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Table of Contents
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Introduction to Global Trade Services Overview of Trade Services Understanding Your Payment Options Trade Solutions Risks Working with Your Bank Services to Meet the Diverse Needs of the Importer Let Bank of America Introduce a Few Ways You Can Increase Opportunities Import Letters of Credit Defined Frequently Asked Questions Parties and Roles in Commercial Letter of Credit Transactions Mitigating the Risk of Fraud in the Trade Arena Anti-Money Laundering Policies and OFAC Compliance at Bank of America 20Most Important Characteristics of an Import Letter of Credit Understand and Control Your Import Letters of Credit Opening a Commercial Letter of Credit Understanding the Commercial Letter of Credit Application A Discussion of UCP 600 A Discussion of the eUCP S.W.I.F.T. Samples and Comments on Specific Fields Comments on Specific Fields in Preceding Sample Purchase Order-to-Pay Service A Closer Look at Letter of Credit Documents What Are Some of the Typical Documents Required in a Letter of Credit? Frequently Asked Questions A Discussion of the ISBP Documentary Collection for Importers Cash Flow Diagram
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Bankers Acceptances Under Import Letters of Credit Bankers Acceptances Cash Flow Diagram Obtaining Your Merchandise IncotermsInternational Shipping/Trade Terms Incoterms Summary of Sellers/Buyers Responsibilities Standby Letters of Credit and Special Purpose Letters of Credit Standby Letters of Credit Special Purpose Letters of Credit International Cash Management and Foreign Exchange Services International Treasury Management Services Foreign Exchange Services Payments Direct FX Wires and Drafts Seminars and Workshops Accounting Considerations International Trade Glossary Table of Weights and Measures
The material presented in this guide is for informational purposes only, and is not intended as an exhaustive treatise on international banking, nor is it intended to explore all the possible risks involved in using import letters of credit or other services mentioned.
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Chapter 01
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Chapter 01
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perform your own analysis on your potential sellers and with a sense of security close a deal. In this case, your bank would get involved only in the collection and/or disbursement of funds. Overseas, you need greater protection when dealing with sellers who are less well known and where you could potentially have limited legal ability to collect for any loss suffered. Hence, a bank provides up-front financial protection in the form of letters of credit, as well as offers guidance and support in the use of other forms of payment. Bank of America works to be a value-added business partner and reaches beyond offering world-class services. We provide a consultative approach to trade services in which our clients draw from the solid base of experience and expertise of a dedicated staff eager to propose new ideas.
Open Account: The seller ships the goods in advance of payment or according to the negotiated terms. In this
instance, the seller relies on the buyers good faith that the payment will be made after he has received the goods. Traditionally, if open account or cash in advance are agreed upon as the payment method, documentation covering shipment of merchandise is handled outside of banking channels. The banking system at one time was only involved in the remittance of funds. Banks are now involved in the facilitation of open account payments, using varying degrees of conditional checking of original purchase orders against invoices. Bank of America offers a Purchase Order-to-Pay service, with three levels of data matching. Please see Chapter 4 of this Guide for details. If payment is to be made using a collection or letter of credit, a bank normally adds its service and documentary expertise on behalf of either the buyer, the seller, or both. In all cases, the actual movement of funds is done via one of our traditional cash management products such as direct debit or credit to an account, wire transfer, or check.
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Documentary: A documentary collection provides a buyer and seller with a measure of protection whereby a bank intermediates to exchange payment for documents of title to the goods. The collecting bank releases the documents, which normally allows the buyer to take delivery of the goods. The bank then either wires the buyers payment to the remitting/sellers bank for credit to the sellers account or creates an acceptance (please refer to Chapter 7 for an explanation of acceptances) covering the transaction. There are two forms of documentary collections: regular and direct. regular: After making a shipment, sellers present the shipping documents to their banks, who in turn send them to the buyers banks for payment or acceptance. Direct: The sellers/exporters deliver the documents with a collection letter to the foreign collecting banks themselves and send copies of the collection letter to their banks for follow-up (tracing and payment settlement). The collection letter or form is provided to the seller by the sellers bank and bears the sellers bank letterhead and the collection reference number.
Letter of Credit (LC): This is a trade finance instrument issued by a buyers bank in favor of a beneficiary/
seller, which substitutes the banks credit-worthiness for that of the buyer. In a narrow sense, it is a specialized instrument used to guarantee payment for a shipment of goods or services fromone party to another. A letter of credit is payable against conforming documents.
Cash in Advance: The buyer pays in advance of shipment of goods or according to the terms, such as cash on
delivery. As an importer, you most likely will not agree to this option, as you will be out the cash before receipt of the goods.
What types of agreements are made between the buyer and the seller?
The sales contract is an agreement between the buyer and the seller in which the various terms, conditions and details of the transaction are specified. Given the complexities of international trade, it is important that the sales contract state, in terms clear to all parties, the requirements involved in the transaction. In the simplest form, the sales contract is an accepted order to buy or offer to sell that arises from correspondence between the buyer and seller. The agreement may be made verbally or in writing. The buyer may initiate the correspondence by inquiring as to the price and terms of sale for specific merchandise or by simply placing an order for the merchandise when the price and terms have previously been established. The sales contract has four main components: Description of the goods Price Method of payment Timing of delivery Although contracts can be verbal, it is highly recommended that they be formalized in writing in all situations. The sales contract should clearly specify the documents required for any international transaction. The letter of credit must specify the documents required for payment under the letter of credit. The seller is responsible for the production and/or procurement of all documents. Documents required under letters of credit will be more thoroughly discussed in Chapter 5.
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A purchase order is a common vehicle that the buyer uses to place an order for merchandise or services when the price and terms have previously been established. Unlike a sales contract, it should always be submitted by the importer or buyer. A purchase order should itemize in precise detail the description of the goods, quantity ordered with unit description and delivery instructions for each item. If a purchase order is referred to within the merchandise description of a letter of credit, this can help make the seller responsible for providing merchandise according to the submitted purchase order. The seller can also be required to state that merchandise is in accordance with the buyers purchase order when submitting documents, thereby making the seller responsible for the fulfillment of the purchase order. A purchase order can also be used without a letter of credit for an open account payment. As you will see in Chapter 4 of this guide, Bank of America now provides an electronic solution for importers who wish to utilize open account payments but want the assurance of conditions matching against their purchase order prior to payment.
How does Bank of America support its Global Trade Services clients?
Bank of America is able to act on many fronts for our clients. We act as financial service consultants. We provide import and export financial services to our clients. We act on clients behalf both domestically and overseas via our global branch network. We provide various credit services to support clients import/export needs. We provide economic analyses and forecasts about various countries around the world. We listen to our clients needs for new technology that will keep them competitive in the world marketplace, and then we put our experts to work on solutions that meet their needs.
Trade Solutions
What international trade services are available with Bank of America?
As a truly global organization, Bank of America is uniquely positioned with trade services and expertise to serve clients needs in markets worldwide to help them seize international opportunities wherever they arise. Our services range from trade services and lending to liquidity management, payment services, structured trade finance, and foreign exchange services. We deliver what clients organization need to succeed in international business by offering innovative, tailored solutions, a wealth of trade expertise, the latest in technology, and a network of offices around the world. With more than 1,000 trade specialists in over 50 offices worldwide and an extensive international correspondent bank network, we can provide the global reach and regional expertise to help you accomplish your trade goals. Bank of America finances international trade through bankers acceptances as well as several types of letters of credit. It also offers various open account, collections and reimbursement services.
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Bankers Acceptances
A bankers acceptance is a negotiable instrument that is drawn on, and accepted by, a bank to finance a traderelated transaction. It is often a relatively inexpensive way to finance trade transactions. Bankers acceptances are versatile and can be used for several purposes: acceptances can cover both documentary letters of credit (Documentary BAs) and open account transactions (Clean BAs). They can finance imports, exports, and domestic transactions. Acceptances offer a source of funds at competitive rates since banks are not required to provide reserves for financing such transactions. Acceptances are very liquidthey can readily be sold in secondary markets. non-Discounted Bankers acceptancesBank of America either creates and accepts or accepts a time draft drawn on us which relates to a specific financial transaction in which our client is involved. We are obligated to pay the specified amount on the maturity date of the draft. Our obligation for payment to any holder of the draft at maturity date is unconditional, independent of the underlying financial transaction. Discounted Bankers acceptancesBank of America creates or accepts, and discounts, a time draft drawn on us which relates to a specific financial transaction in which our client is involved. The drawer is paid at the time of acceptance of the draft, less fees and discount charges. The discount rate applied is based on the market rate that investors in the secondary market are paying for drafts of various tenors and amounts; this rate fluctuates daily. In recent years the cost of financing on an acceptance basis has generally been lower than prime-rate-based lending.
Letters of Credit
A letter of credit is an instrument issued by a bank by which the bank substitutes its obligation to pay the seller for the obligation of the buyer, on specified terms. Letters of credit have many variations. Standby letters of credit Standby letter of credit is a term used for the type of letter of credit that functions like a guarantee. Standby letters of credit usually provide a type of monetary assurance to compensate a beneficiary in the event of noncompliance by the applicant with the terms of a contract. They are often used instead of cash deposits or as performance or bid bonds in international and domestic transactions. Like other letters of credit, standby letters of credit provide a banks name and credit support for a specific transaction. In a standby letter of
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credit, the beneficiary looks first to the account party for payment before seeking payment from the bank. Standby letters of credit can cover either financial, performance or trade-related transactions. financial Standby letters of credit We issue a standby letter of credit for our client or add our confirmation to a standby letter of credit issued by a correspondent bank. Financial obligations involve repayment of funds borrowed or advanced in the event the applicant fails to do so. In effect, we substitute our own credit standing for that of our client (or our correspondent bank) and assure that payment will be made in the event of default. performance Standby letters of credit In this type of obligation, we assure compensatory payment to the beneficiary in the event that the applicant does not perform the contractual agreement the applicant has entered into with the beneficiary. We add our credit standing to that of our client (or our correspondent bank) and assure that payment will be made in the event of default under bid bonds or performance bonds. commercial letters of credit Commercial letters of credit involve payment in exchange for compliant documents required under a letter of credit, relative to goods shipped or services performed. The beneficiary obtains payment from the issuing bank or confirming bank (if any). Import and export letters of credit are types of commercial letters of credit. import letters of credit We issue a new documentary letter of credit for our client. By doing so, we substitute our own credit standing for that of the buyer and assure that payment will be made to the seller if terms and conditions of the letter of credit have been fulfilled. export letters of credit Export letters of credit, when properly executed, may help protect an exporters (beneficiarys) interests against the risk of losing title to the goods until they are paid. Bank of America assists with the structuring of letters of credit, arranges for their confirmation and identifies discrepancies in documents that may delay payment. Confirmed Export Letters of Credit Another bank, usually one of our correspondents, issues its own letter of credit and asks us to authenticate it, add our confirmation to it and advise it to the beneficiary. When we confirm another banks letter of credit, we add our credit standing to that of the issuing bank and guarantee that payment will be made to the seller if terms and conditions of the letter of credit have been fulfilled. Unconfirmed Export Letters of Credit A bank, usually the applicants bank in the country of the applicant of the letter of credit, issues its own letter of credit and asks us to authenticate it and advise it to the beneficiary without adding our own confirmation.
Deferred Payments
import lc Deferred payments Deferred payments are created under import letters of credit that we issue for the applicant, our client. We are obligated to make payment on the designated maturity date. As no draft, or negotiable instrument, exists under a deferred payment letter of credit, the beneficiary cannot obtain payment prior to the maturity date. There is no draft to discount. See this guides section on page 92 for more information about drafts.
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Confirmed Export Deferred Payments Payments under letters of credit issued by correspondent banks are postponed (after presentation of documents) for periods of time as stipulated in the letter of credit. If we add our confirmation to the correspondent banks letter of credit, we are obligated to make payment on the designated maturity date whether or not the funds have been made available to us by the issuing bank. The advantage of a negotiable instrument in the form of a draft does not exist and, therefore, the beneficiary cannot obtain payment prior to the maturing date, as there is no draft to discount. See this guides section on page 92 for more information about drafts. Unconfirmed Export Deferred Payments As in the case of unconfirmed letters of credit, we will pay only when and if funds have been made available to us by the issuing bank. The advantage of a negotiable instrument in the form of a draft does not exist and, therefore, the beneficiary cannot obtain payment prior to the maturing date, as there is no draft to discount. See this guides chapter on page 92 for more information about drafts.
Reimbursements
Unconfirmed Reimbursements An issuing bank authorizes Bank of America to debit its account and to pay claims made by paying, accepting or negotiating banks. We will make such payments only if the issuing bank has sufficient funds on deposit with us to cover the claim. Confirmed Reimbursements An issuing bank asks Bank of America to confirm its obligations under a letter of credit it has issued and authorizes us to debit its account and to pay claims made by paying, accepting or negotiating banks. By adding our confirmation, we add our banks creditworthiness to that of the issuing/authorizing bank and are obligated to make payment whether or not the issuing/authorizing bank has sufficient funds on deposit with us to cover the claim.
