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					                                      CONTENTS


1. History, Introduction,                                         05

2. Definition                                                     06

3. Implications of Letter of Credit                               07

4. Uniform Customs and Practice for Documentary Credits (UCDPC)   10

5. Parties to Letters of Credit                                   13

6. Process involved in Letter of Credits                          15

7. Types of Letter of Credit                                      17

8. Amendments to a Letter of Credit                               20

9. Step-by-Step Process for the Exporter                          21

10. Negotiation Under Sight L\c’s                                 25

11. Payment under Buyer's Credit / Supplier's Credit              35

12. Swift Codes                                                   40

13. INCO Terms 2000                                               42

14. Checklist and Guide for Exporters                             49

15. FAQ’s                                                         64

16. Bibliography                                                  65




                                           1
History


Letters of Credit have been a cornerstone of international trade dating back to
the early 1900s. They continue to play a critical role in world trade today. For any
company entering the international market, Letters of Credit are an important
payment mechanism which helps eliminate certain risks. This guide provides a
basic understanding of Letters of Credit from both the Importer’s and Exporter’s
points of view. In addition, it will serve as a handy reference tool as you use
Letters of Credit in your international trade transactions.




Introduction

Letter of Credit L/c also known as Documentary Credit is a widely used term to
make payment secure in domestic and international trade. The document is
issued by a financial organization at the buyer request. Buyer also provides the
necessary instructions in preparing the document.




                                         2
Definition of Letter of Credit:

A Letter of Credit (L/C) is a document which is issued by the importer’s Bank who
guarantees payment to seller (exporter) provided the terms and conditions
mentioned in L/C is fulfilled.


The letter of Credit (L/C) is also known as documentary credit is a widely used
term to make payments secure in domestic and international trade. This
document is issued by a financial organization at the buyer’s request.


The International Chamber of Commerce (ICC) in the Uniform Custom and
Practice for Documentary Credit (UCPDC) defines L/C as:

"An arrangement, however named or described, whereby bank (the Issuing bank)
acting at the request and on the instructions of a customer (the Applicant) or on
its own behalf:



   1. 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.



   2. Authorized another bank to effect such payments or to accept and pay
      such bills of exchange (draft).



   3. Authorized another bank to negotiate against stipulated documents
      provided that the terms are complied with




A key principle underlying letter of credit (L/C) is that banks deal only in
documents and not in goods. The decision to pay under a letter of credit will be
based entirely on whether the documents presented to the bank appear on their
face to be in accordance with the terms and conditions of the letter of credit.




                                         3
Implications of Letter of Credit:

Advantages and Risks:


              Advantages                                          Risks

The beneficiary (Seller) is assured of
payment as long as it complies with the
terms & conditions of the Letter of
                                                 Since all the parties involved in Letter
Credit. The Letter of Credit identifies
                                                 of Credit deals with the documents and
which documents must be presented
                                                 not goods the risk of Beneficiary not
along with the data content of those
                                                 shipping goods as mentioned in the L/c
documents. The credit risk is
                                                 still persists.
transferred from the applicant Bank to
Issuing Bank.

The Beneficiary can enjoy the
advantage of mitigating the issuing
bank’s country risk by requiring that a
                                                 The Beneficiary’s documents must
Bank in its own country confirms the
                                                 comply with the terms and conditions of
Letter of Credit That Bank then takes
                                                 Letter of Credit for issuing Bank to
on the country and commercial risks of
                                                 make the payment.
the issuing bank and protects the
beneficiary.

                                                 The Beneficiary is exposed to the
                                                 commercial risk on Issuing Bank,
The Beneficiary minimizes collection
                                                 political risk on the Issuing Bank’s
time as the Letter of Credit accelerates
                                                 country and Foreign Exchange Risk in
payment of the receivables.
                                                 case of Usance Letter of Credits.

The Beneficiary’s foreign Exchange
risk is eliminated with a Letter of Credit
                                                 The exporter has to provide numerous
issued in the currency of the
                                                 documents under the terms of credit.
beneficiary’s country.




                                             4
Advantages / Disadvantages to Importer and Exporter:


Advantages to the Importer


      Importer is assured that the Exporter will be paid only if all terms and
       conditions of the Letter of Credit have been met.

      Importer is able to negotiate more favorable trade terms with the Exporter
       when payment by Letter of Credit is offered.

      Enables the importer to purchase raw material without having to make the
       full payment; further he will be able to finalize the contract on better terms
       on the basis of providing the L/c.

      If the importer takes care of certain safeguards, the quantity and quality of
       goods is assured.

      He can also finance his imports by getting them released under trust
       receipt and pay for after their sale.


Disadvantages to the Importer

      A Letter of Credit does not offer protection to the Importer against the
       Exporter shipping inferior quality goods and/or a lesser quantity of goods.
       Consequently, it is important that the Importer performs the appropriate
       due diligence to assess the reputation of the Exporter. If the Exporter acts
       fraudulently, the only recourse available to the Importer is through legal
       proceedings.

Note: Added protection to the Importer may be provided by requesting
additional documentation in the Letter of Credit, e.g. a Certificate of
Inspection.

      It is necessary for the Importer to have a line of credit with a bank before
       the bank is able to issue a Letter of Credit. The amount outstanding under
       each Letter of Credit issued is applied against this line of credit from the
       date of issuance until final payment.




                                         5
Advantages to the Exporter

      The risk of payment relies upon the creditworthiness of the Issuing Bank
       and the political risk of the Issuing Bank’s domicile, and not the
       creditworthiness of the Importer.

      Exporter agrees in advance to all requirements for payment under the
       Letter of Credit. If the Letter of Credit is not issued as agreed, the Exporter
       is not obligated to ship against it.

      Exporter can further reduce foreign political and bank credit risk by
       requesting confirmation of the Letter of Credit by a local bank.

      Eases the Financial position of the exporter since he can get pre-shipment
       credit as well as post-shipment credit.

      Provides a sort of an assurance to the exporter.




Disadvantages to the Exporter

      Documents must be prepared and presented in strict compliance with the
       requirements stipulated in the Letter of Credit.

      Some Importers may not be able to open Letters of Credit due to the lack
       of credit facilities with their bank which consequently inhibits export
       growth.




                                          6
Uniform Customs and Practice for Documentary Credits (UCDPC):

The Uniform Customs and Practice for Documentary Credits (UCPDC) was
evolved by the International Chamber of Commerce to define the set of rules
governing Letters of Credits which can be universally accepted by all the
participating countries. The UCPDC first appeared in 1933, but did not get
universal acceptance. It was revised in 1962, 1974, 1983 and 1993 and in 1994,
UCPDC 500 was released with only 7 chapters containing in all 49 articles

The latest revision was approved by the Banking Commission of the ICC at its
meeting in Paris on 25 October 2006. This latest version, called the UCPDC600,
formally commenced on 1 July 2007. It contains a total of about 39 articles
covering the following areas, which can be classified as 8 sections according to
their functions and operational procedures. This has paved the way for common
understanding of the terms by all the parties involved namely Banks, Insurance
Companies, Shipping Companies, and Traders etc.



Sr
      Article         Area                            Consisting
No.
 1.    1 to 3       General        Application, Definition and Interpretations
 2.   4 to 12      Obligations     Credit vs. Contracts, Documents v/s. Goods
                                   Reimbursement, Examination of Documents,
                  Liabilities and
 3.   13 to 16                     Complying, Presentation, Handling
                 responsibilities.
                                   Discrepant Documents
                                   Bill of Lading, Chapter Party Bill of Lading, Air
                                   Documents, Road Rail etc. Documents,
 4.   17 to 28     Documents Courier, Postal etc. Receipt. On board,
                                   Shippers' count,
                                   Clean Documents, Insurance documents
                                   Extension of dates, Tolerance in Credits,
                  Miscellaneous
 5.   29 to 33                     Partial Shipment and Drawings. House of
                    Provisions
                                   Presentation
                                   Effectiveness of Document Transmission and
 6    34 to 37      Disclaimer     Translation Force Majeure Acts of an
                                   Instructed Party
 7    38 & 39         Others       Transferable Credits Assignment of Proceeds




                                          7
UCPDC is not a piece of Law and does not bind the parties unless they subject
themselves to it. The practice is to make it an integral part of the transaction by
including the following clause in the L/C.


“Except so far as expressly stated, this Letter of Credit is subject to Uniform
Customs and Practice for Documentary Credits (UCDPC), 1993 revision,
International Chamber of Commerce publication No. 600.”

UCPDC deals only with documentary credits. These may be classified as follows
depending upon the particular provisions they contain.

   1.   Payment, acceptance, and negotiation credits.
   2.   Revocable and irrevocable credits
   3.   Confirmed and unconfirmed credits.
   4.   Witt recourse and without recourse credit.
   5.   Fixed and revolving credits
   6.   Transferable credits
   7.   Bank-to-bank credits.
   8.   Red Clause and Green Clause credits.
   9.   Standby credits.



ISBP 2002

The widely acclaimed International Standard Banking Practice (ISBP) for the
Examination of Documents under Documentary Credits was selected in 2007 by
the               ICCs                 Banking                 Commission.

First introduced in 2002, the ISBP contains a list of guidelines that an examiner
needs to check the documents presented under the Letter of Credit. Its main
objective is to reduce the number of documentary credits rejected by banks.

FEDAI Guidelines

Foreign Exchange Dealers Association of India (FEDAI) was established in 1958
under the Section 25 of the Companies Act (1956). It is an association of banks
that deals in Indian foreign exchange and work in coordination with the Reserve
Bank of India, other organizations like FIMMDA, the Forex Association of India
and various market participants.


FEDAI has issued rules for import LCs which is one of the important areas of

                                        8
foreign currency exchanges. It has an advantage over that of the authorized
dealers who are now allowed by the RBI to issue stand by letter of credits
towards                  import                 of                   goods.

As the issuance of standby of letter of Credit including imports of goods is
susceptible to some risk in the absence of evidence of shipment, therefore the
importer should be advised that documentary credit under UCP 500/600 should
be      the      preferred      route    for     importers     of      goods.

Below mention is some of the necessary precaution that should be taken by
authorized dealers while issuing a stands by letter of credits:



      The facility of issuing Commercial Standby shall be extended on a
       selective basis and to the following category of importers

       1. Where such standby are required by applicant who are independent
          power producers/importers of crude oil and petroleum products



       2. Special category of importers namely export houses, trading houses,
          star trading houses, super star trading houses or 100% Export
          Oriented Units.

      Satisfactory credit report on the overseas supplier should be obtained by
       the issuing banks before issuing Stands by Letter of Credit.



