Letter of Credit - Origin  The name "letter of credit" came from the French word "accréditation", a power to do something  Origin is from Latin "accreditivus", meaning trust.
  4. 4. Letter of Credit - Definition  A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.  The bank will make full or part of the purchase price (shortfall) in case the buyer defaults to make payment.  In today’s competitive world banks face increasing competition.
  5. 5. Letter of Credit - Definition  ICC in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as:  "An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf :  Is to make a payment to or to the order third party ( the beneficiary ) or is to accept bills of exchange (drafts) drawn by the beneficiary.
  6. 6. Letter of Credit - Definition  Authorized another bank to effect such payments or to accept and pay such bills of exchange (draft).  Authorized another bank to negotiate against stipulated documents provided that the terms are complied with.
  7. 7. Letter of Credit - Elements  A payment undertaking given by a bank  On behalf of a buyer  To pay a seller for a given amount of money  On presentation of specified documents representing the supply of goods / services  Within specified time limits  Documents must conform to terms and conditions set out in the letter of credit  Documents to be presented at a specified place
  8. 8. Why Letters of Credit are important  Nature of international dealings.  Distance between seller and buyer.  Differing laws of various countries.  Difficulty to know each party personally.  To break the deadlock between the buyer and seller.
  9. 9. Terms commonly used in LCs  Sight LC - requires payment to be made immediately to the beneficiary upon presentation of the correct documents.  Time or date LC - specifies when payment is to be made at a future date.  Negotiation - giving of value for draft(s) or document(s) by the bank authorized to negotiate, with the nominated bank.
  10. 10. Terms commonly used in LCs  Presentation – Submission of documents against LC or the document itself  Complying presentation – When the presentation is as per the  terms and conditions of credit  applicable provisions of UCP  international standard banking practice  Confirmation— a definite undertaking from the confirming bank to honor or negotiate a complying presentation in addition to that of the issuing bank.
  11. 11. Terms commonly used in LCs  Letter of Credit— an irrevocable commitment of the issuing bank to honor a complying presentation  Honor - to act according to commitment of the LC. Based on type of facility presentations are honored in various ways  making payment at sight for sight LC  paying at maturity for deferred payment LC.  accepting a Draft drawn by the beneficiary and paying at maturity for deferred acceptance LC
  12. 12. Legal principles - LCs  Payment obligation is independent from the underlying contract of sale or any other contract in the transaction {article 4(a) of UCP}.  Banks deal with documents only - not concerned with the goods (article 5 of the UCP).
  13. 13. Legal principles - LCs  The “principle of strict compliance” to be applied. Hence, if the documents tendered under the credit deviate from the language of the credit the bank is entitled to withhold payment.  General legal maxim de minimis non curat lex is not applicable in this field. De minimis is a Latin expression meaning about minimal things.
  14. 14. Types of LCs  There are broadly two types:  Commercial Letter of Credit  primary payment mechanism  Standby Letter of Credit  secondary payment mechanism
  15. 15. Types of LCs  Standby Letter of Credit assures the beneficiary of the performance of the customer's obligation.  The beneficiary is able to draw under the credit by presenting evidence that the customer has not performed its obligation.  The bank is obligated to make payment if the documents presented comply with the terms of the letter of credit.  Standby letters of credit are issued by banks to stand behind monetary obligations.
  16. 16. Types of LCs  Import/Export LC – Same LC is import LC for importer and export LC for exporter.  Revocable—The buyer and the bank are able to manipulate the LC or make corrections without informing from the seller. According to UCP 600, all LCs are Irrevocable.  Irrevocable—Any amendments or cancellation of the LC is done by the applicant through the issuing Bank. It must be authenticated and approved by the beneficiary.
  17. 17. Types of LCs  Confirmed—An LC is said to be confirmed when a second bank adds its confirmation to honor a complying presentation at the authorization of the issuing bank.  Unconfirmed—Does not require the other bank's confirmation.
  18. 18. Types of LCs  Transferrable—The exporter has the right to make the credit available to one or more subsequent beneficiaries.  Untransferable—A credit that seller cannot assign all or part of to another party.
  19. 19. Types of LCs  Deferred / Usance— A credit that is not paid/assigned immediately after presentation, but after an indicated period that is accepted by both buyer and seller.  At Sight—A credit that the issuing bank immediately pays after inspecting the carriage documents from the seller.  Red clause - L/C that carries a provision which allows a seller to draw up to a fixed sum from the paying bank in advance of the shipment or before presenting the prescribed documents.
  20. 20. Types of LCs  Back to Back—A pair of LCs in which one is to the benefit of a seller who is an agent. In that event, a second credit is opened for another seller to provide the desired goods. Generally this is used by trading houses.  A revolving LC is issued when the seller sends regular shipments to a particular buyer as part of long-term supply contract. Once the buyer reimburses the amount paid to seller by the issuing bank, the LC amount is reinstated.
  21. 21. Risks in import LC  The financial standing of the importer  Goods  Exporter risk  Country risk  Foreign exchange risk
  22. 22. Documents in LCs  Bill of Exchange  Invoice, packing list  Shipping documents  License  Embassy legalization  Origin certificate  Inspection certificate  Insurance policy