Air Release
Bank of America issues our indemnity on behalf of and for the account of our client in favor of an airline for the purpose of authorizing the carrier to release a shipment of goods when the air waybill has been consigned to the bank. In return for our issuing the indemnification on our clients behalf, our client must provide us with an indemnity in our favor. This arrangement pertains to import letters of credit and incoming collections.
Collections
incoming clean Domestic collections Bank of America receives a clean collection from a domestic bank. We will serve as collecting bank and communicate with the drawee, usually our client, to facilitate payment to the remitting bank.
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incoming clean international collections Bank of America receives a clean collection from a foreign bank. We will serve as collecting bank and communicate with drawee, usually our client, to facilitate payment to the remitting bank. outgoing clean Domestic collections Bank of America opens/sends a request for payment to a domestic collecting bank at the request of our client. When paid by the collecting bank, we will remit funds to the drawer (our client). outgoing clean international collections Bank of America opens/sends a request for payment to a foreign collecting bank at the request of our client. When payment is received from collecting bank, we will remit funds to the drawer (our client). incoming Documentary collections Bank of America receives a documentary collection from another bank. We will serve as the collecting bank and communicate with the drawee, usually our client, to facilitate payment to the remitting bank. outgoing Documentary collections Bank of America opens/sends a request for payment of documents to a collecting bank at the request of our client. When paid by the collecting bank we will remit funds to the drawer (our client). export Bills collections Bank of America creates a collection instrument for tracking and receiving funds due a correspondent bank in exchange for documents sent to a third bank. Delivery of documents may be an integral part of the service.
Trade Acceptances
A trade acceptance is a time draft that is accepted for payment by a party other than a bankusually the buyer. This could apply to any of the types of collections, as defined above.
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Risks
Trade involves buyers and sellers seeking to exchange goods or services despite their differences in language, national custom, credit procedures and accounting practices. Merchants have always had, and continue to seek, ways of minimizing the risk of non shipment and/or risk of nonpayment. Following is a chart comparing the payment terms.
Risk to Buyer Has assurance of shipment but relies on seller to ship goods as described in the documents
Risk to Seller Very little or none based on conditions in the LC and provided no discrepancies between documents and LC
Upon the bank releasing documents of title, unless goods consigned direct to buyer After payment unless goods consigned direct to buyer
Very little or none, based on conditions in the LC and provided no discrepancies between documents and LC
Has assurance of shipment but relies on seller to ship goods as described in the documents Buyer undertook obligation to pay when accepted time draft; relies upon seller to ship goods as described None
Possible nonpayment by buyer at maturity of trade acceptance (buyer has possession of the goods)
Open Account
Upon delivery
* None of these payment methods protect against fraud. This chart is provided for information and illustration only. It does not purport to encompass all of the possible risks to a buyer or seller involved in any given trade transaction.
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DP1 Also known as Documents Against Payment or Cash Against Documents (CAD). DP2 Also known as Documents Against Acceptance, Time Draft, and Trade Acceptance..
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What are some of the decision factors used in determining payment terms?
When do the goods pass from the seller to the buyer and when does payment occur? Can you, as a buyer, trust the seller to deliver promptly with the correct goods if you have already paid for the merchandise (cash in advance terms)? Are you willing to pay promptly if goods are shipped first (open account terms)? The answer to these questions will depend on how well the parties know each other. This knowledge can be gained through experience or research. Alternatively, intermediaries can be used to mitigate the risks; this has been the traditional role of banks. The choice of method of payment (means by which the buyer will pay the seller) takes into account several factors: Physical location of buyer and seller Extent of competition from other sellers Level of personal knowledge or prior experience between the buyer and seller Availability of other buyers Accounting, payment and regulatory restrictions between countries Reputation of buyer and seller Creditworthiness of buyer and seller Customary practices in the individual country or industry Dollar amount of transaction Urgency to receive payment
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RISkIEST
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Chapter 02
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Chapter 02
As an importer, you know that sourcing products globally can lower costs, broaden product lines, and diversify sources of supply. You also know the challenge of getting the right product to the right place the right time. Different time zones, languages, and business practices hinder communication. Lengthy shipping times and customs clearances complicate inventory management. And the payment terms demanded by overseas suppliers can tie up your credit and slow down the flow of documents needed to clear merchandise through customs. You need specialized banking services to help overcome these obstacles. You need a bank with seasoned experts in international trade and a family of specialized banking services tailored to the unique needs of the importer.
Accessible expertise
Bank of America has more than 1,000 experienced international trade specialists dedicated solely to the management and growth of our clients international business. Strategically located from coast to coast in the United States and in various foreign locations, we travel extensively to keep in touch with clients. Our expertise in structuring import transactions offers you the kind of knowledge and experience you need.
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An extensive network
Our correspondent bank network is able to handle almost any import transaction efficiently. Over the past thirty years we have carefully developed and cultivated an extensive network of correspondents worldwide. Our network allows us to deal directly with your vendors banks, saving you time and money. Our in-depth knowledge of overseas markets and business practices can be invaluable to importers seeking to structure unusual transactions.
Documentary Collections
Many clients find that suppliers who initially ask for cash in advance or a letter of credit may be willing to sell on a documentary collection basis. Commonly referred to as cash against documents or as sight draft terms, this payment mechanism allows foreign vendors to instruct Bank of America to retain control of the shipping documents until payment is made or their draft is accepted. By routing Documentary Collections through Bank of America, vendors are assured that a world-class bank is following their instructions. Our clients benefit by not having to prepay for the product or tie up their credit.
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Letters of Credit
Letters of credit continue to be one of the most common payment options used in international trade, especially for imports from Asia and Latin America. Bank of America has international trade specialists to help you structure your letters of credit and a correspondent bank network that can get the letter of credit to your supplier as quickly as possible. As one of the largest issuers of letters of credit in the world, Bank of America has invested in electronic application systems that free our clients from retyping any of the standard clauses in their letters of credit. Using a standard Web browser, you supply only the details specific to the particular transaction and send the application to us via the Internet. Your Web-based electronic applications are fully integrated into our issuance system for truly superior response time and accuracy. This same system gives you activity and status reports, available on your personal computer at your convenience. Letters of credit are primarily oriented toward protecting the interests of beneficiaries. No letter of credit can protect the buyer against fraud. Protection in any import transaction is contingent upon the performance of the exporter, and there is no substitute for knowing the reputation of your supplier. However, Bank of Americas international trade specialists can help structure your credits to better protect your interests. When appropriate, performance bonds, inspection certificates, insurance policies, and more specific shipping schedules can be incorporated into your credits, giving you additional control over the transaction. Our specialists can advise you as to when a standby letter of credit might be an appropriate way to assure payment to a vendor. Whenever you need help in structuring your letters of credit, you can rely on Bank of America.
Easy L/C
When youre involved in global trade, the need for letters of credit isnt limited by the size of your company. Smaller companies often have modest credit needs and straightforward shipping arrangements, but they shouldnt have to navigate the same complex and time-consuming application, underwriting, and approval processes as larger companies seeking letters of credit with more complicated requirements and higher dollar values. If your import credit needs do not exceed $100,000.00 and you have an account with Bank of America, Easy L/C offers a simplified application form and streamlined approval process, which reduces turnaround time and can save you money with a low front-end fee. The application is short and simple to complete. We can even send it to you in electronic format to get your application off to the fastest start possible. Your letter of credit is generally approved and issued within 24 hours. Bank of America doesnt require a secured deposit as collateral for your Easy L/C. Its prepaid from the cash in your companys existing Bank of America account.
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Let Bank of America Introduce a Few Ways You Can Increase Opportunities
Economic forecasting and industry specialists
At http://corp.bankofamerica.com portal, click on Investment Solutions to find the latest economic and industry analyses. Banc of America Securities economists, based in New York, Hong Kong and London, analyze and forecast U.S. and international economic conditions and financial market trends and post their findings on this site. The coverage includes analysis of macroeconomic indicators, forecasts of interest and foreign exchange rates, and perspectives on government policies. This work, coupled with research on emerging markets, fixed income, foreign exchange and global risk, supports a wide variety of Banc of America Securities capital markets and client-focused activities.
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Chapter 03
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Chapter 03
An import letter of credit is a conditional payment mechanism under which the issuing bank irrevocably promises to pay the seller if presented documents comply with all of the letter of credit terms and conditions. The issuing bank substitutes its credit for that of the buyer. All letters of credit have similar attributes and this section will restate some of those attributes. It is important not only to understand the attributes, but also the underlying principles. A commercial letter of credit offers protection to both the buyer and seller and, for this reason, is often used as a means of payment. A letter of credit offers the buyer a high degree of assurance that goods and services will be delivered and reduces trading risks. In the letter of credit process, the bank is the intermediary between the seller (an exporter) and the buyer (an importer). The issuing bank issues the letter of credit on behalf of the importer, examining the documents received, to ensure conformity to the terms and conditions of the letter of credit. If the documents are correct, the bank makes payment, either immediately or at a specified future date. When the bank issues the letter of credit, it substitutes its credit for that of the importer. In doing so, bank promises to pay the exporter upon presentation of documents in good order. The bank deals only with the documents called for in the letter of credit, not with the actual goods involved. For example, if a letter of credit specifies that the exporter ship a container of steel and the quality of the steel does not meet the buyers expectations, the exporter will nevertheless be paid as long as documents are presented in conformity with the terms and conditions of the letter of credit. Typically the exporters bank acts as the advising, examining and paying bank. It may also confirm and negotiate letters of credit on its clients behalf. Prior to any letter of credit transaction, the buyer and seller should negotiate and agree to the terms and conditions to be specified. Bank of America can help structure your import letter of credit and suggest terms that are favorable and achievable to both you and your suppliers. This facilitates LC compliance, which ensures that you receive your commercial shipment according to the terms agreed upon without delay.
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Buyer
Sellers Bank
Seller
Buyer
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Seller 06
Sellers Bank 07 08
Buyer
STEP SEVEN Sellers Bank Examines Documents and Sends Documents to Issuing Bank
STEP NINE Issuing Bank Debits Buyers Account and Releases LC Documents Making Funds Available for Payment to Seller
Seller
Buyer
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Buyer 01
Sellers Bank
Seller
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The buyer fills out a letter of credit application that satisfies the terms of the purchase agreement plus the requirements of customs law, shipment and document coordination.
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The issuing bank, usually the buyers bank, rechecks the application to ensure that it is complete and workable.
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The issuing bank transmits the credit to a correspondent bank by telex, S.W.I.F.T. or (rarely) airmail and asks them to advise and/or confirm the instrument.
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The correspondent bank receives the letter of credit, checks for authenticity, records the transaction and transmits the instrument to the seller/beneficiary, adding their confirmation if requested. Upon receipt of the letter of credit, the seller should carefully review it to determine whether its performance requirements can be complied with and whether it is acceptable from a credit perspective.
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Seller 05
Seller 06
Sellers Bank 07
STEP SEVEN Sellers Bank Examines Documents and Sends Documents to Issuing Bank
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Upon determination that the letter of credit is acceptable, the seller should ship the goods precisely consistent with its terms and conditions.
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The seller must prepare documents exactly as required and present them to the proper paying bank. The proper paying bank may be any bank specified in the credit to accept, pay or negotiate. This may be the advising bank, confirming bank, issuing bank or (on a freely negotiable credit) any bank that is willing to negotiate.
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When the paying bank receives the documents, it will examine them to determine if they are in order pursuant to the credits terms and conditions. If in order, the bank may pay, accept, or negotiate as required by the letter of credit. The negotiating bank will transmit the documents to the issuing bank and request reimbursement. Under an LC payable at sight, the issuing bank may effect reimbursement to the sellers bank by remitting funds directly to the sellers bank, authorizing the sellers bank to debit the issuing banks account, or by authorizing the sellers bank to claim from a third bank where the issuing bank maintains an account.
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Sellers Bank
Buyer
Seller 10
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STEP NINE Issuing Bank Debits Buyers Account and Releases LC Documents, Seller Receives Payment
STEP SEVEN Sellers Bank Examines Documents and Sends Documents to Issuing Bank
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Upon receipt of the documents, the issuing bank will examine them to ensure that they are in order as specified and then reimburse the negotiating bank. For time drafts, reimbursement is made at maturity of the bankers acceptance.
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Issuing bank debits buyers account and releases documents. For a time draft, the buyers account will be debited at maturity. Sellers bank pays exporter after being reimbursed by buyers bank.
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Government
Foreign consulates and commercial attachs U.S. diplomatic personnel U.S. Customs personnel
Private
Trade banking specialists International lawyers Customs brokers
A good customs broker is frequently the key to successful importing and should be contacted before finalizing any contracts
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advising: An advising bank acts as the agent of the issuing bank. The function of the advising bank is to take
reasonable care to verify the authenticity of letters of credit it receives and then accurately transmit the letters of credit to their beneficiaries. When advising a letter of credit, the bank assumes no liability. On receipt of the documents for examination and payment, the advising bank will pay the seller only if it received good funds and has received reimbursement from the issuing bank, even if it was specifically nominated as the paying bank in the letter of credit.