      Invocation of the Commercial standby by the beneficiary is to be
       supported by proper evidence. The beneficiary of the Credit should furnish
       a declaration to the effect that the claim is made on account of failure of
       the importers to abide by his contractual obligation along with the following
       documents.

             1. A copy of invoice.



             2. Nonnegotiable set of documents including a copy of non
                negotiable bill of lading/transport document.




                                         9
              3. A copy of Lloyds /SGS inspection certificate wherever provided
                 for as per the underlying contract.

          Incorporation of suitable clauses to the effect that in the event of such
           invoice /shipping documents has been paid by the authorized dealers
           earlier, Provisions to dishonor the claim quoting the date / manner of
           earlier payments of such documents may be considered.

The applicant of a commercial stand by letter of credit shall undertake to provide
evidence of imports in respect of all payments made under standby. (Bill of Entry
/ Exchange Control Copy)




Parties to Letters of Credit

      Applicant (Opener): Applicant which is also referred to as account party
       is normally a buyer or customer of the goods, who has to make payment
       to beneficiary. LC is initiated and issued at his request and on the basis of
       his instructions.

      Issuing Bank (Opening Bank): The issuing bank is the one which create
       a letter of credit and takes the responsibility to make the payments on
       receipt of the documents from the beneficiary or through their banker. The
       payments have to be made to the beneficiary within seven working days
       from the date of receipt of documents at their end, provided the
       documents are in accordance with the terms and conditions of the letter of
       credit. If the documents are discrepant one, the rejection thereof to be
       communicated within seven working days from the date of of receipt of
       documents at their end.

      Beneficiary: Beneficiary is normally stands for a seller of the goods, who
       has to receive payment from the applicant. A credit is issued in his favor to
       enable him or his agent to obtain payment on surrender of stipulated
       document and comply with the term and conditions of the L/C.
       If L/C is a transferable one and he transfers the credit to another party,
       then he is referred to as the first or original beneficiary.

      Advising Bank: An Advising Bank provides advice to the beneficiary and
       takes the responsibility for sending the documents to the issuing bank and
       is normally located in the country of the beneficiary.

      Confirming Bank: Confirming bank adds its guarantee to the credit
       opened by another bank, thereby undertaking the responsibility of
       payment/negotiation acceptance under the credit, in additional to that of


                                         10
    the issuing bank. Confirming bank play an important role where the
    exporter is not satisfied with the undertaking of only the issuing bank.

   Negotiating Bank: The Negotiating Bank is the bank who negotiates the
    documents submitted to them by the beneficiary under the credit either
    advised through them or restricted to them for negotiation. On negotiation
    of the documents they will claim the reimbursement under the credit and
    makes the payment to the beneficiary provided the documents submitted
    are in accordance with the terms and conditions of the letters of credit.

   Reimbursing Bank: Reimbursing Bank is the bank authorized to honor
    the reimbursement claim in settlement of negotiation/acceptance/payment
    lodged with it by the negotiating bank. It is normally the bank with which
    issuing bank has an account from which payment has to be made.

   Transferring Bank: The bank authorized by the Issuing Bank to transfer
    all or part of the Letter of Credit to another party at the Beneficiary’s
    request. A Letter of Credit, simply defined, is a written instrument issued
    by a bank at the request of its customer, the Importer (Buyer), whereby
    the bank promises to pay the Exporter (Beneficiary) for goods or services,
    provided that the Exporter presents all documents called for, exactly as
    stipulated in the Letter of Credit, and meet all other terms and conditions
    set out in the Letter of Credit. A Letter of Credit is also commonly referred
    to as a Documentary Credit. There are two types of Letters of Credit:
    revocable and irrevocable. A revocable Letter of Credit can be revoked
    without the consent of the Exporter, meaning that it may be cancelled or
    changed up to the time the documents are presented. A revocable Letter
    of Credit affords the Exporter little protection; therefore, it is rarely used.
    An irrevocable Letter of Credit cannot be cancelled or changed without
    the consent of all parties, including the Exporter. Unless otherwise
    stipulated, all Letters of Credit are irrevocable. A further differentiation is
    made between Letters of Credit, depending on the payment terms. If
    payment is to be made at the time documents are presented, this is
    referred to as a sight Letter of Credit. Alternatively, if payment is to be
    made at a future fixed time from presentation of documents (e.g. 60 days
    after sight); this is referred to as a term, usance or deferred payment
    Letter of Credit.



   Second Beneficiary: Second Beneficiary is the person who represents
    the first or original Beneficiary of credit in his absence. In this case, the
    credits belonging to the original beneficiary is transferable. The rights of
    the transferee are subject to terms of transfer.




                                      11
Process involved in Letter of Credits.




The following is a step-by-step description of a typical Letter of Credit
transaction:

   1. An Importer (Buyer) and Exporter (Seller) agree on a purchase and sale of
      goods where payment is made by Letter of Credit.

   2. The Importer completes an application requesting its bank (Issuing Bank)
      to issue a Letter of Credit in favor of the Exporter. Note that the Importer
      must have a line of credit with the Issuing Bank in order to request that a
      Letter of Credit be issued.

   3. The Issuing Bank issues the Letter of Credit and sends it to the Advising
      Bank by telecommunication or registered mail in accordance with the
      Importer’s instructions. A request may be included for the Advising Bank
      to add its confirmation. The Advising Bank is typically located in the


                                       12
   country where the Exporter carries on business and may be the Exporter’s
   bank but it does not have to be.

4. The Advising Bank will verify the Letter of Credit for authenticity and send
   a copy to the Exporter.

5. The Exporter examines the Letter of Credit to ensure:
   a) It corresponds to the terms and conditions in the purchase and sale
      agreement;

   b) Documents stipulated in the Letter of Credit can be produced; and

   c) The terms and conditions of the Letter of Credit may be fulfilled.

6. If the Exporter is unable to comply with any term or condition of the Letter
   of Credit or if the Letter of Credit differs from the purchase and sale
   agreement, the Exporter should immediately notify the Importer and
   request an amendment to the Letter of Credit.

7. When all parties agree to the amendments, they are incorporated into the
   terms of the Letter of Credit and advised to the Exporter through the
   Advising Bank. It is recommended that the Exporter does not make any
   shipments against the Letter of Credit until the required amendments have
   been received.

8. The Exporter arranges for shipment of the goods, prepares and/or obtains
   the documents specified in the Letter of Credit and makes demand under
   the Letter of Credit by presenting the documents within the stated period
   and before the expiry date to the “available with” Bank. This may be the
   Advising/Confirming Bank. That bank checks the documents against the
   Letter of Credit and forwards them to the Issuing Bank. The drawing is
   negotiated, paid or accepted as the case may be.

9. The Issuing Bank examines the documents to ensure they comply with the
   Letter of Credit terms and conditions. The Issuing Bank obtains payment
   from the Importer for payment already made to the “available with” or the
   Confirming Bank.

10.      Documents are delivered to the Importer to allow them to take
   possession of the goods from the transport company. The trade cycle is
   complete as the Importer has received its goods and the Exporter has
   obtained payment.




                                    13
Types of Letter of Credit:



1. Revocable Letter of Credit

A revocable letter of credit may be revoked or modified for any reason, at any
time by the issuing bank without notification. It is rarely used in international
trade and not considered satisfactory for the exporters but has an advantage
over     that     of     the    importers     and      the     issuing     bank.

There is no provision for confirming revocable credits as per terms of UCPDC,
Hence they cannot be confirmed. It should be indicated in LC that the credit is
revocable. If there is no such indication the credit will be deemed as irrevocable.



2. Irrevocable Letter of Credit

In this case it is not possible to revoke or amended a credit without the
agreement of the issuing bank, the confirming bank, and the beneficiary. Form
an exporter’s point of view it is believed to be more beneficial. An irrevocable
letter of credit from the issuing bank insures the beneficiary that if the required
documents are presented and the terms and conditions are complied with,
payment will be made.



3. Confirmed Letter of Credit

Confirmed Letter of Credit is a special type of L/C in which another bank apart
from the issuing bank has added its guarantee. Although, the cost of confirming
by two banks makes it costlier, this type of L/c is more beneficial for the
beneficiary as it doubles the guarantee.



4. Sight Credit and Usance Credit

Sight credit states that the payments would be made by the issuing bank at sight,
on demand or on presentation. In case of usance credit, draft is drawn on the
issuing bank or the correspondent bank at specified usance period. The credit

                                        14
will indicate whether the usance draft is to be drawn on the issuing bank or in the
case of confirmed credit on the confirming bank.



5. Back to Back Letter of Credit

Back to Back Letter of Credit is also termed as Countervailing Credit. A credit is
known as back to back credit when an L/C is opened with security of another
L/C.

A back to back credit which can also be referred as credit and counter credit is
actually a method of financing both sides of a transaction in which a middleman
buys goods from one customer and sells them to another.

The parties to a Back to Back Letter of Credit are:

 1. The buyer and his bank as the issuer of the original Letter of Credit.
 2. The seller / manufacturer and his bank
 3. The manufacturer's subcontractor and his bank

The practical use of this Credit is seen when L/c is opened by the ultimate buyer
in favor of a particular beneficiary, who may not be the actual supplier/
manufacturer offering the main credit with near identical terms in favor as
security and will be able to obtain reimbursement by presenting the documents
received    under     back    to     back   credit    under   the     main    L/c.

The need for such credits arises mainly when:

   1. The ultimate buyer not ready for a transferable credit
   2. The Beneficiary does not want to disclose the source of supply to the
      openers.
   3. The manufacturer demands on payment against documents for goods but
      the beneficiary of credit is short of the funds



6. Revolving Letter of Credit:

The revolving Letter of credit is used for regular shipments of the same
commodity to the same importer. It can revolve in relation to time or value. If the
credit is time revolving once utilized, it is re-instated for further regular shipments
until the credit is fully drawn. If the credit revolves in relation to the value once
utilized and paid, the value can be reinstated for further drawings. The credit
must state that it is a revolving letter of credit and it may revolve either
automatically or subject to certain provisions. Revolving Letter of Credits is useful

                                          15
to avoid the need for repetitious arrangement for opening or amending letters of
credits.




7. Transferable Letter of Credit:

A transferable documentary credit is a type of credit under which the first
beneficiary which is usually a middleman may request the nominated bank to
transfer credit in whole or in part to the second beneficiary.

The L/C does state clearly mentions the margins of the first beneficiary and
unless it is specified the L/C cannot be treated as transferable. It can only be
used when the company is selling the product of a third party and the proper care
has to be taken about the exit policy for the money transactions that take place.

This type of L/C is used in the companies that act as a middle man during the
transaction but don’t have large limit. In the transferable L/C there is a right to
substitute the invoice and the whole value can be transferred to a second
beneficiary.