Confirmation: By confirming a letter of credit, the advising bank or another bank assumes the same responsibilities
as the issuing bank, including the obligation to pay against presented documents (if they are in order and all of the letter of credit terms are met). In effect, the beneficiary has the individual promise of two banksthe issuing bank and the confirming bankto pay against conforming documents. Confirmation of a letter of credit is an extension of credit and requires credit approval of the issuing bank by the confirming bank. When a bank confirms a letter of credit, it takes the credit risk of the issuing bank and must have in place a credit limit for that issuing bank.
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09. negotiating BankNegotiation is the process whereby a bank examines the documents and actually pays funds to the beneficiary. This is not very common because most banks are not willing to advance funds prior to receipt of the goods. The beneficiary is paid immediately upon examination of documents conforming to the LC or after approval by the issuing bank is determined by the payment terms stipulated in the letter of credit. The negotiating bank is either nominated by the beneficiary under a freely negotiable letter of credit or designated as a restricted negotiating bank by the issuing bank. The concept of a negotiating bank allows more flexibility into the payment mechanism and enables beneficiaries to present documents for payment to their local bank.
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Anti-Boycott Policy
Bank of America Corporation, its domestic affiliates and its offshore branches, offices, subsidiaries and controlled affiliates are U.S. persons. They transact business with residents and nationals of boycotting and boycotted countries as well as with other persons and corporations that do business with such countries and their nationals. Therefore, Bank of America often receives requests to comply with unsanctioned foreign boycotts.
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Such requests most frequently occur in letter of credit transactions. Bank of America handles several thousand letters of credit and collections each year, which involve persons and commerce of boycotting and boycotted countries. Bank of America is committed to full compliance with all laws applicable to its business, including anti-boycott laws of the United States. Accordingly, bank units must not enter into any agreement or implement any letter of credit containing an impermissible boycott condition or take any other action prohibited by the United States. Additionally, bank units must not implement any letter of credit or process any other document if it uses the term blacklist or boycott or if its implementation or processing would constitute boycott participation under United States tax laws. Bank of America general anti-discrimination policy prohibits all bank units from discriminating against any person based on race, religion, sex or national origin. Bank units must not engage in any transaction containing such a condition. Bank of America does not engage in any discriminatory business practices in connection with the Arab Leagues boycott of Israel.
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14. presentation Date or StipulationThe presentation date is usually a stipulation such as Documents must be presented for negotiation within 15 days after the on board date of the ocean bill of lading, and within the validity of the letter of credit. A 21-day presentation stipulation is understood, in the absence of any statement to this effect (see Article 14(c), UCP 600). 15. partial Shipments allowed/not allowedIf your letter of credit application does not indicate that partial shipments are prohibited, it is understood that partial shipment is allowed. Make sure that this information agrees with your original sales contract with the seller. 16. transshipment allowed/not allowedIf your letter of credit application does not indicate that transshipments are prohibited, it is understood that transshipment is allowed. Make sure that this information agrees with your original sales contract with the seller. Transshipment means that the merchandise is loaded on a carrier that only goes to a certain point, and at that point the merchandise is unloaded and reloaded onto another carrier. 17. reimbursement instructionsDetermines when payment will be received by the exporter. Four major types of reimbursement instructions are: a) issuing bank authorizes advising bank to debit their account; b) issuing bank instructs advising bank to claim reimbursement from a third bank (reimbursing bank); c) issuing bank requires advising bank to send them a cable notifying them that documents have been received and found to be in compliance with letter of credit terms, after which issuing bank remits funds to advising bank; and d) issuing bank requires advising bank to send documents to them for payment (slowest method of payment). 18. availabilityYour letter of credit is either freely negotiable or straight. A freely negotiable LC will indicate that it is available with any bank by sight payment, by deferred payment, by acceptance or by negotiation. A negotiating bank may play various roles pursuant to the latitude extended by the letter of credit, but it normally is allowed to take the documents in charge and pay the beneficiary against funds received from the issuing bank. A straight, or restricted, LC will indicate that it is available with (named bank) by sight payment, by deferred payment, by acceptance or by negotiation. The beneficiary must present documents at the counters of the named bank. 19. confirming BankFor all intents and purposes, beneficiaries normally present their documents to the confirming bank and regard it as the primary source of payment. A confirming bank is obligated to pay against compliant documents, regardless of whether or not funds are received from any reimbursement source. 20. reimbursing BankThe reimbursing bank is usually named under the Special Instructions portion of a letter of credit, or in field :78: of a S.W.I.F.T. 700 message.
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38
39
40
41
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at the time documents are received and found to be in compliance with the terms of the letter of credit. If, on the other hand, the beneficiary and bank have agreed to give you payment terms, the letter of credit will call for drafts payable at some future time. For example, drafts payable at 90-Days Sight or payable at 45 days after Bill of Lading date. 10. partial shipmentCheck the appropriate box to indicate whether or not you will allow payment on partial shipments. 11. transshipmentCheck the box to indicate whether or not you will allow transshipment. Transshipment means that the merchandise is loaded on a carrier that only goes to a certain point and at that point the merchandise is unloaded and reloaded on another carrier. Transshipment should always be permitted on air shipments and combined transport method shipments. It may be prohibited on shipments where direct shipping service between the supplier and you is always available. 12. transferable letter of creditCheck the box to indicate whether or not you will allow this letter of credit to be transferred by the beneficiary. A transferable letter of credit allows the beneficiary of a letter of credit to make available (transfer) all or part of the proceeds of the letter of credit to a separate party. The parties to whom the letter of credit is transferred acquire the same rights and responsibilities under the letter of credit as the original beneficiary. Transferable letters of credit are typically used when both parties require the protection of the letter of credit and the first beneficiary of the letter of credit is an agent or intermediary procuring goods from another supplier whose identity he does not want to disclose to the buyer. 13. Shipment fromTo: For shipments where a multi modal document is called for, complete at least fields A and/or D, fields B and C are optional and should be used as applicable to give clear information about the expected movement of the goods. For shipments where an ocean or charter party bill of lading OR an air waybill is called for, complete fields B and C only. For shipments where road, rail or inland waterway documents are called for, complete fields A and D only. 14. merchandise to Be Described in invoice asEnter a brief description of the merchandise. If your description is too detailed, we may ask you to shorten the description before we issue the letter of credit. A detailed description of the merchandise belongs in the contract between buyer and seller or in purchase order, not in the letter of credit. 15. Shipping terms/price BasisAlso known as Incoterms, the shipping terms you select should be discussed and agreed to with your supplier in advance of completing the application. The price basis determines which services and related costs, usually freight and insurance, are included in the price, in addition to the cost of the goods themselves. International trade terms used in connection with specific prices should be understood thoroughly by both the buyer and seller (see Incoterms). 16. Documents requiredThis area contains a number of commonly requested letter of credit documents to demonstrate shipment of the merchandise youve contracted to buy. The documents you will need from the beneficiary depend upon the contract between you and the beneficiary, the country from which the goods will be shipped, the price basis and, in some cases, the merchandise itself. Your Customs House Broker can give you guidance regarding the documentation you will need from the beneficiary. Refer to Chapter 5 for more information on documents typically required under a letter of credit.
commercial invoice: This is always required. Specify how many originals and how many copies youll need.
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packing list: Typically required, it describes the contents that were packed into the containers youll be
receiving. Specify how many originals and how many copies youll need.
Certificate of Origin: Typically required, it certifies where your merchandise originated. Specify how many
originals and how many copies youll need.
negotiable marine/air insurance policy: Check this box if your shipping term includes insurance. Stipulate who
is to effect the insurance coverage. Also check the boxes to indicate which risks should be covered by the insurance policy.
transport Documents: Indicate type of transport document and number of originals required based on the
expected mode of shipment.
consigned to/the order of: Indicate to whom the merchandise will be consigned, the order of and how the
consignment must be endorsed. This is the party that will be able to take possession of the goods.
marked notify: Specify a party to be notified when the goods arrive for dispatch to the consignee. Marked
Freight: Check the box to indicate whether freight is to be covered on a collect or prepaid basis.
other Documents: List any additional documents you expect the exporter to produce. These could include
Inspection Certificates and Phytosanitary Certificates, among others. If the shipment is to be made by air, you may wish to require a signed statement from the beneficiary that one set of documents has accompanied the shipment. This will enable you to pick up the merchandise as soon as it arrives. This should be included in Special Instructions. 17. Special instructions to be included in the letter of credit: When there are additional terms or conditions that are not covered by these documents, you can indicate them here. Bank of America automatically indicates that any banking charges other than ours are to be charged to the beneficiary, unless you indicate otherwise. We may inquire about the purpose of special instructions requested by you, to ensure that they can be complied with. 18. Special instructions for Bank of america: Use this area to tell us who we should call with any questions about your application and who to contact if there are discrepancies in the documents presented. 19. Documents must be presented to the negotiating or payment bank no later than: This is the amount of time the seller has to obtain, complete and present all documents required under the letter of credit for payment. If this space is left blank, the shipper may take up to 21 days to present documents, not to exceed the expiry date of the letter of credit. Steamship companies normally require an original bill of lading to release merchandise. If you allow the shipper too many days to present documents, the ship may arrive at the destination port in advance of the documents. The merchandise will then be placed in storage by the steamship company and will accrue demurrage charges. The number of days entered here added to the latest shipment date in box No. 12 should arrive at the expiration date in box No. 5. Agreement Following the demonstration copy of the Commercial Letter of Credit Application, youll find an example of the Agreement from the reverse side of the application. This represents the Agreement between you and Bank of America for the issuance of your letter of credit. Please read it carefully, and complete and sign in accordance with the instructions on the Agreement itself.
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application of ucp
This article states that all letters of credit, including standbys, are issued subject toUCP 600, provided that the LC specifically indicates this to be the case. Great care should be taken to avoid accepting credits that are not issued subject to UCP 600. Please note that standby LCs can also be issued subject to another set of rules issued by the International Chamber of Commerce, the ISP 98.
Art. 2
Definitions
This article gives 14 definitions relative to this publication.
Art. 3
interpretations
This article gives 12 interpretations to use within the framework of the rules.
Art. 4
Art. 5
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Art. 6
Art. 7
Bank undertaking
A credit is an obligation of the issuing bank to honor, provided that a complying presentation is made. The article outlines the various scenarios which will engage the issuing banks obligation depending on the availability of the credit.
Art. 8
Art. 9
advising
A credit may be advised to a beneficiary through another bank without engagement on the part of that bank. This bank may act in the role of either an advising bank or as a confirming bank. The advising banks responsibility is limited to taking reasonable care to ensure the authenticity of the credit and the accuracy of the credit as it is passed to the beneficiary. If it is unable to verify authenticity, it must notify the issuing bank right away. Should the advising bank choose to advise an unauthenticated credit, they must so indicate this on their cover letter to the beneficiary. This responsibility on the part of an advising bank is very important. Unfortunately, there have been numerous documented cases of bogus letters of credit being issued, and then advised or confirmed by yet another bogus bank in the beneficiarys country. This is just one good reason to arrange for letters of credit to be advised/confirmed by the beneficiarys bank whenever possible.
Art. 10
amendments
A credit cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank (if any), and the beneficiary. The only minor exception is covered under transferable credits, Article . An issuing bank is bound by any amendments as soon as it has issued them. A confirming bank is likewise bound from the moment that it extends its confirmation to any amendment. However, a confirming bank may decline to extend its confirmation to an amendment, and, if it does so, it must inform the issuing bank and the beneficiary without delay. An amendment does not become effective until the beneficiary accepts the amendment. Acceptance may be in writing. If the beneficiary does not accept the amendment in writing but subsequently presents documents that conform to the credit and the not yet accepted amendment, then the amendment is deemed accepted at that time. If the beneficiary wishes to reject the amendment, rejection should be done in writing prior to presenting documents. If there is more than one change covered in the same amendment advice, the beneficiary must accept or reject all changes in that particular amendment.
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Art. 11
Art. 12
nomination
An authorization to honor or negotiate does not impose any obligation on that nominated bank. This article describes the options of a bank who has been nominated to honor or negotiate. It is also the article that authorizes a nominated bank that has accepted a draft or incurred a deferred payment undertaking to prepay or purchase that undertaking from the beneficiary. Lastly, this article makes it clear that the act of receiving, examining and forwarding documents does not constitute honor or negotiation.
Art. 13
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Art. 14
Art. 15
complying presentation
This article describes the actions around negotiation, honor and forwarding of documents required of a bank when a presentation is found to be in compliance.
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Art. 16
Art. 17
Art. 18
commercial invoice
This article describes the basic features of a compliant commercial invoice. It is important to note that the requirement for merchandise description has a higher threshold for compliance than that for other documentsmust correspond with that appearing in the credit.
Art. 19
Art. 20
Bill of lading
This article describes the basic required characteristics for the transport document often referred to as a Marine or Ocean Bill of Lading (B/L) and that indicates a port-to-port shipment. Here you will find information on: Signature requirements Shipment or dispatch information Logistic information Terms of carriage Transshipment information
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Art. 21
Art. 22
Art. 23
transport Document
This article describes the basic required characteristics of the document often referred to as an air waybill (AWB). In the article you will find information on: Signature requirements Shipment or dispatch information Logistic information Terms of carriage Transshipment information
Art. 24
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Art. 25
Art. 26
on Deck, Shippers load and count, Said by Shipper to contain and charges additional to freight
This article describes certain wording that typically is found on transport documents and details how banks will deal with this circumstance.
Art. 27
Art. 28
Art. 29
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Art. 30
example: LC calls for 5,000 gallons of orange juice valued at $100,000.Unless specifically prohibited in the
credit, banks will accept documents showing the amount of product within a range of 4,750 gallons up to 5,250 gallons. Note: The amount being drawn could be reduced to $95,000 (for 4,750 gallons), but could not exceed $100,000 even though between 5,000 and 5,250 gallons were shipped.
example: LC calls for 5,000 cartons of orange juice. Banks will reject documents which indicate a
shipment of either less than or more than 5,000 cartons. (Exception: Banks will accept documents for less than 5,000 cartons if the credit allows for partial shipments). UNLESS a credit stipulates otherwise, or unless Article 30 (a) or (b) applies, banks will accept documents with an amount up to 5% less than the amount of the credit. However, if the credit calls for a specific quantity or unit price, then the full quantity must be shipped and the unit price must not be reduced.
example: LC calls for a shipment of 5,000 cartons of orange juice totaling $100,000. Partial shipments
are prohibited. Banks will accept documents totaling between $95,000 and $100,000 provided that the invoices still indicate that 5,000 cartons have been shipped. Art. 31
Art. 32
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Art. 33
hours of presentation
Banks have no obligation to be available to take in presentations outside of normal business hours (see Article 2 for definition of banking days).
Art. 34
Art. 35
Art. 36
force majeure
This article relieves banks of responsibility for consequences arising during force majeure events.
Art. 37
Art. 38
transferable credits
A credit may be issued allowing for transfer by the issuing bank or by a bank nominated in the credit. This article describes the governing rules for the transfer process. A bank is not obligated to transfer even though the LC states it is transferable Transferable credit is defined Transferring bank is defined Charges for transfer must be paid by the beneficiary Transfer in whole or in part How to handle amendments More than one second beneficiary Terms that may be changes as the transfer is made Substitution of invoice and draft by the first beneficiary; failure to substitute when demanded Second beneficiary presentation of documents must be made to the transferring bank
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Art. 39
assignment of proceeds
The beneficiary may instruct that the proceeds (some or all) of a credit be paid to another party. Local law governs such transactions.
This paraphrased version of the UCP 600 is intended to summarize and clarify its articles only, and is not to be construed as the entire document. Partial quotes are made in this section. Bank of America assumes no liability for any misunderstanding arising from the use of this condensed version. For a complete reading of UCP 600, URC 522, ISP98 and ISBP, please refer to the ICC publications available for purchase on ICCs Web site at http://www. iccbooksusa.com.
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General statements from the eUCP Working Group ICC Banking CommissionMarch 2002
The Working Group concluded that its task is to create a supplement to the UCP that will deal with the issues of electronic presentation. The official name for the work is UCP Supplement for Electronic Presentation. It uses the acronym eUCP. The eUCP provides definitions to allow current UCP terminology to accommodate the presentation of the equivalent of paper documents electronically and to provide necessary rules to allow the UCP and the eUCP to work together. The eUCP has been written to allow for presentation completely electronically or to allow for a mixture of paper documents and electronic presentation. While practice in this area is evolving, the Working Group believes that providing exclusively for electronic presentation is not entirely realistic, nor will it promote the transition to total electronic presentation.
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The Working Group has not seen the need to address any issues relating to the issuance or advice of credits electronically, since current market practice and theUCP have long allowed for credits to be issued and advised electronically. It is important for the reader of the eUCP to understand that many of the articles of the UCP are not affected by the presentation of the electronic equivalent of paper documents and do not require any changes to accommodate electronic presentation. When read together, the UCP and the eUCP will provide the necessary rules to allow for electronic presentation and are broad enough to allow for developing practice in this area. Where specific words or phrases used in the UCP are defined in the eUCP, these definitions, unless otherwise stated, apply wherever the terms appear in the UCP. The Working Group, in drafting the eUCP, has reviewed and considered definitions used in other ICC documents as well as rules and regulations promulgated by governmental and international bodies. These definitions have been used or partially used to the extent possible. Because the business is evolving, it is necessary in many cases to modify these definitions or to create new definitions specifically to address the unique requirements related to the presentation of the electronic equivalents of paper documents under the UCP. The eUCP is specific to UCP 500 and, if necessary, may need to be revised as technologies develop, perhaps prior to the next revision of the UCP. For that purpose, the eUCP is issued in version numbers that will allow for a revision and subsequent version if the need arises. The eUCP has been specifically drafted to be independent of specific technologies and developing electronic commerce systems. That is, it does not address specific technologies or systems necessary to facilitate electronic presentation. These technologies are evolving and it is left to the specific parties to agree on the technology or systems to be used to provide for presentation of electronic records in compliance with the requirements of the eUCP. The eUCP has been created to anticipate the needs of the market for the presentation of electronic documents. The market, as it is developing, has created a higher standard in anticipation of increased processing efficiencies when the electronic equivalents of paper documents are presented. In anticipation of this demand and to meet the market expectation, several changes to the standards established by the UCP have been deemed necessary when an entirely electronic presentation occurs. These changes are consistent with current practice and the expectations of the marketplace. In order to avoid confusion between the articles of the UCP and the eUCP, the articles of the eUCP are numbered with an e preceding each article number.
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BY ACCEPTANCE :42C: DRAFTS AT : 90 DAYS SIGHT FOR 100 PCT INVOICE VALUE :42A: DRAWEE: BANK OF AMERICA LOS ANGELES, CALIFORNIA :43P: :43T: :44A: :44E: :44F: :44B: :44C: :45A: PARTIAL SHIPMENTS: PERMITTED TRANSSHIPMENT: PERMITTED PLACE OF TAKING IN CHARGE/DISPATCH FROM/PLACE OF RECEIPT : PARIS, FRANCE PORT OF LOADING/AIRPORT OF DEPARTURE: LE HAVRE, FRANCE PORT OF DISCHARGE/AIRPORT OF DESTINATION: LOS ANGELES, CALIFORNIA PLACE OF FINAL DESTINATION/FOR TRANSPORTATION TO/PLACE OF DELIVERY: FRESNO, CALIFORNIA LATEST DATE OF SHIPMENT: 071120 DESCRIPTION OF GOODS AND/OR SERVICES: COMPUTER EQUIPMENT ACCORDING TO P.O. NO. 87654 FCA PARIS, FRANCE :46A: DOCUMENTS REQUIRED: SIGNED COMMERCIAL INVOICE IN ORIGINAL AND TWO COPIES. PACKING LIST IN ORIGINAL AND TWO COPIES. FULL SET OF CLEAN MULTIMODAL TRANSPORT DOCUMENTS CONSIGNED TO THE ORDER OF SHIPPER, BLANK ENDORSED, MARKED FREIGHT COLLECT AND NOTIFY BUYER. :71B: CHARGES: BANKING CHARGES ARE FOR ACCOUNT OF APPLICANT, EXCEPT FOR DOCUMENTARY DISCREPANCY CHARGES, IF ANY, WHICH ARE FOR ACCOUNT OF BENEFICIARY. :48: PERIOD FOR PRESENTATION: DOCUMENTS MUST BE PRESENTED FOR PAYMENT, ACCEPTANCE / NEGOTIATION WITHIN 10 DAYS AFTER THE DATE OF SHIPMENT, BUT WITHIN THE VALIDITY OF THIS CREDIT. :49: :78: CONFIRMATION INSTRUCTIONS: WITHOUT INSTRUCTIONS TO THE PAYING/ACCEPTING/NEGOTIATING BANK: 1) ALL DOCUMENTS MUST BE FORWARDED IN ONE MAILING, VIA COURIER OR EXPRESS MAIL SERVICE, TO BANK OF AMERICA, TRADE OPERATIONS CENTER, 1000 WEST TEMPLE STREET, LOS ANGELES, CALIFORNIA 90012.
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:72:
SENDER TO RECEIVER INFORMATION: PLEASE NOTIFY TO BENEFICIARY UNDER ADVICE TO US ATTN: XYZ SMITH PHONE: (012) 2003000 FAX: (012) 2004000 REGARDS
The preceding letter of credit example is provided for information and illustration only, and does not convey any engagement or responsibility on the part of Bank of America. The names of the institutions used, except for the name of Bank of America, and the transaction represented herein are fictitious. Any similarity with actual institutions and transactions is unintentional and coincidental.
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50: APPLICANT
This is the party, usually the buyer, on whose behalf the LC is issued. In the sample attached, the applicant is Randall Computer, Inc. On an LC issued on your behalf, check to ensure that your name and address are correct. Any difference between the information in the LC and the information in presented documents may be considered a discrepancy.
59: BENEFICIARY
This is the party, usually the seller, in whose favor the LC is issued. In the sample attached, the beneficiary is Produits Electroniques S.A.
WithThe LC should name a specific bank where the presentation of the document under the letter of credit
must be made (46A). Alternatively, the LC may state that it is available With Any Bank, thus allowing the beneficiary to present documents at any bank of their choice. For practical purposes, however, if the LC states that it is available With Any Bank, the beneficiary would want to present documents at a bank that is involved in the LC transaction, such as the advising bank. If the LC is restricted to the issuing bank, or names a bank outside of the beneficiarys area as the bank where the LC is available, payment may be delayed. In the sample attached, the LC is available to the beneficiary with Bank of America, Los Angeles, California.
ByAll LCs must clearly indicate whether they are available by sight payment, by deferred payment, by
acceptance, or by negotiation. In the sample attached, the LC is available by acceptance because it requires the beneficiary to present a time draft, payable at 90-days sight (42C). After the beneficiary presents the draft and required documents to Bank of America, and Bank of America has determined that the draft and documents are in compliance with the terms of the LC, Bank of America would accept to pay the beneficiary 90 days later. Hence, the LC is available by acceptance.
42C: DRAFTS AT . . .
A draft is the document that represents the demand for payment that the beneficiary makes under the LC. A draft may be payable at sight, meaning at the time when it is presented for payment, or it may be payable at some future time after being presented for payment. In the sample attached, the LC requires drafts payable at 90 days sight. The time when payment is to be made to the beneficiary is usually determined between buyer and seller. If the seller gives payment terms to the buyer, or if the buyer requires bank financing of the merchandise, the LC would require the beneficiary to present a time draft. For further information on drafts, please refer to the section Bankers Acceptances in the accompanying material.
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NOTE: The issuing bank may not always require presentation of a draft. If payment under the LC is to be made at some future time, and no draft is required, the LC is referred to as a Deferred Payment Letter of Credit. Under this type of LC, since no draft is required, the beneficiary does not have the option of having a draft discounted, that is, of obtaining payment prior to maturity at an advantageous interest rate.
42A: DRAWEE
This is the bank on whom the beneficiary is instructed to draw the drafts. An LC may require the beneficiary to draw drafts on the issuing bank, on the advising or confirming bank, or on the reimbursing bank (53A). In the sample attached, the LC requires drafts to be drawn on Bank of America, Los Angeles, California, the issuing bank.
43T: TRANSSHIPMENT
This term means that the merchandise is loaded and reloaded from one carrier to another during the course of carriage. When a shipment is made by air or by combined transport, transshipment should be permitted. In the LC sample attached, transshipment is permitted.
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shipment is to be made FOB port of departure or CIF port of destination, or under any other basis, the price basis stated in the LC should be according to the trade terms specified in the International Chamber of Commerce Publication No. 560, Incoterms 2000. Also, the price basis should be reflected in the documentary requirements. In the LC sample attached, the price basis has been stated as FCA Paris, France. Accordingly, under Field 46A, the transport document is to be marked Freight Collect and no insurance document is required. Use of an incorrect price basis, not in conformity with Incoterms 2000,may result in misunderstandings between buyer and seller and a possible delay in payment. For a complete set of the international rules covering trade terms, please refer to the International Chamber of Commerce Publication No. 560, Incoterms 2000. A copy can be ordered via the internet at www.iccbooksusa.com.