The first beneficiary or middleman has rights to change the following terms and
conditions of the letter of credit:

   1. Reduce the amount of the credit.
   2. Reduce unit price if it is stated
   3. Make shorter the expiry date of the letter of credit.
   4. Make shorter the last date for presentation of documents.
   5. Make shorter the period for shipment of goods.
   6. Increase the amount of the cover or percentage for which insurance cover
      must be effected.
   7. Substitute the name of the applicant (the middleman) for that of the first
      beneficiary (the buyer).



8. Standby Letter of Credit:

Initially used by the banks in the United States, the standby letter of credit is very
much similar in nature to a bank guarantee. The main objective of issuing such a
credit is to secure bank loans. Standby credits are usually issued by the
applicant’s bank in the applicant’s country and advised to the beneficiary by a
bank in the beneficiary’s country.


                                         16
 Unlike a traditional letter of credit where the beneficiary obtains payment against
documents evidencing performance, the standby letter of credit allow a
beneficiary to obtains payment from a bank even when the applicant for the
credit has failed to perform as per Letter of Credit.



9. Red Clause and Green Clause Letter of Credits:

A Red clause Letter of Credit contains a clause printed in RED, When l/c issuing
bank authorizes to beneficiary to draw part amount of the l/c in advance (even
before shipment is effected) to enable the beneficiary to meet expenses required
for procuring / processing the goods covered by the letter of credit is called a red
clause letter of credit.

A green clause letter of credit is a further extension of red clause letter of credit in
which expenses in addition to those covered by a red clause letter of credit such
customs duty, freight etc. are to be paid in advance to the beneficiary.




Amendments to a Letter of Credit

After issuance of a Letter of Credit, changes can be done through amendments
subject to acceptance by the Exporter. Amendments to the Letter of Credit will be
required when either the Importer or the Exporter is unable to comply with the
terms of the sale agreement or the agreement has been changed. For example,
an Exporter will ask for an amendment to extend the expiry date and the latest
shipping date if they are unable to manufacture the merchandise according to the
agreed upon time. An Importer may request an amendment to increase the value
of the Letter of Credit if they subsequently decide to purchase a higher quantity
of merchandise. The Importer must complete an amendment application listing
all required changes and forward the request to the respective Global Trade
Finance office via the same route the original application was sent. Amendment
requests will be processed subject to credit approval by the Issuing Bank where
necessary. Any amendments to the Letter of Credit must be accepted by the
Exporter and where more than one change is included in an amendment, they
must be accepted as a whole as opposed to accepting or rejecting individual
items within the amendment.




                                          17
Step-by-Step Process for the Exporter:

The following is a detailed explanation of the process you, as an Exporter follow
when named as a Beneficiary under a Letter of Credit.

   1. There are several different ways to notify you that a Letter of Credit has
      been issued in your favor. Export Letter of Credit Department will call you
      directly and obtain instructions as to how you would like to receive the
      Letter of Credit. The choices include:

      • Faxing a copy of the Letter of Credit.

      • Sending the original Letter of Credit by courier or mail.

      • Electronically downloading the content of the Letter of Credit via internet,
      allowing you to print your own copy of the Letter of Credit. It even allows
      you to electronically forward the contents of the Letter of Credit to your
      Freight Forwarder.

   2. Upon receipt of the Letter of Credit, you should read it carefully paying
      close attention to all terms and conditions to ensure they can be met.
      Accompanying the Letter of Credit is a covering letter which includes the
      address of Global Trade Finance office and the appropriate phone
      numbers to call with any questions regarding the Letter of Credit;

   3. After reviewing the Letter of Credit, if you find any terms and conditions
      are differing from the sales contract between you and the Importer, you
      must ask the Importer (Applicant) to instruct the Issuing Bank to make the
      necessary amendments to the Letter of Credit. It is recommended that
      shipments not be made against the Letter of Credit until all amendments
      have been received.

   4. Once you are satisfied with the terms and conditions of the Letter of
      Credit and the shipment is made, all documents requested in the Letter of
      Credit must be prepared or obtained. You would then forward these
      documents, along with the draft (if required) and a copy of the original
      Letter of Credit, to Global Trade Finance office listed in the covering letter.



                                         18
  5. TF checks these documents to ensure compliance with the terms and
     conditions outlined in the Letter of Credit. If the documents contain
     discrepancies, TF will discuss how they may be corrected as well as what
     other options are available.

  6. When the documents are in order, payment under the Letter of Credit is
     made to the Exporter or, in the case of a term Letter of Credit, payment
     will be made on the maturity date of the accepted draft.



What an Exporter Should Look for When Reviewing a Letter of
Credit?
  1. Which bank issued the Letter of Credit (L/C)? (L/C header under
     “Received From:”) Is this bank a reputable one that can be relied on for
     payment? If not, does the Letter of Credit allow for confirmation by another
     bank? (field 49)

  2. Is the Letter of Credit irrevocable? (Field 40A) If it is not stated, the L/C is
     irrevocable.

  3. Are the Importer’s (Applicant’s) name and address spelled correctly?
     (Field 50)

  4. Are your name and address spelled correctly? (Field 59)

  5. Are the dollar amount and currency of the Letter of Credit correct? (Field
     32B)

  6. Does the payment term agree with the sales contract? (Field 42C)

  7. If necessary, are partial shipments allowed? (Field 43P)

  8. Are the points of shipment (Field 44 A) and destination (Field 44B) as
     agreed?

  9. Is it possible for you to meet the latest shipping date? (Field 44C) Are
     enough days allowed to present documents? (Field 48) You may need to
     check with the freight forwarder handling the shipment and preparing
     documents for you.

  10. Is the merchandise description correct and, if needed, does it include unit
      price, weight and quantities? (Field 45A ) If necessary, does the Letter of
      Credit allow for any variance on the quantity and/or dollar amount?


                                        19
   11. Are the terms of the sale regarding insurance and freight charges as
       agreed? (Field 45A)

   12. Can all documents listed in the Letter of Credit be obtained? (Field 46 A)

   13. Which party is responsible for banking charges? (Field 71b)

   14. Where is the Letter of Credit payable? (Field 41D) Note: this will affect the
       length of time required to receive your funds.




Unconfirmed vs. Confirmed Letter of Credit for Exporter

For the Exporter, the issue of whether or not a Letter of Credit is confirmed
is an extremely important one.

When a Letter of Credit is issued, the risk of payment rests with the bank that has
issued the Letter of Credit. This is an Unconfirmed Letter of Credit. However, it
may be that the Issuing Bank is not considered an acceptable risk and/or the
country where it is located has high political or economic uncertainty. In this
situation, the Exporter should consider requesting a Confirmed Letter of Credit.
With a Confirmed Letter of Credit, another bank, the “Confirming Bank”, usually
located in the same country that the Exporter is located, will add its “confirmation”
to the Letter of Credit. By adding its confirmation, the Confirming Bank
undertakes to honor the Exporter’s claim under the Letter of Credit, provided all
terms and conditions of the Letter of Credit are met. The risk of payment is now
assumed by the Confirming Bank, as well as the Issuing Bank, thereby providing
more protection for the Exporter.
25


How to Confirm a Letter of Credit:
An Exporter who decides to have a Letter of Credit confirmed should inform the
Importer to instruct the Issuing Bank to issue a “Confirmed Irrevocable Letter of
Credit”. The Issuing Bank must request a third bank, generally the Advising
Bank, to advise the Letter of Credit to the Exporter adding their confirmation. The
Confirming Bank will charge a fee for undertaking such risk. The question of
which party bears the cost of the confirmation is subject to negotiation between
the Exporter and Importer. Prior to the issuance of a Letter of Credit it is
recommended that the Exporter check with its own bank as to whether the bank
is prepared to add its confirmation, should it be requested to do so. To make this
decision, the bank will need preliminary information about the Letter of Credit

                                         20
such as the name of the Issuing Bank, country of issuance, expiry date and
amount. If the Advising Bank has agreed to confirm a Letter of Credit, it also
becomes the Confirming Bank. In the case of a Confirmed Letter of Credit, the
covering letter attached to the Letter of Credit will include a clause similar to the
following: “This Credit carries our confirmation and we hereby engage, with the
drawers, endorses and holders in due course of drafts drawn under this Credit,
that such drafts will be duly honored on presentation at our counter, provided that
all terms and conditions of the Credit have been complied with.”



                 IMPORT BILLS UNDER LETTER OF CREDIT:


Negotiation under Import Letter Of Credit:


Negotiation as is referred to here means utilization of a documentary credit
issued by us. The documents as required are submitted by the beneficiary to the
nominated negotiating bank or any other bank as provided by the L\c. In a rare
case we may also receive the documents directly from the beneficiary.


Documents negotiated by overseas banks under letter of credit issued by us are
received by us thru courier / mail.       We may also receive an intimation of
negotiation of documents, if our credit so stipulates.




                                         21
NEGOTIATION UNDER SIGHT L\CS

Receipt of Intimation of Negotiation


      In case of a sight letter of credit the following steps follow:

      We receive a swift / telex advice of negotiation of documents claiming
      reimbursement on third working day of negotiation date or as specified in
      the L/C.

      Upon receipt of the message we intimate the applicant to fund his
      account. The applicant may authorize us to debit his account on the date
      of payment or may not authorize us to debit his account

      On the date of payment, if we do not yet receive the documents, we will
      debit the applicant's account, if authorized to do so and credit nostro in
      foreign currency and remit the money if not debited by the negotiating
      bank or debit applicant's import suspense account (advance under L\c) in
      foreign currency till 10th day of receipt of documents and then crystallize
      (as per FEDAI)

      The applicant may authorize us before the date of crystallization to debit
      his account. (Remember to check for forward contract, if any).

      The negotiation amount may be held in foreign currency till the 10th day
      from the date of receipt of documents.


Receipt of documents

      If we receive the documents there are two possibilities:

      The documents are negotiated in conformity with letter of credit terms:
      (Scrutinize documents and record in scrutiny sheet).




                                         22
     The documents are entered in EXTRA and presentation memo is sent to
     of applicant for authorization to debit account along with A1/A2 forms,
     copy invoice, non negotiable copy of transport document.


     If our account in foreign currency is already debited we will hold the debit
     in foreign currency till the date for crystallization


     If our account is not debited we will remit by means of an MT 202, debiting
     import suspense account of the applicant pending authorization and refer
     the same to commercial for their instructions.


     (The same will be followed up with commercial / customer, so that time-
     limit for crystallization is not overshot).

     If the applicant's authorization to debit is received by us before the
     payment date, we will convert the foreign currency in rupees at the bill
     selling rate or the contracted rate as the case may be and remit to the
     negotiating bank on the payment date.