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Chapter 04
063
Chapter 04
For the past 10 to 15 years, importers have invested large sums of money to improve the efficiency of their physical supply chains, moving goods across borders with increased speed and lower costs to meet the demands of an increasingly competitive marketplace. In many instances, the benefits of an efficient physical supply chain have fallen short of expectations because of the failure to link the movement of goods with the movement of money, or with the financial supply chain. Bank of America is committed to developing solutions to assist you in optimizing and integrating your supply chains. Our Purchase Order-to-Pay Service can help reengineer your trading processes and unlock substantial amounts of working capital for you. The Purchase Order-to-Pay (POto Pay) Service is a supply chain finance solution, which links the buyers supply chain partners into an end-to-end payment and settlement process for increased transparency and visibility throughout the supply chain. The service replaces paper-based functions with electronic processes and broadens settlement options by offering open account payments as well as traditional letters of credit. Through PO to Pay Service, buyers can electronically submit to Bank of America purchase order information that is used to construct letter of credit (LC) and open account payment instruments for delivery to sellers in paper form or via an electronic channel, including Bank of America Direct Trade Services and EDI. The service includes a matching engine, the Purchase Order Processing System (POPS), which reconciles purchase order data submitted by buyers with invoice data submitted by sellers prior to payment. Buyers can also upload a PO file with all of their suppliers PO details to automatically create their LCs and/or OA transactions based on supplier terms and business rules, which streamlines buyers processing steps in their daily work flow.
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Data matching and payment featureAs goods are manufactured and shipped, vendors present documents to Bank of
America for payment. Presentations may be in paper or electronic form or a combination of both. Key data elements in the sellers documents are matched with purchase order data, using an automated mapping engine for electronic presentations or document checkers for paper presentations. If conditions match, payment is made immediately for a letter of credit or open account with the auto-pay feature. Payment for all other open account payment types is made immediately after the importer has given approval. If the matching process fails, discrepancy details are transmitted to the importer for resolution. Once payment is triggered, details can be sent electronically to both the importer and vendor.
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Chapter 05
067
Chapter 05
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The certificate, known as the certificate of origin, therefore enables the importing country to determine, through its customs officers and administration, which shipments or goods shall benefit by such preferences. It contains generally the same information as the consular invoice. This certificate is then presented by the importer to customs officials to show the origin of the goods so that special preferential tariff rates, discounts from regular tariff rates, or other deductions granted in agreements existing between the countries of buyer and seller, or favors, can be taken into consideration.
Consular Invoice
These invoices may be required by various countries for customs or for statistical or other reasons. They must contain full details and description of the shipment, to be used as evidence of the shippers owners declaration of the value of the shipment. They are certified by the consul of the country to which the shipment is destined, and generally include a sworn statement not only as to the truth of the declarations made, but also as to the nonexistence of any other invoice for the same shipment. The consular invoice must show all details of the goods themselves, as well as all discounts, rebates, or the like. The consular certificate or invoice facilitates customs work at destination as well as collection of taxes, and also serves for statistical purposes. The number of copies of the consular invoice which must be presented when a visa is requested will vary considerably with the country and the set-up of its consular and customs offices. The consul always keeps certain copies, partly for his or her own files and partly to be forwarded to the customs officers in the place of destination. The number that are retained depend upon the country. The copies which the consul returns to the shipper are for the exporter to forward to the importer for presentation to customs when the exporter declares the goods. They should arrive as close to the arrival time of the goods as possible (preferably not later than the shipment). Delay in receipt of documents is frequently penalized heavily by the customs department of the importing country. Generally the consular invoice is a copy of the commercial invoice in the language of the importing country, supplied in two to ten copies, which gives full details of the merchandise shipped (see above). The invoice must show also, in addition to information about the materials or merchandise, the name and nationality of the vessel that carries the cargo, the port of shipment, and the port or point of destination.
Inspection Certificate
An inspection certificate testifies to the inspection of exported or imported goods. If it is needed, this documentary requirement should be clearly stated in quotation and sales contracts. In regard to many staple commodities sold against letters of credit, on grade designation entirely, such as raw cotton, the buyer provides for inspection or warehouse certification of the goods before shipment to avoid loss due to deviation from standard grade. Inspection before shipment is also provided in many sales contracts on expensive machinery or equipment. An inspection from an independent third party may be requested under a letter of credit.
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For all these reasons, the carrier or its agent generally will refuse to deliver the goods covered by a negotiable bill of lading without the bill being produced, duly signed or endorsed. Customs considers the holder of a duly signed or endorsed bill of lading to be the owner of all merchandise on such bill of lading issued by a common carrier. The bill itself is regarded as constituting the best evidence of the right to make entry. Some countries require legalization of the bill of lading by their consul at the place or port of shipment to give official proof of the accuracy of the bill as regards to the origin, quantity, and mode of shipment of the merchandise.
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Air Waybill
An Air Waybill is similar to an ocean bill of lading, except that it is restricted to shipment by airfreight. A major difference between the two is that the air waybill is always non-negotiable. It is the contract between the shipper and the airfreight carrier, limited to the conditions stated on the air waybill such as the destination and recipient. An air waybill is normally issued in one original, with several copies.
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Exhibit A
BENEFICIARY: DEMO BENEFICIARY CO. DEMO STREET DEMO CITY HONG KONG, HONG KONG
COMMERCIAL INVOICE
Date: 10 Jan 2007 Invoice No: B/L No: Vessel: Shipped from: JAKARTA, INDONESIA Shipped To: SAN DIEGO, USA
SOLD TO: BUYERS INTERNATIONAL 315 PTATANGO MANGO BULILIMAH KTABOROON, CA 11203 Letter of Credit No: Issued By:
MERCHANDISE DESCRIPTION:
LADIES BLOUSES AS PER PO. NO. 12345 LADIES BLOUSES PER PO. NO. 12345
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Exhibit B
CERTIFICATE OF ORIGIN
EXPORTER: DEMO BENEFICIARY CO. DEMO STREET DEMO CITY HONG KONG, HONG KONG OTHER REFERENCES: LC NO: M1241204NS00178 SALES ORDER: INVOICE NO: B/L NO: CONSIGNEE: MIZUHO BANK SOLD TO: BUYERS INTERNATIONAL 315 PTATANGO MANGO BULILIMAH KTABOROON, CA 11203 NOTIFY: COUNTRY OF ORIGIN OF GOODS:
DATE:
10 Jan 2007
AIRPORTS AUTHORITYINDONESIA AIRPORTS AUTHORITY INDONESIA JAKARTA, KASAFDARJUNG KASAFDARJUNG AIRPORT, JAKARTA AIRPORT, JAKARTA
REMARKS:
WE CERTIFY THAT THE ORIGIN OF THE WE CERTIFY THAT THE ORIGIN OF THE GOODSIS THE COUNTRY OF INDONESIA GOODS IS THE COUNTRY OF INDONESIA.
COVERING:
LADIES BLOUSES AS PER PO.NO. 12345 LADIES BLOUSES AS PER PO. NO. 12345
ITEM NO: DESCR IPTION : ORIGIN: QUA NITY:
THE UNDERSIGNED HEREBY DECLARE THAT THE ABOVE DETAILS AND STATEMENTS ARE CORRECT
AUTHORIZED SIGNATURE:
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Exhibit C
71-OCP 1597700
EXPORT REFERENCES
71-1710
CA
NOTIFY PARTY (not applicable to insurance certificate)
U.S.A
PIER OR AIRPORT
124
1x40HC SLAC: PKGS DESCRIPTION OF GOODS AND/SERVICES CONSTRUCTION MATERIALS AND EQUIPMENT CIF NAHA, OKINAWA, JAPAN L/C:
1420.00L 6428.29K
2170.000F 61.454M
110 PERCENT OF THE INVOICE VALUE INCLUDING INSTITUTE CARGO CLAUSES (ALL RISKS). INSURANCE CLAIMS TO BE PAYABLE IN JAPAN IN CURRENCY OF DRAFTS.
B/L DATE
INSURED VALUE
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Exhibit D
BENEFICIARY: DEMO BENEFICIARY CO. DEMO STREET DEMO CITY HONG KONG, HONG KONG
WEIGHT LIST
Date:
SOLD TO: BUYERS INTERNATIONAL 315 PTATANGO MANGO BULILIMAH KTABOROON, CA 11203
Letter of Credit No: M1241204NS00178 Drawn Under: IMPORTERS ISSUING BANK NAME
MERCHANDISE DESCRIPTION:
LADIES BLOUSES AS PER PO. NO. 12345 LADIES BLOUSES AS PER P.O. NO. 12345
ITEM:
NET WEIGHT:
GROSS WEIGHT:
Authorized Signature:
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Exhibit E
BENEFICIARY: DEMO BENEFICIARY CO. DEMO STREET DEMO CITY HONG KONG, HONG KONG
PACKING LIST
Date: B/L No: Vessel: Shipped From: Shipped To: JAKARTA, INDONESIA SAN DIEGO, USA 10 Jan 2007 Invoice No:
SOLD TO: BUYERS INTERNATIONAL 315 PTATANGO MANGO BULILIMAH KTABOROON, CA 11203 Letter of Credit No: M1241204NS00178 Issued By: IMPORTERS ISSUING BANK NAME
MERCHANDISE DESCRIPTION:
LADIES BLOUSES AS PER PO. NO. 12345 LADIES BLOUSES AS PER P.O. NO. 12345
ITEMS:
PACKAGES:
QUANTITY:
NET WEIGHT:
GROSS WEIGHT:
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Exhibit F
APL
SHIPPER
1 OF 1
EXPORT REFERENCES
APLU 098033266
CONSIGNEE
J.E. LOWDEN & CO FMC87NF CHB5118 275 BATTERY STREET SUITE 400 SAN FRANCISCO CA 94111
POINT AND COUNTRY OF ORIGIN OF GOODS
CNTRY: US
NOTIFY PARTY INTERMEDIATE CONSIGNEE
INITIAL CARRIAGE
EXPORT CARRIER
APL BELGIUM
PORT OF EXCHANGE
107
OAKLAND
PLACE OF DELIVERY
KAOHSIUNG
Export Valuation MARKS & NO.s / CONTAINER NO.S NO. OF PKGS
KEELUNG
PARTICULARS FURNISHED BY SHIPPER
H.M. DESCRIPTION OF PACKAGES AND GOODS Payment by Cheque to be made to the order of APL-Co. ED. Ltd. GROSS WEIGHT MEASUREMENTS
1-40 FT CY/CY CONTAINER/S SL&C NO M/N 1440 CARTONS FRESH NECTARINES UNDER REFRIGERATION MAINTAIN TEMPERATURE 34 DEGREES F VENT SETTING: 0015 CFM FREIGHT PREPAID NLR CTR NBR CRLU910345-9 SEAL NBR 4492 T/S MODE QUANT/TYPE R40 CY/CY 1440 CTNS SHIPPERS WEIGHT LOAD AND COUNT
43200# 19595K
THESE COMMODITIES, TECHNOLOGY OR SOFTWARE WERE EXPORTED FROM THE U.S. IN ACCORDANCE WITH THE EXPORT ADMIN. REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED. ON BOARD APL BELGIUM 107 ON AUG.28, 2007 AT OAKLAND OCEAN FREIGHT PAYABLE AT B/L TO BE RELEASED AT SERVICE CENTER M
PREPAID U.S. $ COLLECT U.S. $
Local Currency
Authorized Signature
NON-NEGOTIABLE COPY
79
Exhibit G
BILL OF LADING
BOOKING NO.
NON-NEGOTIABLE (COPY)
B/L NUMBER
600781434-A
EXPORT REFERENCES
MOLU600781434
FORWARDING AGENT
FMC# 0087
CRB# 511B
TO ORDER OF SHIPPER
J.E. LOWDEN & CO 275 BATTERY ST., STE 400 SAN FRANCISCO CA 94111
NOTIFY PARTY
THESE COMMODITIES, TECHNOLOGY, OR SOFTWARE WERE EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE EXPORT ADMINISTRATION REGULATION. DIVERSION CONTRARY TO U.S. LAW PROHIBITED.
OAKLAND, CA - CY
OCEAN VESSEL/VOY. NO. PORT OF LOADING Point and Country of Origin of Goods (for Merchants Reference Only)
MOL DISCOVERY
PORT OF DISCHARGE
OAKLAND, CA
PLACE OF DELIVERY
UNITED STATES
Loading Pier Terminal
NAGOYA
Container No.; Seal No.; Marks and No.s
NAGOYA - CY
No. of Containers or Packages
SED Not Required - AES 942267037-SP01051660 FREIGHT PREPAID. SHIPPERS LOAD AND COUNT. 5 x 40 HIGH CUBE CONTAINERS SAID TO CONTAIN: 3040 BAGS PERLITE 84988.00 LB 38550.00 KG 10198.876 F3 288.800 M3
LADEN ON BOARD THE VESSEL MOL DISCOVERY VOY NO 016M AT OAKLAND, CA ON 09-26-2007
Total number of Containers or other packages received by the carrier (inwards): Code Tariff Item Basis
FIVE CONTAINERS
Curr. Rate Per Prepaid Collect
Freighted As
PC PC PB PC
40 40 BL 40
40 40 BL 40
No. of Originals
THREE
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What happens when the seller does not submit all of the required documentation?
It is your banks obligation to examine the documents received from the sellers bank with the utmost care, and make payment only when all documents conform to the letter of credit that was issued on your instructions. If the issuing bank discovers discrepancies in the documents, they will contact you, list the discrepancies found for your consideration, and inquire as to whether you wish to authorize payment. You must make a decision within a reasonable time period to avoid the possibility of the seller arranging for the return of the merchandise or the sale of the merchandise to a third party.
What internal controls does the bank employ to ensure accurate documentary review? How does the bank measure quality of service?
Bank of America exercises due diligence and care when examining documents presented under letters of credit in accordance with the guidelines of Uniform Customs and Practice for Documentary Credits (UCP). We have established several levels of checking to ensure our documentary review meets your requirements. Your letters of credit and documents will be checked by our experienced trade specialists who are familiar with your processing and document requirements. Each trade specialist has a specific delegated authority regarding negotiation. For any transaction over that specific dollar amount, an additional review is required. A trade specialist will review all the transactions again to ensure they are in compliance with both your requirements as well as the International Standard Banking Practice (ISBP). Our trade operations managers also perform periodic reviews of the transactions in order to maintain consistent service quality and accuracy.
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A Discussion of the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP)
In November of 2002, the National Committees of the International Chamber of Commerce (ICC) Banking Commission voted overwhelmingly to adopt the International Standard Banking Practice for the Examination of Documents under Documentary Credits, also known as the ISBP. It is believed that the adoption of the ISBP will reduce the number of rejections by banks of documents under documentary credits. The ISBP was updated in July 2007 to bring it in line with UCP 600. The ISBP was written to help businesses that follow the International Chamber of Commerces internationally accepted rules for letters of credit, the Uniform Customs and Practice for Documentary Credits (UCP). Currently, it is reported that discrepancies in letter of credit documents found by banks in the interpretation and application of the UCP have led to 60-70% of documents being rejected on first presentation. As letters of credit are one of the chosen methods of payment for financing world trade, these rejections have been slowing trade and at times have led to costly disputes and court cases. The ISBP has been written as a supplement to the UCP, and explains how theUCP applies to day-to-day practice. It does not amend the UCP, but explains how the practices articulated in the UCP are to be construed by businesses worldwide. The ISBP deals with some of the following most-questioned practices: Alterations: What constitutes an alteration or addition to a document and when and how should these be authenticated? Drafts: What constitutes a proper endorsement? When does sight really occur when documents are discrepant? How should alterations on drafts be treated? Signing of documents: How should documents be signed if not expressly stated in the letter of credit? Applicant and beneficiary addresses: How should obvious typing errors in the name and address on documents be handled? What about different addresses of the same company? Trade terms: Must trade terms, such as Incoterms, appear on the commercial invoice and other documents? Mathematical calculations: How to deal with mathematical calculations appearing on invoices and other documents. Combined documents: Should a beneficiarys certificate, when required under a letter of credit, appear on the invoice or be included as a separate document? Transport documents: What constitutes the face of a document? Insurance documents: What constitutes a full set? What constitutes a proper endorsement? How does one determine the effective date?
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83
Chapter 06
084
Chapter 06
Documentary collections were introduced in the first chapter of this guide, which explored the inherent collection risk factors of buyers and sellers in addition to basic background information. This section expands upon that information with definitions, a flowchart and significant additional information.
85
86
Commercial documents
As with letters of credit, the basic instrument through which payment is obtained is a draft. This is an order for the payment of money drawn by one party, the drawer, on another, the drawee. Drafts may be payable at sight upon presentation or at a fixed future date, e.g., 60 days from presentation. A properly executed draft is a negotiable instrument. Drafts are generally referred to as bills of exchange outside the United States. A time draft that has been accepted by the drawee is called a trade acceptance. The documents accompanying the draft are those required by customs authorities in both countries and those stipulated by the importer. Failure to provide proper documentation could place the shipment in serious jeopardy. A bill of lading is the title document for the goods shipped. In most cases, a negotiable bill of lading is used and title is transferred by a simple endorsement. In the case of air shipments, the bills of lading are non-negotiable. To prevent the importer from obtaining possession of the merchandise without paying or accepting a time draft, the exporter may consign the shipment to the collecting bank, provided that the bank gives advance approval. Another alternative may be to consign the goods to an impartial agent. If either option is not possible, the documentary collection device may not be advisable when a straight or non-negotiable bill of lading or air waybill is used. While the seller or its bank may select the collecting bank, the transaction may be expedited by using the buyers bank in that role. Typically, the sellers instructions list the documents transmitted and state the conditions under which they are to be given to the buyer; they set forth the channel through which proceeds are to be remitted and establish responsibility for paying bank charges. If the seller has an office or local representative in the buyers country, this should be indicated in addition to listing a contact to be made there in the event of any problems.
Collection fees
In addition to the protection provided by the retention of title by the exporter, documentary collections have other advantages. The fees are usually lower than those charged for letters of credit, and the collecting banks assistance expedites payment over that which would be obtained by open account. It should also be noted that foreign collecting banks deduct their fees from the funds received before sending them back to the seller. Those charges in some countries are surprisingly high. Sellers can learn what fees are involved by asking their banks. If the costs cannot be absorbed, arrangements should be made during the sale to have the buyer pay all or part of the fees. If the collection letter does not specify which party is to pay, the fees will be deducted from the collected amount.
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Collection Advantages/Disadvantages
Documentary collections are widely used to settle trade transactions. They are the primary terms of sale when a long standing relationship exists between the buyer and seller and particularly when the buyer is an authorized dealer or distributor for the seller. In practice, the most common disadvantage is the delay when local funds are exchanged into dollars or other hard currencies desired by the sellers for sales to developing countries. Those delays are most often the fault of the exchange control authorities, not the buyers. Please note that when the goods being shipped are perishable or manufactured to a buyers unique specifications, this settlement method may not be advisable.
I.C.C. rules
The International Chamber of Commerce Uniform Rules for Collections (URC 522) govern the rights and responsibilities of the parties inmost countries. Courts in those countries that accept these rules will, for the most part, apply them unless contradictory laws or a unique set of facts require otherwise. In a collection transaction, a bank acts as an agent for the seller. It is bound by the sellers instructions and acts at its own risk if it takes actions not covered by the instructions. The full text version of the URC 522 can be ordered at www.iccbooksusa.com.
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Cash Flow
Incoming Documentary Collections
exporter
importer
exporter
Documents
89
Cash Flow
Incoming Documentary Collections (Continued)
exporter
importer
exporter
Documents
Documents
90
Cash Flow
Incoming Documentary Collections (Continued)
exporter
importer
exporter
exporter
Documents
Documents
Documents
importer
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Chapter 07
092
Chapter 07
A bankers acceptance is a draft (an order for payment) or bill of exchange, payable at a fixed or determinable future date, which is drawn on and accepted by a banking institution in the course of financing domestic or international trade. By accepting the draft, the bank assumes an unconditional promise to pay the amount of the draft to any proper holder who presents the draft for payment at maturity. A customer on whose behalf a draft is accepted is obligated to make payment to the bank on or before the maturity date of the draft. A bankers acceptance is a negotiable instrument that normally does not state an interest rate. Bankers acceptances are bought and sold on a discount basis (that is, for less than face value) by subtracting an interest charge from the face amount of the acceptance. When a bank buys (discounts) a bankers acceptance, it earns the difference between the purchase price and the face amount that will be reimbursed at maturity by the client. After a bank has initially discounted its acceptance, it may either hold the bill until maturity in its own portfolio as an investment, or rediscount with another investor.
Financing characteristics
Unlike conventional bank lending, which normally requires funding for the life of the loan, there is an active secondary market for bankers acceptances. This secondary market gives these negotiable instruments a high degree of liquidity that permits a bank to sell or rediscount them rather than hold them in portfolio. The secondary market consists principally of a number of dealers (most of whom are nationally known brokers or securities dealers) who stand ready to buy acceptances from banks at a discounted rate primarily for resale to their customers. Banks may also market acceptances directly to customers or others who seek high-quality, short-term, liquid investments. Because of the marketability feature, it has been said that when a bank finances a customer on an acceptance basis, it lends its name rather than its money. The holder or investor in acceptances has the assurance of payment by both the accepting bank and other endorsers. For this reason bankers acceptances are marketed at very competitive rates.
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Tenor
Time (usance) drafts for acceptance must indicate payment at a fixed or a determinable future period in time. This is called the tenor of a draft. An example of a fixed future time is a draft drawn on October 1, 2007, specifying payment on November 1, 2007.Most time drafts, however, specify payment on a determinable future time. Various determination type tenors are: Thirty days sight (30 d/s)this means the determined payment date would be 30 days after the inscribed date of acceptance on the draft. Thirty days date (30 d/d)the determined payment date under this method would be 30 days after the date of the draft. Thirty days after bill of lading datethis denotes that the draft is payable 30 days after the on board date if a marine bill of lading, or 30 days after the reception date by the carrier in the case of truck, railroad or air shipments. (See UCP 600, Articles 19 through 27).However, this type of tenor is not determinable unless the draft also shows on its face the bill of lading date or date of receipt by the carrier. If the draft were being drawn under a letter of credit, the preferred method would be to have the creation date of the draft the same as the on board bill of lading date or receipt date. Note: the above examples show 30 as the number of days for projection. This number can vary as necessary, such as 45, 60, 90, 120, 150 or 180. Acceptance financing is usually short term, up to six months or 180 days. Draft tenors must always be fixed maturities or capable of being projected to a definite maturity. A draft tenor can never be ambiguous or based on a contingency. Examples of inappropriate tenors are: thirty days after ship arrives, sixty days after merchandise is accepted, or forty-five days from delivery.
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Advances
The creation of a bankers acceptance does not itself generate a flow of cash since it is simply a promise to pay the acceptance at maturity. To initiate the flow of funds, the bill must be discounted. Customarily, such discount is made by the bank by deducting a fee (interest) from its face value for the period from the date of discount until maturity. Inmost instances, the initial discount is performed by the accepting bank, usually at a rate related to going market rates. The total cost to the beneficiary consists of the fee assessed by the bank for accepting the draft and the discount. Often, both elements are combined in an all-in or all-inclusive quotation to the customer. Under a letter of credit, acceptance fees and discount costs may be either for the account of the beneficiary (normal) or the applicant. If discount charges are payable by the applicant, discount of the acceptance is virtually automatic since the beneficiary will receive the face amount of the acceptance as proceeds.
Repayment
The accepting bank is obliged to honor at maturity the acceptance it created, so it looks to its customer for reimbursement. By paying the holder (purchaser) of the draft upon presentation at maturity, the bank extinguishes its obligation.
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02
03
Bank of America deducts acceptance commissions of $1,875 and $7500 for discount charges
04
05
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Chapter 08
097
Chapter 08
The issuing bank will send the documents presented under your letter of credit either directly to you, or to your customs broker, after proper examination has been completed. Your customs broker will then use the documents to clear the goods through customs. The customs broker will advise you of charges for duty, ocean freight, insurance or entry fees. These charges must be paid to the customs broker immediately as failure to do so may result in penalties from U.S. Customs. In addition, you should keep the following in mind: No pier pickup can be made until all duty and ocean freight have been paid All figures should be verified against those given by the seller If any of the charges appear to be out of line, advise the seller immediately Duty should not be paid on items that are not dutiable Wharfage charges must be paid at the pier If goods travel as loose cargo, a loading charge must be paid Wharfage charges and loading charges are nominal and vary from port to port. Full container loads are normally available for pickup within two days after arrival, and loose cargo is typically ready for pickup three or four days after docking. Either you or your customs broker can check on cargo availability after arrival. Some steamship companies require an appointment to pick up merchandise. If your goods require further transportation, you must provide your trucker with a delivery order on your companys letterhead for him to take possession of your merchandise. All the information needed for this delivery order will be contained in your bill of lading. What happens if the goods arrive before the documents? Much depends on the type of transport document used. Shipments made under an order bill of lading will normally not be released by the carrier without a properly endorsed original bill of lading. However, Bank of America may be able to help you avoid costly delays and demurrage charges by issuing a Steamship Guarantee or Air Release to the carrier. A good customs broker is frequently the key to successful importing and should be contacted before finalizing any contracts. Customs brokers can provide you with current information on: All documents needed from the sellerboth regular and specialin order to have your goods clear customs. Import duties that may be assessed on your goods. Any quota that limits the quantity of a specific item for import. Some of the other ways in which your customs broker can assist you include: Most shipments require formal customs entry and the posting of a bond. A customs broker can assist you in both areas. Goods in transit should be insured by either the buyer or seller. If you do not have a policy, and insurance is not provided by the seller, your customs agent can obtain the necessary coverage.