     If the applicant does not authorize us to debit his account we will continue
     to hold the amount in foreign currency in import suspense till the date of
     crystallization and then convert and hold the same as import suspense in
     rupees. Till the date of payment and refer the same to commercial for
     their instructions.


Discrepant Documents


     If we receive documents which are not in conformity with l\c terms i.e. we
     observe discrepancies:

     This may happen at either of the two stages:

Documents Received Before the date for Payment

     We will immediately revert to the negotiating bank and send an MT 734
     message (advise of refusal of documents) instructing them not to claim
     reimbursement and also intimate applicant of the discrepancies and their
     authorization and / or instructions as to acceptance / rejection of
     documents.




                                      23
      If reimbursement is thru some other bank, we will also instruct the
      reimbursing bank immediately not to honor the reimbursement claim of the
      negotiating bank.

      If reimbursing bank still pays, we must instruct the negotiating bank to
      repay the amount with good value or with interest at prime rate for the
      currency from the date of reimbursement till the date of repayment plus
      our incidental charges.

      (Such cases should be referred to correspondent banking unit for their
      assistance in recovering the funds).




Citing discrepancies in the documents after payment has been made as per
the negotiation advice:


      There are two possibilities of citing discrepancies after payment has been
      made:

      Payment is made by debiting customer's import suspense account in
      foreign currency.

      We have seven banking days to refuse the documents from the date f
      receipt of documents (as per UCPDC Article 14). We must therefore
      seek instructions from the applicant as to the discrepancies.


      If the customer accepts the discrepancies immediately, customer's
      account should be debited with interest from the date of debit to our
      account.

      If the customer does not instruct within seven working days we must refer
      the same to commercial for their assistance in getting instructions from the
      customer and in the meanwhile cite discrepancies to the negotiating bank
      and reject the documents as per Article 14 of UCPDC and instruct the
      negotiating bank to refund the amount with interest and charges. (Format
      of message enclosed).

      Operations will also refer the same to correspondent banking unit for their
      assistance.




                                       24
      If the documents are subsequently accepted, payment may be made on
      the date of acceptance, if refund has been received, or interest for the
      intervening period should be debited to the applicant and the same may
      be claimed from the negotiating bank if such amount is received from the
      negotiating bank subsequently the amount so received may be refunded
      to the applicant.



Refusal of documents

      If the documents are not accepted at all due to the discrepancies, the
      same should be returned immediately upon receipt of instructions from
      applicants under advice to commercial and the negotiation amount with
      interest plus charges must be claimed back from the negotiating bank.

      Refer the same to correspondent banking unit for their assistance.




When the discrepancies are cited before payment is made:


      If the discrepancies are observed before the payment date and if the same
      are not acceptable to the applicant operations must inform the negotiating
      bank the refusal of documents and revoke the authorization to reimburse,
      if any. Instructions of non-acceptance must be received from the applicant
      in writing and should be filed with the case. The documents thereafter
      must be returned forthwith to the negotiating bank to our complete
      discharge.

      Our incidental charges if any, should be claimed from the negotiating bank
      and if not paid, may be claimed from the applicant.


Acceptance of discrepancies after refusal of documents:

      If the discrepancies are acceptable to the applicant, payment must be
      made only after receipt of payment of the bill by the applicant as though
      the document was received on approval basis.

      As in such cases, the documents are held by us at the disposal of the
      negotiating bank before making the payment and releasing the documents
      to the applicant, care must be taken to check that the negotiation bank has
      not requisitioned the documents back, in which case the payment from the

                                      25
     applicant cannot be accepted unless specific authorization is received
     from the negotiating bk.




USANCE DOCUMENTS:


     In case of negotiation under usance L\c, we may come across either of the
     following situations:


A. Clean Documents

     We receive intimation of negotiation, and / or documents we do not find
     any discrepancies.

     We send presentation memo, along with a draft drawn by us (or an
     indemnity in lieu of draft), copy of invoice, copy of transport document,
     A1/A2 form.

     The draft is accepted by the applicant. Upon receipt of acceptance we
     release original documents to the applicant.

     We send an acceptance advice in SWIFT format (MT 754), and authorize
     the negotiating bank to claim as per L/C terms on due date, or undertake
     to remit to them as instructed on due date.

     On due date, the negotiating bank debits our account or we remit,
     simultaneously debiting the applicant in rupees plus our commission,
     charges etc.

     Reverse L\c liability.

     Send payment advice to applicant and file copies in the L\c file.

     If the L\c is fully utilized - close the L\c file.


B. Discrepant Documents


     We receive documents from the negotiating bank.          Upon scrutiny we
     observe discrepancies.

                                           26
      In this case, we must send an intimation of refusal of documents (MT 734)
      and refer the documents to the applicant along with presentation memo
      citing discrepancies, a draft drawn by us (or an indemnity in lieu of draft),
      copy of invoice, copy of transport document, A1/A2 form.



      If the discrepancies are acceptable to the applicant, the applicant accepts
      the draft. The fact of acceptance is immediately conveyed to the
      negotiating bank. Upon receipt of acceptance we release original
      documents to the applicant.


      We send an acceptance advice in SWIFT format (MT 754), and authorize
      the negotiating bank to claim as per L/C terms on due date, or undertake
      to remit to them as instructed on due date.

      On due date, the negotiating bank debits our account or we remit,
      simultaneously debiting the applicant in rupees plus our commission,
      charges etc.

      Reverse L\c liability.

      If the L\c is fully utilized - close the L\c file.

      Send payment advice to applicant and file copies in the L\c file.



C. Receipt of intimation of discrepant documents

      We receive intimation from the negotiating bank (SWIFT MT 750) stating
      that they have received documents for negotiation in which they have
      observed discrepancies and asking our approval of the discrepancies.
      Upon receipt of the message we should take the following steps:


      The contents of the message including discrepancies should be referred
      to the applicant seeking their instructions.


      We should convey the fact that the contents have been referred to the
      applicant to the negotiating bank.




                                            27
    If the applicant accepts the discrepancies cited by the negotiating bank we
    must immediately convey the same to them, mentioning that the
    documents will be accepted only if they are otherwise in order.




    Upon receipt of documents if we do not observe any other discrepancies,
    the documents may be treated as though the same are clean and may be
    proceeded as A above.

    If however, the discrepancies are not acceptable to the applicant the
    negotiating bank shall be informed of the same immediately, the
    negotiating bank may get the discrepancies rectified and send to us the
    corrected documents



DUE DATE CALCULATION:


    The usance bills are to be entered in EXTRA and are paid on due date.
    EXTRA does not have the ability to calculate due dates and the same is
    done manually

    The negotiating bank generally claims payment on due date mentioning
    the due date (maturity) which needs to be checked for its correctness.

    If the credit asks for a draft drawn on us, the tenor is to be checked with l\c
    provisions for its accuracy and also with the negotiating bank's covering
    letter / telex message if any.

    The due date will be calculated as under: ( refer Art. 47)

    If the tenor is 'xx' days from date of draft or B/L due date is arrived at by
    adding 'xx' days to the date of the document inclusive of the date of
    document.


    If the tenor is 'xx' days after date of B/L, due date is arrived at by adding
    'xx' days to the date of B/L excluding the date of B/L.




                                      28
      If the due date falls on a Sunday or a Public Holiday as declared under
      N.I. Act, payment is effected by us on the immediately preceding working
      day, unless the negotiating bank claims the funds on a subsequent day,
      for example, negotiating bank in Japan claim funds on the day following a
      Sunday / holiday.




Payment of Import Bill:


      A sight bill is paid on the date for payment as per the negotiation advice of
      the negotiating bank or upon receipt of payment authorization from the
      applicant as the case may be. For usance bills, EXTRA gives a printout
      for acceptances due (Acceptance due for next 7 days)           which gives
      a list of all payments due for the seven days.


      Payment of import bills is effected as follows:

      Input is manually prepared or printed from EXTRA and checked and
      signed by the supervisor.

      Conversion rate is obtained from treasury on the input sheet (or
      contracted rate as per deal ticket is used), the input sheet is initialed by
      the dealer who gives the conversion rate.




Payment of Interest:

      If the L\c is a usance L\c, and carries interest component which is payable
      by the applicant, the rate of interest is the one which is agreed to by and
      between the buyer and seller as evidenced by the contract / purchase
      order etc. is subject to a maximum of prime rate applicable for the
      currency on the date of negotiation.            Prime rates are published
      periodically by FEDAI. If the interest rate claimed by the negotiating bank
      exceeds prime, specific RBI approval is required to make payment.




                                        29
     Where interest is not covered by the letter of credit but is claimed by the
     negotiating bank on account of delay in payment the it shall be as
     stipulated in Chapter 7 A 12.




With Holding Tax:

     Interest payment is subject to deduction of tax at source at the rate
     applicable for the country of the receiver and interest must be remitted net
     of tax unless the tax is to be paid by the applicant in which case proof of
     payment of WHT is to be submitted by the applicant.

     WHT is not payable if payment is being made in a country with whom we
     have a zero-tax treaty, or payment is made to a person/bank of Indian
     nationality.


Payment of Bank Charges:


     If foreign bank charges are for applicant’s account the same are to be paid
     by debiting applicant's account at the time of payment of bill, if claimed at
     the negotiation stage. For charges, A2 form is required to be given by the
     applicant.

     Similarly, overseas bank charges which are for beneficiary's account, but
     not paid by the beneficiary can be claimed by the overseas bank from us
     as per Art. 18 of UCPDC.



Fees & Reimbursements

     The different charges/fees payable under import L/C is briefly as follows

     The issuing bank charges the applicant fees for opening the letter of
     credit. The fee charged depends on the credit of the applicant, and
     primarily comprises of:




                                      30
(a) Opening Charges:

      This would comprise commitment charges and usance charged to be
      charged upfront for the period of the L/C.

      The fee charged by the L/C opening bank during the commitment period is
      referred to as commitment fees. Commitment period is the period from the
      opening of the letter of credit until the last date of negotiation of
      documents under the L/C or the expiry of the L/C, whichever is later.

      Usance is the credit period agreed between the buyer and the seller under
      the letter of credit. This may vary from 7 days usance (sight) to 90/180
      days. The fee charged by bank for the usance period is referred to as
      usance charges

(b) Retirement Charges:

      1. This would be payable at the time of retirement of LCs. LC opening
      bank scrutinizes the bills under the LCs according to UCPDC guidelines ,
      and levies charges based on value of goods.

      2. The advising bank charges an advising fee to the beneficiary unless
      stated otherwise the fees could vary depending on the country of the
      beneficiary. The advising bank charges may be eventually borne by the
      issuing bank or reimbursed from the applicant.

      3. The applicant is bounded and liable to indemnify banks against all
      obligations and responsibilities imposed by foreign laws and usage.