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Chapter 09
099
Chapter 09
100
101
102
103
seller up until goods delivered to carrier/agent seller up until goods delivered to carrier/agent seller
buyer
buyer
seller
seller
buyer
FASfree alongside ship (...named port of shipment) FOSfree on board (...named port of shipment) CFRcoast and freight (...named port of destination) CIFcost, insurance and freight (...named port of destination) CPTcarriage paid to (...named place of destination) CIPcarriage & insurance paid to (...named place of destination) DAFdelivered at frontier (...named place) DESdelivered ex ship (...named port of destination) DEQdelivered ex quay (...named place of destination) DDUdelivered duty unpaid (...named place of destination) DDPdelivered duty paid (...named place of destination)
buyer
buyer
seller
buyer
buyer
buyer
buyer
seller
seller
buyer
seller
seller
buyer
seller
seller
seller
seller
seller
seller
seller
seller
seller
to the carrier
seller
seller
buyer
seller
seller
seller
to the carrier
seller
seller
seller
seller
seller
seller
sellers frontier destination port while still on board the destination seller port quay disposal of buyer, named place an inland designation designated by buyer
seller
buyer
seller
buyer
seller
buyer
seller
buyer
seller
seller
buyer
seller
seller
seller
seller
buyer
seller
seller
seller
seller
buyer
seller
seller
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Chapter 10
0105
Chapter 10
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Benefits Frees customer funds that would otherwise have been tied up separately as deposits. Assures that the standby letter of credit is issued in a manner that best protects client interest. Achieves compliance with contracts requiring foreign currency payments. Provides access to foreign loans that would otherwise not be available to client.
Expertise
Staff of professionals have years of experience in the technical handling of standby letters of credit. Bank of America can issue a standby letter of credit in currencies other than U.S. dollars. Bank of America can issue a standby letter of credit on behalf of a client to serve as a n assurance to a bank overseas for the repayment of loans made by the bank to our client or its subsidiary or affiliate.
Foreign Exchange
Credit Assurance
A Standby Letter of Credit Application Kit, which includes additional information and guidance on completing a standby letter of credit application, is available through your local Global Trade & Supply Chain Solutions Officer.
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PLACE AND DIATE OF ISSUE LOS ANGELES, CA APPLICANT (APPLICANT NAME) 35 MAIN STREET SAN FRANCISCO, CA 94116 ADVISING BANK BANK OF AMERICA HONG KONG JUNE 29, 2007
IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXXXXXX DATE AND PLACE OF EXPIRY DECEMBER 31, 2010 IN SAN FRANCISCO, CA
AMOUNT: U.S. $3, 500,000.00 (THREE MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS)
WE HEREBY ISSUE IN YOUR FAVOR THIS IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXXXXXX WHICH IS AVAILABLE BY PAYMENT WITH OURSELVES AGAINST PRESENTATION OF YOUR DRAFT AT SIGHT DRAWN ON BANK OF AMERICA, LOS ANGELES CALIFORNIA, BEARING THE CLAUSE: DRAWN UNDER STANDBY LETTER OF CREDIT NUMBER XXXXXXX OF BANK OF AMERICA, LOS ANGELES, CA ACCOMPANIED BY THE FOLLOWING DOCUMENTS. BENEFICIARY SIGNED STATEMENT CERTIFYING THAT (APPLICANT NAME) HAS FAILED TO COMPLY WITH THE TERMS AND CONDITIONS OF CONTRACT NO. KFX-KAF-02005. IT IS A CONDITION OF THIS LETTER THAT IT WILL BE AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR ADDITIONAL PERIODS OF ONE YEAR FROM THE CURRENT OR ANY FUTURE EXPIRATION DATE HEREOF UNLESS, SIXTY (60) OR MORE DAYS PRIOR TO ANY SUCH EXPIRATION DATE, BANK OF AMERICA WILL NOTIFY BENEFICIARY BY REGISTERED MAIL OR COURIER SERVICE AT THE ABOVE ADDRESS, THAT THE BANK ELECTED NOT TO RENEW THIS LETTER OF CREDIT FOR ANY SUCH ADDITIOANL PERIOD. IT IS A FURTHER CONDITION HEREOF THAT BENEFICIARY MAY DURING THE LAST FIFTEEN (15) DAYS OF THE THEN CURRENT VALIDITY PERIOD DRAW HEREUNDER BY MEANS OF THEIR SIGHT DRAFTS ON OURSELVES FOR AN AMOUNT UP TO THE AVAILABLE BALANCE ACCOMPANIED BY THEIR SIGNED STATEMENT STATING THAT THEY HAVE RECEIVED NOTICE FROM BANK OF AMERICA, LOS ANGELES, CA THAT BANK ELECTED NOT TO CONSIDER THE EXPIRY DATE OF STANBY LETTER OF CREDIT NUMBER XXXXXXX EXTENDED. PARTIAL DRAWINGS PERMITTED. ALL REQUIRED DOCUMENTS MUST BE PRESENTED TO BANK OF AMERICA, LOS ANGELES, CA. WE HEREBY ENGAGE WITH YOU THAT DRAFTS DRAWN AND PRESENTED IN THE CONFORMITY WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED ON PRESENTATION. EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS DOCUMENTARY CREDIT IS SUBJECT TO INTERNATIONAL STANDBY PRACTICES (ISP98), PUBLICATION NO. 590 OF THE INTERNATIONAL CHAMBER OF COMMERCE.
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109
The transfer must be effected in accordance with the terms of the original letter of credit, subject to the following exceptions: 01. The name and address of the first beneficiary may be substituted for that of the applicant of the letter of credit. 02. The amount of the letter of credit and any unit price may be reduced; this would enable the first beneficiary to draw against the letter of credit for commission or profit. 03. The expiration date of the credit, the period of time after date of issuance of the transport document for presentation of documents, and the shipment period may be shortened. 04. The percentage for which insurance coverage must be effected may be increased in such a way as to provide the amount of cover stipulated in the original letter of credit. It should be noted that a letter of credit would only be issued as transferable on the specific instructions of the applicant. This would mean that both the letter of credit application form and the letter of credit itself must clearly show that the credit is to be made transferable (only an irrevocable letter of credit would be issued in this form). The transfer is effected by the bank authorized in the letter of credit as the transferring bank at the request of the first beneficiary. In practice, the first beneficiary is allowed to substitute any invoices and any drafts for those presented to the transferring bank by the second beneficiary. The bank must correlate and check both invoices and drafts with the other documents called for and ensure that all documents comply with the terms of the original letter of credit.
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Chapter 11
0111
Chapter 11
Payments
Bank of America offers you quick, efficient payment services that can streamline the way you remit to your vendors, clients and employees and reconcile your accounts. We can provide a customized solution, integrating the following components: Account Reconciliationreconcile your accounts quickly, easily and accurately Automated ClearingHouse (ACH)save time and money by moving funds electronically, from your own personal computer Electronic Data Interchange (EDI)increase your efficiencies through the electronic transfer of business data with your business partners Information Reportingreceive timely account information at your desktop Wire Transfer Servicesecurely and efficiently send or receive same-day funds.
Receipts
We can help you quickly turn your receipts into cash while reducing information float and improving credit management. If you are challenged to provide your clients with payment flexibility or to improve efficiencies in your receipt processing, we can help you manage your receivables by developing customized solutions from the following range of services: Account Reconciliationfast and economical method to help you manage your deposit activity by outsourcing all or part of your monthly checking account reconciliation functions Automated ClearingHouse (ACH)save time and money by moving funds electronically
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Electronic Data Interchange (EDI)increase your efficiencies through the electronic transfer of business data with your business partners Information Reportingreceive timely account information at your personal computer Lockboxutilize our network of post office boxes to accelerate the collection of client remittances, improving control of your receipts in selected countries
Treasury
Bank of America Treasury Services give you the information and services required to help you get the most out of your deposits and balances. SWEEPautomate the concentration of your daily excess collected balances Zero Balance Accountsgain greater control of your funds by automatically transferring them between master and subsidiary accounts on a same-day basis Euro Cross-Border Automated Zero Balanceconcentrate your Euro currencies Online capabilities Current-day reporting Prior-day reporting ACH initiation Wire transfer initiation International U.S. dollar wires FX international wires.
Investment/Paydown
Equity/Debt
Payables
Raw Materials
Work in Progress
Receipts
Inventory
Sales of goods
Distribution
Your Bank of America Treasury Management team is prepared to work with you to identify issues and discover opportunities and solutions.
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Risk Receipts
Credit Invoice Receipts Cash Application Deductions Mgmt Disputes Collections/Loss Control Research/Inquiries
Treasury
Cash Position Bank Relations Miscellaneous
Payments
Purchasing Request for Payment Payment Origination Settlement Fraud Control Reconcilenment Research/Inquiries
Information
Client Access Technology Strategy Information Security
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Worldwide trading
Nearly thirty sales and trading centers Short-and long-dated forwards in all non-exotic currencies Non-deliverable forwards pricing in selected exotic currencies Standard and exotic options.
Risk analysis
Quantitative analysis of FX exposures and hedging strategies Analysis and review of the risk management process Development of new hedging approaches and products Currency research and risk management monographs
Currency strategy
Economists located on trading floors, who are responsive to market developments Globalmacro-economic coverage of all markets through worldwide network Regular publication of market research and country analysis available electronically in real-time
Other services
Extensive series of workshops and seminars Full-featured capital markets Web site with instant access to research, market commentary, and risk analysis tools
E-Solutions
Bank of Americas Global Markets Web site provides clients with valuable ideas, analyses and tools required to manage their physical assets, liabilities and risks. The resources available through the site include: Research: Market commentary, economic analysis, technical analysis, forecasts and research on practical investment and risk management issues, such as setting foreign exchange budget rates, estimating international costs of capital and evaluating hedging strategies News & information: Economic calendar hyperlinked to Bank of America research and online futures and margin statements Analysis tools: TradeCalc (Options pricer), Chart Room (historical data), Portfolio Optimizer, Implied Volatility and Daily FX rates Trading: FX02, an FX e-dealing service that offers spot, forward and swap transactions, online trade blotters, confirmations and valuation reporting
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Integrated FX platform
The Bank of America Direct FX Wires and Drafts service allows you to issue paymentsin more than 100 currenciesusing the Web browser on your PC desktop. The service makes it easy for you to make payments of up to $5 million (U.S. dollar equivalent) to suppliers, overseas employees, international operating units, or any other beneficiary, via our state-of-the-art Web-browserbased system. Payment settlement is made via deductions from your Bank of America account. Since competitive foreign exchange rates are critical, our system provides the most current rates, which are continuously updated throughout each business day.
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FAS 133
This comprehensive seminar will help Treasury and Accounting implement and maintain compliance with the new derivatives and hedging rules. The seminar will focus specifically on new developments, including recent decisions from the DIG and insight into future changes. If you are interested in attending any of these seminars, please contact your Global Product Solutions officer.
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Accounting Considerations
Accounting for Derivatives and Hedging TransactionsFAS 133 (as amended by FAS 138)
Financial Accounting Standard No. 133 (as amended by FAS 138), effective for fiscal years starting after June 15, 2000, requires all derivatives to be shown on the balance sheet at fair value. Changes in fair value of the hedge will go through earnings unless the transaction qualifies for special hedge accounting. Each operating unit determines whether it has an FX exposure based upon its functional currency. Companies must document hedge strategies and the hedge must be highly effective to qualify for hedge accounting. Any ineffective portion of the hedge may be charged to earnings immediately. Three types of hedges that qualify for special accounting are cash flow hedges, fair value hedges and net investment hedges. A cash flow hedge protects against changes in the USD equivalent cash flows associated with an unrecognized firm commitment, recognized assets or liabilities or a forecasted transaction. A fair value hedge protects against changes in fair value of an FX-denominated unrecognized firm commitment, a recognized asset or liability or an available-for-sale security. A net investment hedge protects the USD equivalent net asset position of a foreign currency functional subsidiary. Hedges of business combinations, inter-company dividends and anticipated exposures that are not probable do not receive special hedge accounting.
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Chapter 12
0119
Chapter 12
acceptance. A time draft that the drawee (the payer) has accepted and acknowledged in writing the unconditional
obligation to pay it at maturity.
accepting Bank. A bank that is the drawee of a time draft and that becomes the acceptor of the draft. account party. (See Applicant.) advising Bank. A bank which receives a letter of credit issued by the applicants bank and forwards it to the
beneficiary without assuming any responsibility or liability other than to ensure their advice accurately reflects the terms and conditions of the credit (and to verify the credits authenticity).
at xx days after date. A term used to indicate that the maturity date of a draft is determined by the date on which it
was drawn and is not determined by the date of acceptance by the drawee.
at xx day after sight. A term indicating that the maturity date of a draft is determined based on a specified number of
days after presentation of the draft to the drawee or payee.
air Waybill. A transport document/bill of lading which serves as a receipt for goods, (contract to transport the goods,
and which indicates to whom the goods are to be delivered). Generally, air carriers do not allow Air Waybills to be issued in negotiable form. Air Waybills should not be consigned to order of a named party, but should be consigned directly to a named party.
all risks coverage. The broadest type of standard marine insurance coverage; may show exclusions for damage
caused by war, terrorism, strikes, riots and civil commotion.
alongside. Place that is at the side of the vessel. Goods to be delivered alongside are to be delivered to the dock from
which they can be loaded aboard the ship.
applicant. The buyer/importer/account party who applies to its bank to issue a letter of credit in favor of the
beneficiary/seller/exporter.
at Sight. The tenor of a draft or availability term of a credit indicating that payment is due upon presentation or
demand.
aval. A time draft drawn by an exporter on the buyer under which the buyers bank has guaranteed that the draft
will be paid at maturity.