      4. The confirming bank's fee depends on the credit of the issuing bank and
      would be borne by the beneficiary or the issuing bank (applicant
      eventually) depending on the terms of contract.

      5. The reimbursing bank charges are to the account of the issuing bank.




                                       31
Payment under Buyer's Credit / Supplier's Credit:

      As provided by Chapter 7 Part B external commercial borrowings may be
      arranged by banks for their applicants (buyer's credit) or the overseas
      supplier (supplier's credit) with RBI approval. Application for such short
      term credit with maturities up to three years are to be made to RBI Calo
      Section.

      Once approved by RBI, payments for import bill for the relevant
      transactions for which approval has been received can be made from our
      ECBs.

      Procedure for payment for Buyer's Credit:

      Same drill for scrutiny of documents is followed as above.

      Once the documents are found to be in compliance with credit terms,
      funds are raised from our correspondents as mentioned in the RBI's ECB
      4 approval.

      Borrowing is made for number of days at the rate of interest agreed upon
      with the customer and approved by RBI.

      Generally in case of L\c’s subject to buyer's credit arrangement, the
      reimbursement instructions provided by us are indirect, i.e.,' we will remit
      to you upon receipt of your tested message value three working days
      .........' so that date of payment can be matched the date of borrowal.

      When an intimation of negotiation is received from the negotiating bank, a
      borrowal message is sent to our correspondent from whom we will borrow
      for payment of the L/C bill. The message contains details as per format
      given below:


      At this stage, a draft is drawn on the applicant for the bill amount plus
      interest (or an indemnity in lieu of draft is obtained) and documents are

                                       32
released to the applicant as in case of sight credit after completing the
usual formalities.


The value date of borrowal should be same as the date of payment; else
we will be out of funds in our nostro.

On the date of payment, we will remit by MT 202 by debit to our Nostro
account for the bill value only.

Correspondent bank charges and other foreign currency amounts shall be
paid to the negotiating bank by debit to applicant account on the date of
payment.

The bill amount plus interest payable on due date is then booked in BAG
under customer's radical (in lieu of acceptance as in the case of usance
letter of credit) in account type 725 in the same currency, amount and due
date as the payment date of the buyer's credit.

A notional acceptance bill will be created in EXTRA with correct amount
and due date but without creating liability entries, as the customer liability
is booked BAG. Purpose of creating EXTRA is only for the sake of having
the convenience of getting due date of the bill from EXTRA records /
acceptance due print outs.

The bill as regards the negotiating bank and beneficiary has been finally
settled and CL has no liability under the letter of credit


On due date, the amount of the bill plus interest will be paid to the lending
bank as per their instructions by debit to applicant's account at the
prevailing selling rate for the currency (or the contracted rate, if
applicable).

The BAG guarantee is to be cancelled on the same day, and the
cancellation approved else the customer’s liability will not get reversed
and limits will remain booked to that extent.

The draft if any will be marked as 'PAID' and discharged draft will be
returned to the customer.




                                  33
Releasing Original Documents:

      Releasing of original transport documents to the applicant has an
      implication of passing the merchandise to applicant or holder / endorsee of
      the transport document by the doctrine of constructive delivery. The bank
      thereafter loses any lien on the goods for all practical reasons.

      Original transport documents as also other documents of title such as
      insurance certificate / policy may only be delivered to the applicant only
      upon payment of the bill in case of a sight l/c or acceptance in the case of
      usance credit..


      Releasing of the documents is therefore simultaneous or subsequent to
      the payment of the bill.

The prerequisites of releasing of documents are:

      a) Letter of authorization of payment duly signed by authorized signatories

      b) Account is sufficiently funded

      c) Requisite A1/A2 forms are enclosed.


      Similarly, issuance of delivery order or shipping guarantee can be effected
      only if the applicant pays the bill amount or undertakes to pay regardless
      of discrepancies and deposits cash margin with us of the bill equivalent in
      rupees (or such cash margin is waived by Head of Corporate banking /
      AGM).




                                          34
SCRUTINY SHEET FOR DOCUMENTS UNDER IMPORT L/C:


        L/C NO.

A: OPENER:
B: OPENING BANK

        BENEFICIARY:________

A: L/C AMOUNT.
B: BALANCE
C: BILL AMOUNT:
D: L/C RESTRICTED TO:
E: NEGOTIATION BY:


        DRAFTS, IF REQUD BY L/C

A: DATE
B: TENOR
C: DRAWEE (AS PER L/C)
D: AMOUNT IN WORDS / FIGURES

        INVOICE:

A: NUMBER
B: DATE
C. DESCRIPTION OF GOODS (AS PER L/C)
D: ISSUED BY BENEFICIARY
E: ON OPENER
F: ORIGIN OF GOODS
G: AMOUNT = DRAFT AMOUNT
H: SIGNED, IF STATED IN L/C


        BILL OF LADING / AIRWAY BILL (FULL SET / ALL ORIGINALS)

A: VESSEL NAME / FLIGHT NO.
B: B/L / AWB NO. & DATE
C: BEFORE L/C EXPIRY
D: PORT OF SHIP / DESTINATION AS PER L/C Y/N
E: ENDORSEMENTS
F: TRANSHIPMENT Y/N (IF YES, THRU DOC)
G: FREIGHT PREPAID / COLLECT / PREPAYABLE (AS PER L/C)

                                   35
H: CLAUSED / CLEAN
I: BLANK BACK / SHORT FORM
J. ON BOARD NAMED VESSEL (ON BOARD STAMPED / DATED)
K.DESCRIPTION OF GOODS = INVOICE = L/C
L. SIGNED AS PER ART. 23 / 26

        INSURANCE POLICY / CERTIFICATE (AS PER L/C)

A: CLAUSES (AS PER L/C)
B: FOR 110% OF INVOICE OR AS PER L/C
C: NO. & DATE - FROM SHIPMENT DATE OR EFFECTIVE DATE
D: UPTO FINAL DESTINATION / WAREHOUSE
E: CLAIMS PAYABLE AT           TO
F: ENDORSEMENTS
G: VESSEL NAME / FLIGHT DETAILS AS PER SHIPG. DOCUMENT

        OTHER DOCUMENTS ENCLOSED (AS REQUIRED BY L/C)

A: PACKING LIST
B: WEIGHT LIST
C: CERTIFICATE OF ORIGIN
D: SHIPPING CO.'S CERTIFICATE
E: FORWARD COVER IF ANY

        DISCREPANCIES:

        EVIDENCE OF IMPORT

        BILLS OF ENTRY

        BEF REPORT




                                36
                                         Swift Codes

       Disclaimer: the codes reflect the world pre UCP 600: the following does not take
       into consideration the modified fields 44 A (place of taking in charge) 44E port of
       loading, 44F port of discharge, 44 B Place of final destination; as well as the new
       S.W.I.F.T. Telex Field Definitions


Number SWIFT Field 700/701 Definitions              SWIFT Field Explanation
:700   Issue Of Doc Credit                          Type of transmission
:20    Doc Credit Number                            Credit number assigned by the issuing bank
:21    Receiver's Reference
:23    Reference Top Pre-Advise
:26E   Number Of Amendments                         Number of Amendments
:27    Sequence Of Total                            Page number of total pages
:30    Date Contact Agreed / Amended                Date Amended
:31C   Issue Date                                   The date the letter of credit is issued
:31D   Date And Place Of Expiry                     The date the letter of credit expires
:31E   Maturity Date
:32B   Currency / Amount                            The currency and value of the Credit
:39A   Percentage Credit Amount Tolerance
:39B   Maximum Credit Amount
:39C   Additional Amounts Covered                   Additional amounts covered
:40A   Form Of Doc Credit                           Irrevocable and/or transferable
:41A   Available With ...By
:41D   Available With / By                          Bank the Credit is available to be paid by
:42C   Drafts At                                    Sight or days after sight for payment
:42A   Drawee                                       Bank the draft is drawn on
:42M   Mixed Payment Details
:42P   Deferred Payment Details                     Deferred payment details
:43P   Partial Shipments                            Partial shipments allowed or not allowed
:43T   Transshipment                                Transshipments allowed or not allowed
        Loading on Board / Dispatch / Taking in
:44A    Charge at / From                          Commercial port loading from
       fields: 50 B Non-Bank issued LC, and 40 E (Applicable Rules).
                                               37
:44B   For Transport To                             Destination commercial port
:44C   Latest Shipment Date                         Last date shipment letter of credit is valid for
:44D   Shipment Period
:45    Goods                                        Goods to be delivered
:45A   Description Of Goods And/or Services         Goods description
:46    Documents Required
:46A   Documents Required                           Documents required for payment
:47    Additional Conditions
:47A   Additional Conditions                        Additional requirements of the letter of credit
:47B   Additional Conditions                        Additional conditions to be complied with
                                                    Number of days after shipment allowed for
:48    Period For Presentation Of Documents         document presentation
                                                    Confirmation by the paying bank is allowed
:49    Confirmation Instructions                    or not allowed
                                                    The Applicant (usually the buyer) of the
:50    Applicant                                    Letter of Credit.
:50    Ordering Customer                            Ordering customer
:51A   Applicant Bank
:51D   Sending Institution                          Sending Institution
:53A   Reimbursement Bank                           Paying bank to negotiating bank
                                                    Reimbursement instructions between the
:53D   Reimbursement                                paying and issuing bank
:57A   "Advise Through" Bank
:57D   Account With Bank                            Issuing banks account relationship bank
                                                    The Beneficiary (usually the seller) of the
:59    Beneficiary                                  Letter of Credit.
                                                    Applicant and Beneficiary responsibility for
:71B   Charges                                      bank charges
:72    Sender To Receiver Information               Send and Receive information
       Instructions To Pay / Accept / Negotiating   Instructions to paying, accepting, or
:78    Bank                                         negotiating bank
:79    Narrative
I/O    Instead Of




                                              38
Incoterms 2000

While the terms of sale in international business often sound similar to those
commonly used in domestic contracts, they often have different meanings.
Confusion over these terms can result in a lost sale or a financial loss on a
sale. Thus, it is essential that you understand what terms you are agreeing
to before you finalize a contract.

Commercial traders had developed a set of trade terms to describe their
rights and liabilities with regard to the sale and transport of goods. These
trade terms consisted of short abbreviations for lengthy contract provisions.
Unfortunately, there was no uniform interpretation of them in all countries,
and therefore misunderstandings often arose in cross-border transactions.

To improve this aspect of international trade, the International Chamber of
Commerce (ICC) in Paris developed INCOTERMS (INternational
COmmercial TERMS), a set of uniform rules for the interpretation of
international commercial terms defining the costs, risks, and obligations of
buyers and sellers in international transactions. First published in 1936,
these rules have been periodically revised to account for changing modes of
transport and document delivery. The current version is Incoterms 2000.