Bankers acceptance. A time draft drawn on a bank, usually by an importer or exporter, which, once accepted by the
drawee bank, becomes an unconditional obligation of the bank to pay at maturity.
Beneficiary. The person or company in whose favor a letter of credit is issued. Usually the beneficiary is the seller/
exporter.
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Bill of exchange. (See Draft.) Bill of lading. A transport document which serves as a receipt for goods, a contract to transport the goods, and
engagement to deliver the goods at the prescribed destination to the lawful holder of the bill of lading. While this term is frequently used to describe an ocean/marine bill of lading, its legal definition is much broader. (See also, Air Waybill, Ocean Bills of Lading, Inland Bills of Lading.)
Boycott. A refusal to deal commercially with a person, firm, or country. carnet. A customs document that permits the holder to temporarily bring goods into a country (e.g. for a trade
show), and then take them back out without having to pay customs duties.
cash in advance. The payment by a buyer to a seller prior to the purchased goods having been shipped. cash against Documents. (See Documents Against Payment.) central Bank. A government-owned or controlled bank that oversees other banks in the nation, issues currency, and
serves as a depository for government funds.
Certificate of Analysis. A certificate issued regarding the quality and composition of food products or
pharmaceuticals.
Certificate of Inspection. A document certifying that merchandise was in good condition immediately prior to its
shipment.
Certificate of Origin. A document, often issued by a Chamber of Commerce, certifying the origin of the goods being
shipped. It is used to satisfy import regulations and to determine customs duties.
clean transport Document. A transport document that bears no clause or notation, indicating that goods were
received in apparent good order and were not damaged or had other irregularities.
clean Draft. A draft to which no shipping documents are attached. commercial invoice. A document issued by a seller listing goods being sold to a named buyer, including the price and
shipping terms.
Confirmed Letter of Credit. An obligation assumed by one bank (the confirming bank) on behalf of the issuing bank, of
a letter of credit under which the confirming bank undertakes to honor or negotiate drafts and/or documents which are presented in compliance with the credits terms and conditions.
consignee. The person or firm named in a freight contract to whom merchandise is to be delivered.
Documentation differentiates between an intermediate consignee and an ultimate consignee for export control purposes.
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consular invoice. A commercial invoice that has been reviewed by the Consulate of the buyers country for the
purpose of verifying the value and quantity of the shipment and to ensure that no indigenous laws or regulations are being broken.
container. A uniform-sized, sealed, reusable metal box in which goods are shipped by vessel, truck, rail or air.
Country Risk. The risks inherent in doing business in a foreign country over and above commercial risks, which are generally beyond the local companys ability to control.
credit risk insurance. Insurance purchased through either the Export-Import Bank of the United States, or private
sector companies, to provide protection against non-payment due to country or commercial risks.
customs. National government authorities that regulate the flow of goods to or from a country and collect duties
levied on imports and exports.
customhouse Broker. A private firm that arranges to clear goods through customs. Customhouse brokers also
commonly act as freight forwarders.
Demurrage. Additional storage charges incurred as a result of excessive delays in clearing cargo off a vessel, wharf,
freight car or air cargo facility.
Devaluation. The official lowering of a countrys currency in relation to one or more currencies of other countries. It
tends to make imports in that country more expensive, and to make exports more attractively priced to overseas buyers.
Documentary collection. The presentation through banking channels for payment or acceptance by a buyer of
documents relating to the shipment of goods.
Documents against acceptance (D/a). A documentary collection wherein shipping documents are released to buyers in
exchange for them obligating themselves to future payment via execution of a trade acceptance. (See also Aval.)
Documents against payment (D/p). A documentary collection wherein shipping documents are released to the buyer in
exchange for payment for the amount of the draft.
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Draft. An unconditional order in writing from drawer (exporter) to drawee (importer) directing the drawee to pay a
specific amount of money to the payee on demand or at a fixed or determinable future date. (See also, Sight Draft, Time Draft.)
Drawee. The person, company or bank upon which a draft is drawn. Drawer. The person, company or bank that creates the draft and generally is entitled to receive payment. Durable Goods. Furniture, machinery, appliances and similar goods that are not processed or consumed by their
users.
Duty. A tax on imported goods imposed by the customs authorities in that country. economic Sanctions. A foreign policy tool used to punish and/or influence a target nation. Sanctions can include
prohibiting trade, economic assistance, financial transactions or even all economic relations.
embargo. A restriction or prohibition on exports or imports with respect either to specific products or specific
countries.
exchange rate. The value or price of one currency when used in relation to its value in another currency, for example,
the number of units of currency A that is required to be exchanged for one unit of currency B.
exim-Bank. The U.S. Export-Import Bank. The U.S. Eximbank is an independent agency that finances the export of
U.S. goods and services through loans, guarantees, working capital guarantees and insurance.
exporter. The person or company that sells or arranges to transport goods out of a country. export license. A government document used in some countries that allows the export of certain controlled products
to specific destinations.
export management company. A private firm that serves as the export department for a number of companies. The
firm typically do not take title to the goods and is paid on a commission basis.
export trading company. A firm that serves as the export department for a number of companies that takes title to
the goods. They make their money by making a profit margin on the goods being exported.
force majeure. Conditions such as floods, earthquakes, hurricanes or other events beyond the control of various
parties involved in transporting goods. Marine contracts typically exempt the affected parties from their contractual obligations as a result of Force Majeure.
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foreign exchange. The currency of a foreign country and/or the conversion from one currency to another. forward exchange. The setting of an agreed-upon exchange rate between a foreign exchange trader and a client
whereby the trader contracts with the client to buy/sell a specific amount in foreign currency at a future date at a predetermined exchange rate. (See also, Spot Exchange.)
foul (not clean) Bill of lading. A receipt for goods issued by a carrier with an indication that the goods or the
packaging were in damaged condition when received.
free (foreign) trade Zone. An enclosed and secured area, usually designated by a port, into which goods may be taken
and customs duties may be deferred or waived until such time as the goods are removed for domestic distribution or re-exported.
freight forwarder. A private company that arranges cargo space on a carrier, as well as the logistics for delivering
the goods to the carrier (e.g. ship, airplane etc.). They also frequently assist in the preparation of shipping documents for presentation, either under a letter of credit or collection basis.
free of particular average (fpa). A clause used in marine insurance indicating that partial loss or damage to a
shipment is not covered. Loss resulting from conditions such as the ship sinking or burning may be exempted from the clause. (See also, With Particular Average.)
Gatt. General Agreement on Tariffs and Trade. A multilateral treaty designed to reduce trade barriers, and to
provide a forum for resolution of trade disputes.
General export license. Authority to export without the need for a specific or validated export license. Gross Weight. The full weight of a shipment, including goods, packaging and container. import. To bring goods into a country whose origin is in another country. The importer is usually the buyer or the
buyers agent.
import license. A government document required in some countries for importing specific goods originating in
specific countries.
incoterms. International rules published by the International Chamber of Commerce for the interpretation of foreign
trade terms.
inland Bill of lading. A bill of lading used to cover the transport of goods within a countrys borders, such as by rail or
truck.
Insurance Policy/Certificate. A document that assures the consignee that the merchandise is insured to cover loss or
damage while in transit.
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international chamber of commerce (icc). An organization founded to promote free trade and private enterprise and
to represent business interests at the national and international level. The ICC is composed of national councils from over 90 countries.
issuing Bank. The bank that issues a letter of credit; also called the opening bank.
Letter of Credit. A conditional undertaking by a bank on account of a buyer (applicant) of goods in favor of a seller (beneficiary) under which payment is effected against presentation of stipulated documents in compliance with the letter of credits terms and conditions.
marine risk insurance. Insurance covering loss or damage while goods are at sea. Typical coverage includes losses
sustained due to fire, shipwreck, piracy, strikes, riots or civil commotion, as well as the standard losses caused as a result of the cargo being damaged.
mercoSur (mercado comun del SurSouthern cone common market). A preferential trade agreement among countries
of the southern cone of South America that aims to establish free trade and increased economic cooperation among members.
most-favored-nation treatment. A commitment that a country will extend to another country the lowest tariff rates
or the most favorable non-tariff policies it applies to any third country. All GATT contracting parties undertake to apply such treatment to each other.
multimodal transport. The movement of freight using two or more different kinds of transport such as ocean and
truck, ocean and rail etc. (May also be called combined transport bill of lading, intermodal bill of lading or through bill of lading)
nafta (north america free trade agreement). A regional preferential trade agreement that aims to eliminate tariffs
and other trade, services and investment barriers among its constituents.
naicS code. The North American Industry Classification Systemthe industry classification system used by the
statistical agencies of the United States
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ocean Bill of lading. A document issued by a shipping line that serves as (a) a receipt for goods, (b) a contract to
transport goods, and (c) a means to transfer title from the shipper to a designated party. Most often, the carrier will issue three original bills of lading. Ocean bills of lading may either be negotiable or straight. Under a negotiable bill of lading, one original bill of lading must be surrendered to the shipping line in order for the consignee to take delivery. The bill of lading is consigned to the order of a named consignee. Ownership in the goods may be transferred through endorsement of the bill of lading. Under a straight bill of lading, the consignee may take delivery by surrender of either an original or copy of the bill of lading or in some instances by simply proving their identity. Straight bills of lading are consigned to a consignee with no possibility of transferring ownership through endorsement.
open account. A selling arrangement whereby goods are shipped to a buyer prior to payment being made, and where
the sellers risk is entirely with the buyer and the buyers country.
open insurance policy. A marine insurance policy that applies to all shipments over a period of time rather than on a
single shipment.
opening Bank. The bank that issues the letter of credit. Same as issuing bank. opic. Overseas Private Insurance Corporation. AU.S. government agency that provides risk protection on capital
investments made in foreign countries.
packing list. A document that lists the various packages or cartons being shipped and their contents. particular average. Partial loss or damage to goods. Phytosanitary Certificate. A certificate typically issued by a countrys agricultural department to satisfy import
regulations in various countries certifying that specified perishable food, weed and plant items are free from contamination, pests and plant diseases.
pro-forma invoice. A draft or sample of what the final invoice will look like. Used by sellers in the negotiating process
with potential buyers in order to ensure that all parties understand what costs are included in the quoted price.
purchasing agent. An agent who purchases goods on behalf of a foreign buyer. Quota. A limitation placed by a government on the quantity of specific goods that may be imported or exported
without the imposition of additional customs duties.
rate of exchange. The value of one countrys currency in terms of another. Shippers export Declaration (SeD). A U.S. Treasury form required to be completed for all shipments leaving the
United States. It indicates the value, nature of the goods, weight, destination, etc. It is not an export license. Very few products leaving the United States require an export license.
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Shipping Weight. The gross weight of a shipment, including moisture content, wrappings, crates, boxes and
containers (other than cargo vans and similar substantial outer containers).
Sight Draft. A draft which is payable by the drawee at the time of presentation. (See also, Draft, Time Draft.) Spot exchange. The immediate conversion of one currency to another at the prevailing exchange rate.
(See also, Forward Exchange.)
SIC Codes (Standard Industry Classification). A numerical coding system formerly used in the United States to classify
various types of businesses, goods and services. Replaced by NAICS Code.
tare. Weight of the package in which merchandise is contained and/or packing materials used to protect it. Gross
weight minus tare gives net weight.
tenor. Terms fixed for payment of a draft; e.g., sight, 90 days after sight, 60 days after shipment date. through Bill of lading. See multimodal transport document. time Draft. A draft which is payable at a determinable future date. It is drawn on a buyer (importer) or bank and,
once signed as accepted by the drawee becomes the drawees obligation to pay at maturity. (See also, Trade Acceptance.)
trade acceptance. A time draft that has been accepted across the face of the instrument, in writing, by the drawee
(generally the buyer/importer) thus signifying the drawees undertaking to honor the acceptance at maturity. (See also, Documents Against Acceptance.)
ucp (uniform customs and practice for Documentary credits). Globally accepted (by all member nations of the
International Chamber of Commerce) set of rules governing letter of credit transactions.
Warehouse receipt. A receipt issued by a warehouse operator for goods received for storage. With average. A Marine Insurance term meaning that a shipment is protected from partial damage whenever the
loss exceeds a stipulated percentage.
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