Use of Incoterms

Incoterms are not implied into contracts for the sale of goods. If you desire
to use Incoterms, you must specifically include them in your contract.
Further, your contract should expressly refer to the rules of interpretation as
defined in the latest revision of Incoterms, for example, Incoterms 2000, and
you should ensure the proper application of the terms by additional contract
provisions. Also, Incoterms are not “laws.” In case of a dispute, courts and
arbitrators will look at: 1) the sales contract, 2) who has possession of the
goods, and 3) what payment, if any, has been made. See International
Contracts, also by World Trade Press.

Illustrated Guide to Incoterms

This guide was designed to give a graphic representation of the buyer’s and
seller’s risks and costs under each Incoterm. The material on each facing
page gives a summary of seller and buyer responsibilities.




                                         39
Incoterms Do . . .

Incoterms 2000 may be included in a sales contract if the parties desire the
following:

   1. To complete a sale of goods.
   2. To indicate each contracting party’s costs, risks, and obligations with
      regard to delivery of the goods as follows:
         a. When is the delivery completed?
         b. How does a party ensure that the other party has met that
             standard of conduct?
         c. Which party must comply with requisite licenses and
             government-imposed formalities?
         d. What are the mode and terms of carriage?
         e. What are the delivery terms and what is required as proof of
             delivery?
         f. When is the risk of loss transferred from the seller to the
             buyer?
         g. How will transport costs be divided between the parties?
         h. What notices are the parties required to give to each other
             regarding the transport and transfer of the goods?
   3. To establish basic terms of transport and delivery in a short format.

Incoterms Do Not . . .


Incoterms 2000 are not sufficient on their own to express the full intent of
the parties. They will not:

1. Apply to contracts for services.

2. Define contractual rights and obligations other than for delivery.

3. Specify details of the transfer, transport, and delivery of the goods.

4. Determine how title to the goods will be transferred.

5. Protect a party from his/her own risk of loss.

6. Cover the goods before or after delivery.

7. Define the remedies for breach of contract.



                                         40
Tip: Incoterms can be quite useful, but their use has limitations. If you use
them incorrectly, your contract may be ambiguous, if not impossible to
perform. It is therefore important to understand the scope and purpose of
Incoterms—when and why you might use them—before you rely on them to
define such important terms as mode of delivery, customs clearance,
passage of title, and transfer of risk.

Organization of Incoterms

Incoterms are grouped into four categories:

   1. The "E" term (EXW)-The only term where the seller/exporter makes
      the goods available at his or her own premises to the buyer/importer.
   2. The "F" terms (FCA, FAS and FOB)-Terms where the seller/exporter
      is responsible to deliver the goods to a carrier named by the buyer.
   3. The "C" terms (CFR, CIF, CPT and CIP)-Terms where the
      seller/exporter/manufacturer is responsible for contracting and paying
      for carriage of the goods, but not responsible for additional costs or
      risk of loss or damage to the goods once they have been shipped. C
      terms evidence "shipment" (as opposed to "arrival") contracts.
   4. The "D" terms (DAF, DES, DEQ, DDU and DDP)-Terms where the
      seller/exporter/manufacturer is responsible for all costs and risks
      associated with bringing the goods to the place of destination. D
      terms evidence "arrival" contracts.




The following table sets out these categories.

       Incoterms 2000
       Group               E         Ex                        Works
                               EXW
       Departure                     (...named place)
                                     Free                      Carrier
                               FCA
                                     (...named place)
       Group              F     Free       Alongside        Ship
                            FAS
       Main Carriage Unpaid     (...named port of shipment)
                                     Free          On         Board
                               FOB
                                     (...named port of shipment)


                                        41
                                   Cost        and           Freight
                             CFR
                                   (...named port of destination)
                                   Cost, Insurance and Freight
                             CIF
      Group              C         (...named port of destination)
      Main Carriage Paid           Carriage         Paid          To
                             CPT
                                   (...named port of destination)
                                   Carriage and Insurance Paid To
                             CIP
                                   (...named port of destination)
                                   Delivered     at        Frontier
                             DAF
                                   (a named place)
                                   Delivered         Ex        Ship
                             DES
                                   (...named port of destination)
      Group              D         Delivered        Ex         Quay
                             DEQ
      Arrival                      (...named port of destination)
                                   Delivered      Duty       Unpaid
                             DDU
                                   (...named port of destination)
                                   Delivered       Duty         Paid
                             DDP
                                   (...named port of destination)

Mode of Transport

Not all Incoterms are appropriate for all modes of transport. Some terms
were designed with sea vessels in mind while others were designed to be
applicable to all modes. The following table sets out which terms are
appropriate for each mode of transport.

 Incoterms 2000
                                            Ex                     Works
                                     EXW
                                            (...named place)
                                      Free     Carrier   (...named
 All modes of transport including FCA
                                      place)
 multimodal
                                      Carriage        Paid      To
                                  CPT (...named        port      of
                                      destination)




                                     42
                                               Carriage and Insurance
                                               Paid                To
                                        CIP
                                               (...named    port    of
                                               destination)
                                               Delivered     at       Frontier
                                        DAF
                                               (...named place)
                                        DDU Delivered Duty Unpaid
                                        DDP Delivered Duty Paid
                                               Free     Alongside      Ship
                                        FAS
                                               (...named port of shipment)
                                               Free       On          Board
                                        FOB
                                               (...named port of shipment)
                                            Cost       and      Freight
                                        CFR (...named      port      of
                                            destination)

 Sea and inland waterway transport             Cost, Insurance and Freight
                                        CIF    (...named      port      of
                                               destination)
                                            Delivered         Ex         Ship
                                        DES (...named         port         of
                                            destination)
                                            Delivered         Ex        Quay
                                        DEQ (...named          port       of
                                            destination)

Helpful Definitions

Pre-carriage-The initial transport of goods from the seller's premises to the
main port of shipment. Usually by truck, rail or on inland waterways.

Main carriage-The primary transport of goods, generally for the longest part
of the journey and generally from one country to another. Usually by sea
vessel or by airplane, but can be by truck or rail as well.

On-carriage-Transport from the port of arrival in the country of destination
to the buyer's premises. Usually by truck, rail or on inland waterways.




                                        43
Notes on Incoterms:


  1. Underlying Contract—Incoterms were designed to be used within
     the context of a written contract for the sale of goods. Incoterms,
     therefore, refer to the contract of sale, rather than the contract of
     carriage of the goods. Buyers and sellers should specify that their
     contract be governed by Incoterms 2000.
  2. EXW and FCA—if you buy Ex Works or Free Carrier you will need to
     arrange for the contract of carriage. Also, since the shipper will not
     receive a bill of lading, using a letter of credit requiring a bill of lading
     will not be possible.
  3. EDI: Electronic Data Interchange—it is increasingly common for
     sellers to prepare and transmit documents electronically. Incoterms
     provides for EDI so long as buyers and sellers agree on their use in
     the sales contract.
  4. Insurable Interest—Note that in many cases either the buyer or the
     seller is not obligated to provide insurance. In a number of cases
     neither party is obligated to provide insurance. However, both the
     seller and buyer should be aware that they may have insurable
     interest in the goods and prudence dictates purchase of insurance
     coverage.
  5. Customs of the Port or Trade—Incoterms are an attempt to
     standardize trade terms for all nations and all trades. However,
     different ports and different trades have their own customs and
     practices. It is best if specific customs and practices are specified in
     the sales contract.
  6. Precise Point of Delivery—in some cases it may not be possible for
     the buyer to name the precise point of delivery at contract. However,
     if the buyer does not do so in a timely manner, it may give the seller
     the option to make delivery within a range of places that is within the
     terms of the contract. For example, the original terms of sale may
     state CFR Port of Rotterdam. The Port of Rotterdam is huge and the
     buyer may find that a particular point within the port is best and
     should so state in the sales contract and in the trade term. Also,
     since the buyer becomes liable for the goods once they arrive, he or
     she may be responsible for unloading, storage and other charges
     once the goods have been made available at the place named.
  7. Export and Import Customs Clearance—it is usually desirable that
     export customs formalities be handled by the seller and import
     customs formalities be handled by the buyer. However, some trade

                                         44
    terms require that the buyer handle export formalities and others
    require that the seller handle import formalities. In each case the
    buyer and seller will have to assume risk from export and import
    restrictions and prohibitions. In some cases foreign exporters may
    not be able to obtain import licenses in the country of import. This
    should be researched before accepting final terms.
8. Added Wording—It is possible, and in many cases desirable, that
    the seller and buyer agree to additional wording to an Incoterm. For
    example, if the seller agrees to DDP terms, agreeing to pay for
    customs formalities and import duties, but not for VAT (Value Added
    Taxes) the term “DDP VAT Unpaid” may be used.
9. Packing—it is the responsibility of the seller to provide packaging
    unless the goods shipped are customarily shipped in bulk (usually
    commodities such as oil or grain). In most situations it is best if the
    buyer and seller agree in the sales contract on the type and extent of
    packing required. However, it may not be possible to know
    beforehand the type or duration of transport. As a result, it is the
    responsibility of the seller to provide for safe and appropriate
    packaging, but only to the extent that the buyer has made the
    circumstances of the transport known to the seller beforehand.
    If the seller is responsible for packing goods in an ocean or air freight
    container it is also his responsibility to pack the container properly to
    withstand shipment.
10. Inspection—These are several issues related to inspections: a) the
    seller is responsible for costs of inspection to make certain the
    quantity and quality of the shipment is in conformity with the sales
    contract, b) pre-shipment inspections as required by the export
    authority are the responsibility of the party responsible for export
    formalities, c) import inspections as required by the import authority
    are the responsibility of the party responsible for import formalities,
    and d) third-party inspections for independent verification of quality
    and quantity (if required) are generally the responsibility of the buyer.
    The buyer may require such an inspection and inspection document
    as a condition of payment.
11. Passing of Risks and Costs—the general rule is that risks and
    costs pass from the seller to the buyer once the buyer has delivered
    the goods to the point and place named in the trade term.




                                      45
Letters of Credit - Checklist and Guide for Exporters

SITPRO has produced a set of three Letters of Credit Checklist and Guides for
Importers, Exporters and Export Sales Representatives. The checklist designed
for importers is to be used by purchasing staff when applying to local banks for
letters of credit. The export sales representative's guide advises on credits and
some of the other responsibilities assumed on overseas visits. We strongly
recommend you provide your customers with copies of these guides to back-up
your own discussions with them.

This checklist is intended primarily for use in export sales and shipping
departments. It will also be of assistance to those involved in financial and credit
management and in production and supply. To ensure a letter of credit is
workable, trouble-free and provides security of payment, it is essential to take
simple yet effective precautions at the start. Working through the checkpoints set
out in the various sections of the guide will help reduce discrepancies and
associated unplanned costs.

Successive surveys by SITPRO and others have shown that well in excess of
fifty percent of documents presented by exporters to banks for payment under
letters of credit are rejected on first presentation. This can cause expensive
delays for both the exporter and the importer and may even result in a lesser
payment or no payment at all. A great many of those rejections could be avoided
if more care was taken to ensure that the documents called for in the credit are
properly completed.

The SITPRO Letters of Credit Checklists and Guides are designed to minimize
unnecessary costs and risk when trading on the basis of letters of credit. They
are aligned with and based on interpretation of Uniform Customs & Practice for
Documentary Credits (UCP), produced by the International Chamber of
Commerce (ICC). The current revision, UCP 600, is available from ICC UK
(www.iccuk.net).



                                        46
Any letter of credit requirements which are still not clear should be referred to
your bank for clarification without delay.




Key Checks When the Letter of Credit is received

Before going any further:

Check that the letter of credit states that it is subject to the 2007 revision of the
Uniform Customs and Practice for Documentary Credits (UCP) of the
International Chamber of Commerce (usually referred to as UCP 600 or perhaps
"current revision")

Check the authenticity of the credit. Forgeries are comparatively rare, but
dangerous. Credits are normally sent through an Advising/Confirming bank in the
UK. Any departure from this routine should be viewed with suspicion, for example
if it comes to you direct from overseas If you do not recognize the UK
Advising/Confirming bank, especially if it comes from a UK address asking you to
send documents abroad, check its authenticity with your own bank

According to UCP 600 Article 9(b), the Advising bank shows it is satisfied that as
to the apparent authenticity of the credit by advising the credit

If you receive an unexpected credit from a buyer unknown to you, even under
cover of a seemingly genuine advice from a UK bank, check with the bank that
everything is in order -particularly if it calls for goods to be shipped direct to the
buyer with only a PO Box number

Having assured yourself on these points, proceed with the key checks. Bear in
mind, as mentioned, that over half of credit documents are rejected on first
presentation to the banks. The main reason for this is matters that could have
been put right, had the credit been checked early enough, were not put right.
Making these key checks on the day the credit arrives, consulting other
departments accordingly and carrying out the more detailed checks immediately
afterwards, will enable difficulties to be spotted in better time to take action.



                                         47
Check that the type of credit gives you the level of payment security you
sought

A bank in the UK may not state it but credits issued under UCP 600 should be
irrevocable




Check that you will be paid at the time you planned

The credit may specify payment some time after shipment or after documents
and/or drafts have been deemed compliant by the paying bank (Nominated or
Issuing bank). Additional delays and other problems may arise if
payment/acceptance is to take place abroad

Check that both your company name, address and full title and those of the
buyer are correct and consistent with all other documents

Check that you can produce the goods, ship them, assemble the
documents required and deliver them to the bank, all by the expiry date and
within the time limit for presentation of transport documents

The bank has no discretion under UCP 600 and is not in a position to treat as
compliant either documents presented after expiry dates or documents not
completely in order

If the credit has been sent electronically to a UK bank ("teletransmitted")
check that it provides details of the credit that you can act upon and that is
not just a pre-advice

Unless it says otherwise, and provided it refers to UCP 600, the teletransmitted
credit: can be taken as the operative credit; can be safely acted upon; and
overrides any later mailed advice. Unless a pre-advice states otherwise, the
Issuing bank is bound to follow up the pre-advice by issuing the credit

Check that only those bank charges you agreed to pay are stated to be for
your account

Be careful over bank reimbursing charges with a credit not expressed in sterling



                                       48
If an alteration or extension is required, complete the detailed checks
below to see if there are any other errors, and:

Contact the buyer without further delay and then ensure that any necessary
amendments are received in time

If an import license must be extended, this can take some time

If the license cannot be extended and a new one has to be obtained the delay
may well go beyond the expiry date of the credit, Contact the Advising bank

It is unlikely that the Advising bank would make an error or omission: under UCP
600 an Advising bank signifies by advising a credit, that the advice accurately
reflects the terms and conditions of the credit

At an early stage, it will be in your best interests to send a copy of the credit to
your forwarder or whoever will obtain the transport documents. Similarly with
your insurers if insurance is to be covered by you. Telephone instructions alone
may easily result in misspellings or other errors and consequent rejection by the
bank, or even a wrong type of transport or insurance document may be provided.

Detailed Checks Immediately on Receipt of the Credit

When checking your credit under the headings below, remember that UCP 600
will apply fully unless you have agreed different terms, which are reflected in the
credit. One or more of the following checkpoints may thus be overridden by
conditions stipulated in your particular credit. If you are still unclear as to what the
wording of the credit implies check what UCP 600 has to say on the point and
with the UK bank.

Note: It is recommended that the details of the credit be recorded at this point so
that a progress check can be updated right through to presentation of the final
documents to the bank for payment. The Documentary Letter of Credit Exporters
Validation Form available from Chancellor Formecon Ltd provides a convenient
way for doing this.

Does the type of credit give you the security of payment you want?

Irrevocable but carrying only the undertaking of your customer's bank in their
country

                                          49
Irrevocable and confirmed, carrying the extra and separate undertaking of a
second bank, usually in the UK



Is it payable when you want it?

At sight, when correct documents are presented to the paying bank

At a later date, such as 90 days after the date of the transport document

Is it payable where you want it?

In the UK with little or no delay after reasonable time for checking by the paying
bank; or

Abroad, with possible lengthy delays and some risk

If you were not expecting payment to be made abroad but are prepared to
consider it, be sure you understand your position, i.e. that you are responsible for
postal delays in presenting documents overseas within the time limits set by the
credit. It also gives less time for replacing non-compliant documents with
compliant ones

Note: Under UCP 600, whether a credit is available by sight payment, deferred
payment, acceptance or negotiation, a credit can be available with any bank.

Is the value of the credit correct?

Does it allow for: Any extra agreed costs such as freight or inspection fees?

Planned variation: "about" or "approximately" in a credit permits up to a ±10%
variation in the amount stated of the credit, quantity or the unit price (see Article
30(a) of UCP 600)

Unplanned variations: UCP 600 Article 30(b) allows a tolerance of ±5% provided
a stipulate number of packing units or individual items is not stated in and the
total amount of the drawings does not exceed the credit

Are the terms of delivery the same as you quoted (e.g. FOB, CIF, CIP) and
do they match the price properly?

                                         50
You will need to specify if you want the delivery terms to form part of the credit
terms

For example, if you quoted “£10,000 FOB Southampton –Incoterms 2000” and
the credit states “£10,000 CIF Hong Kong –Incoterms 2000” you will naturally not
be able to recover the freight and insurance

The paying bank will refuse your documents if you exceed the credit amount or
alter any unit price quoted in the credit

Inconsistent delivery terms are discrepancies and the L/C will be rejected

Company names, addresses and other details

All details should be correctly spelt and consistently reproduced on all the
documents

Following UCP 600 Article 14(j), addresses need not be the same as stated in
the credit, but must be within the same country as the respective addresses
mentioned -except when the Applicant's contact details appear as part of the
consignee or notify party details on a transport document

Are partial shipments expressly prohibited?

If not, they are allowed (UCP 600 Article 31(a))

Can you meet the expiry date and also present documents within the
transport document time limit?

You will need to allow for:

Production and packing

Inspection, if required, and obtaining any inspection certificate or clean report of
findings

Obtaining other certificates (e.g. certificate of origin)

Chamber of Commerce and/or consular work

Shipment against availability of transport

                                           51
Assembling and checking documents

Presenting documents to the bank




The presentation of documents must be completed within 21 days of the date of
shipment evidenced by the transport document, unless the credit curtails or
extends the period - a credit will more frequently curtail the period

The expiry date stipulated in the credit must be adhered to - it is not overridden
by the 21-day rule

It might be in your interest to ask for an extension on the 21 days - provided it
falls within the validity of the contract

Has the export or import license been obtained with adequate validity?

Are the goods described consistently?

Descriptions in the L/C should be brief and correspond with the invoice (UCP 600
Article 18(c))

Details in other documents do not need to be identical to, but should not conflict,
with that stated in the invoice and credit (UCP 600 Article 14(d) and (e))

Does the credit restrict the way in which documents are prepared?

Documents, howsoever prepared, are deemed to be originals provided they are
properly authenticated (Article 17 of UCP 600 gives details)

Can you provide the transport document called for?

"On deck": a clause stating goods may be loaded on deck is acceptable, but it
must not state that goods are or will be loaded on deck (UCP 600 Article 26(a))

"Claused" transport documents: Article 27 of UCP 600 states that banks will only
accept clean transport documents (i.e. bearing no clause or notation expressly
declaring a defective condition of the goods or packaging)



                                        52
The places of acceptance and delivery and, if a bill of lading is called for, the
ports of loading and discharge should be checked - the UCP 600 transport
articles (Articles 19-24) are precise on this point

Transport documents may be issued by any party, including freight forwarders,
other than a carrier, owner, master or charterer (see UCP 600 Article 14(l))

Check that the requirements for the mode of transport are satisfied

Short form or blank back transport documents are acceptable

"Intended vessels" and "intended ports of loading" are acceptable in certain
circumstances (see UCP 600 Articles 20 and 21 sections (a) (ii) and (iii))

"Received for carriage" or "received for shipment" documents are not acceptable
under UCP 600

For Road, Rail and Inland Waterway the transport document can indicate the
date of receipt for shipment, dispatch or carriage (UCP 600 Article 24)

For Courier and Post, a courier receipt may indicate a date of pickup, and a post
receipt or certificate of posting can indicate a date of receipt for transport (UCP
600 Article 25)

Transshipment: the prohibition of transshipment is inappropriate

Under UCP 600 Articles 19-24 (the transport articles), transport documents may
indicate goods mayor will be transshipped provided the entire carriage is covered
by one and the same document, even if the credit prohibits transshipment

Insurance

Can you obtain insurance cover for the risks specified? If "all risks" is stipulated,
banks will accept any "all risks" notation or clauses on insurance documents
(UCP 600 Article 28(h)) - remember that "all risk" does not mean all risk

Does your quotation cover the cost of insuring the risks specified?

Can you provide the right type of insurance document, for example if the credit
calls for a policy rather than a certificate? Cover notes are not acceptable

                                         53
If you are not asked to arrange marine insurance, for example on Incoterms CFR
or CPT sales, have you considered obtaining "seller's interest" or other suitable
cover for your own account, if available, outside the terms of the credit?

Can you supply all other documents in the way called for?

Remember that some documents, such as inspection certificates or consular
documents, may take some time to arrange

Interpretation of common business language

For example, words such as "promptly" and "immediately" are disregarded under
UCP (refer to Article 3 of UCP 600 for further information)

What if the credit is wrong or ambiguous on any of the above points?

Prompt decision and action is necessary on:

Whether you can change your plans or paperwork to meet the requirement

Whether to ask the customer to amend the credit and who pays for the
amendment

Whether to let things stand and risk non-payment

If in doubt, always consult your own bank and/or the paying bank for advice and
make a record of the time, date and outcome of the contact

Remember that only the Applicant can authorize amendments, i.e. alterations or
extensions, through his bank

When Compiling Documents for Presentation to the Bank

Ensure that:

Documents presented in the credit are presented as separate documents

For example, if a packing list and weight list are required and you have a
combined packing and weight list, two original copies of this document will need
to be presented



                                       54
You have the correct number of originals and/or copies of each; they carry the
information called for; the title of each is correct and it is issued by the party
specified in the credit

They do not conflict:

For example, the shipping marks, quantities/weights, transport details,
references, and in general terms the descriptions, must tally so that they clearly
relate on their face to the same shipment

The description of goods is correct

They may be described in general terms (not conflicting with the credit) in all
documents except the invoice, where the exact contract description should be
reproduced

Contract details should preferably not be repeated in full in transport documents
and some carriers will refuse to enter more than the minimum necessary
information. This may cause a discrepancy if the information conflicts with that in
the credit or other documents

Documents are authenticated where necessary - import regulations in some
countries still make it essential to sign manually and possibly witness documents
and any alterations or additions to them

Any restrictions in the credit are catered for, for example if short form bills of
lading are prohibited

Check each document to ensure that it is in order

Transport Document:

Type of transport document, e.g. sea, air, road, rail, inland waterway, multimodal,
courier or postal dispatches

The document should:

Indicate the name of the carrier and be signed by the carrier, master (for sea
shipments) or named agent


                                        55
Indicate the goods have been dispatched, taken in charge or shipped on board
(as appropriate) at the place stated in the credit

Indicate the place of dispatch, taken in charge, ports of loading and discharge,
and/or the final destination (as appropriate) stated in the credit

Date of issuance - deemed to be the date of dispatch, taking in charge or
shipment, unless otherwise indicated

Consignor - can be different from beneficiary

Consignee - can differ from buyer

Endorsed as may be stipulated in the credit

Insurance Document:

Correct type, e.g. a certificate or policy, and number of documents as stipulated
in the credit

Correct amount stated for insured coverage -the amount must be at least 110%
of the CIF or CIP value of the goods (UCP 600 Article 28(f) (ii)

Same currency as the credit

Risk covered in the credit

Date of insurance document no later than date of shipment -unless cover takes
effect from date of shipment (UCP 600 Article 28(e))

Endorsed, if necessary, exactly as required by the credit

Invoice:

Must not contain merchandise not called for in the credit, even if they are stated
to be free of charge

Invoices listing no-charge goods or samples not included in the credit will be
refused

Invoice heading containing your company's name

                                        56
Made out in name of Applicant, expressed and spelt exactly as in the credit.

Same currency as the credit

Description of goods, including import license or pro-forma details, price, terms of
delivery, and any no-charge goods or samples, worded and spelt exactly as set
out in the credit

Clauses or statements word for word identically spelt and the use of any foreign
language specified

Value not more than the credit permits and the same as any bill of exchange -
under certain conditions you may be able to under draw by up to 5% (see below)

Quantity: a ± 5% tolerance is sometimes permitted. Alternatively, the credit may
permit a specific variation, e.g. an 'about' amount is equivalent to a ± 10%
tolerance (see Article 30(a) and (b) of UCP 600)

Produced, signed and authenticated as necessary in a way allowed for by UCP
and in the credit (UCP 600 Article 17)

Other Documents:

Correct issuer

Correct wording or content -avoid unnecessary wording which might confuse the
bank checker

Clearly relate to the goods invoiced

Tele-transmissions to the Applicant and/or insurer correctly set out, addressed
and dated

Certificates to cover any other credit requirement only where a specific certificate
is called for (note UCP 600 Article 14(h))

Signed, authenticated or endorsed as necessary

Do not enclose any documents not required by the credit



                                        57
Bills of Exchange, if any:

      Date
      Signature identifies signatory
      Endorsement
      Clause
      Letters of Credit reference number
      Term - sight or usance dates
      Amount and currency
      Words and figures tally
      Drawn on correct party
      Correct document e.g. "sole" or "1st and 2nd of exchange"

Covering note/letter to Nominated bank:

List the documents, preferably in the same order as they appear in the credit

Give the name, address, telephone, email and fax details of the correct contact in
your office and back-up contact in case of absence

Indicate how to pay - cheque or direct to bank account (in which case show bank,
branch, sort code, account name and account number)

If you have a forward currency contract for a letter of credit payable in foreign
currency, provide contract details

Present documents to the bank without delay and within the expiry date
and transport document time limit

All documents must be completed and delivered to the bank by close of business
on the expiry date and within the presentation of transport documentation time
limit, whichever is earlier; or, if the bank is normally closed on that day, on the
next business day

Obtain a time/dated receipt where appropriate

Check the transport document presentation time limit very carefully: presentation
must be completed within 21 days of the date of shipment, unless the credit


                                        58
specifies a different period -this may well be earlier than the expiry date of the
credit itself or any specified "last date for presentation/negotiation" (Article 14 of
UCP 600)

The import license expiry date is equally important and it may not be possible to
extend this

If any discrepancies are found and they can be put right, the corrected
documents must still be presented to the bank by the original expiry date and
within the time permitted from date of shipment evidenced by the transport
document

Check and send any specified documents to the Applicant if required to do so
under the terms of the credit, enclosing a copy of your documents schedule as
sent with your credit documents when making presentation to the bank for
payment

If There Are Discrepancies

Unless you can correct discrepancies in time you will lose your right to
payment under the credit and all the cost and effort to obtain security will
have been wasted.

What are the options?

Correct the documents within the original expiry date and within the period
allowed after the shipment evidenced by the transport document

The Issuing bank may approach the Applicant for a waiver of the discrepancy
(UCP 600 Article 16(b)) -not normally done at the request of the exporter

Ask the paying bank to contact the Issuing bank for authority to honor/negotiate
the documents despite the discrepancies

An indemnity, either your own undertaking or one issued by or joined-in by your
bank, may be acceptable

In such a case you are paid promptly but are still at risk and if the Issuing bank
decides not to pay, the money must be repaid to the paying bank with interest


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Indemnities are often casually issued and financial directors are frequently
unaware that a massive contingent liability is building up. (If an indemnity is
decided upon, try to arrange a validity of six months maximum)

The bank may offer to pay under reserve -this has the same practical effect as
payment under an indemnity though without the paperwork, but there is normally
no time limit applicable

Money received has to be paid back with interest if the Issuing bank rejects the
discrepant document

Documents can be sent on an "approval basis" (also called "in trust" or "on
collection") to the Issuing bank under the protection of the credit

Can seriously hinder cash flow and an unscrupulous buyer may try to take
advantage by offering a reduced price for a quick settlement against documents
"as presented"

With documents "on collection" the Remitting bank (paying bank) should be
requested to instruct the issuing bank that release of the documents to the buyer
is to be only against payment being authorized in accordance with the credit
terms

If the transport document involved is a full set of negotiable bills of lading, these
measures normally retain your control over the goods as the buyer cannot take
delivery without the documents, which are still in your control. However, in other
circumstances, the buyer can obtain the goods without the presentation of
documents. Nevertheless, the buyer is in effect being asked whether, after all,
they still want the goods and is prepared to accept the discrepancies in the
documents. They are quite free to refuse.

Disclaimer

Whilst every effort is made to ensure that the information given herein is
accurate, SITPRO Ltd. accepts no legal responsibility for any views expressed or
implied or for any errors, omissions or misleading statements in that information
caused by negligence or otherwise.




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UCP600 contains the rules for the use of letters of credit. Where there are any
inconsistencies with this guide, UCP600 will prevail.




FAQ’S:

Q. When the Letter of Credit expiry date is set, should enough time be
allowed for the goods to reach me or for payment to be made when
extended payment terms have been negotiated (e.g. 60 days after sight)?
A. No. The expiry date should simply allow the Exporter sufficient time, after the
latest shipping date, to present documents to the “available with” Bank. In a
Letter of Credit, the Importer is not allowed the opportunity to inspect the goods
prior to paying for them. Keep in mind that banks deal only in documents and not
in goods.

Q. Is there any way that I can protect myself by using a Letter of Credit to
ensure I do not get inferior quality goods?
A. Yes. This can be done by requesting appropriate third party documents to be
submitted under the Letter of Credit that would evidence shipment of the proper
goods, e.g. Inspection Certificate, Health Certificate, Agent’s Certificate, etc.

Q. How quickly will the Exporter receive my Letter of Credit?
A. Once the Letter of Credit application form is received by Global Trade Finance
office, the Letter of Credit will be issued within 24 hours. If it is sent by
teletransmission/SWIFT, the Advising Bank will receive the advice the same
business day or the next business day the latest. You may include instructions in
the application form for the Advising Bank to notify the Beneficiary by phone or
fax and that you also include the relevant numbers to be used, enabling the
Exporter to receive a copy of the Letter of Credit without delay.

Q. What is the cost to issue a Letter of Credit?
A. The fees vary based on the dollar amount of your Letter of Credit and the
length of time it is outstanding. You should contact your branch for a Fee
Schedule.
22
Q. Under a Letter of Credit, what recourse is available to me if the quantity
or quality of goods is different from what was agreed upon?
A. Since banks deal only in documents and not in goods, all disputes of whatever
nature may either be referred to International Chamber of Commerce Arbitration
or handled through courts of law.

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Q. What happens if my ocean shipment arrives before my transport
documents?
A. You have two options. One is to wait for the shipping documents to arrive
which may result in payment of demurrage charges. The other option often used
by importers is to obtain a shipping guarantee. A shipping guarantee is a bond of
indemnity your bank will issue to the shipping line allowing you to obtain the
imported goods without producing the original transport documents. Obviously
the bank will note the liability of the shipping guarantee against your line of credit.
When original transport documents do arrive you must hand them over to the
shipping company who will return the bond of indemnity to you which you must
deliver back to the bank to free your line of credit.




BIBLIOGRAPHY:

1. Websites referred:

www.bpoindia.org
www.investopedia.com
www.tradeindia.com
www.export-import-companies
www.iccwbo.org



2. Books referred:
Foreign Exchange Simplified – B. Shriniwasan. (Tata Mcgraw Publication)
Documentary Letter of Credit - R.R.Beedu (Snow White Publication)




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