Description
A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services provided certain documents have been presented to the bank
I, WELCOME YOU TO THIS PRESENTATION
Sir, we will talk about
• 1. What is LETTER OF CREDIT (L.C.)
OR DOCUMENTARY CREDIT OR JUST CREDIT 2. WHO ARE THE PARTIES TO A LETTER OF CREDIT 3. What are the different types of Letter of Credit 4. DOCUMENTATION 5. INCO TERMS,2000
8/13/2013 2
What is LETTER OF CREDIT (L.C.) OR DOCUMENTARY CREDIT • International Chamber of Commerce (ICC), Paris defines it as – An arrangement (however named) whereby a Bank (Issuing bank) acts at the request and on the instructions of a customer (applicant) or on its behalf to – a) Make a payment to or to the order of a third party (beneficiary) or is to accept bill of exchange (draft) drawn by the beneficiary. OR
8/13/2013 3
1.
What is LETTER OF CREDIT
An arrangement (however named) whereby a Bank (Issuing bank) acts at the request and on the instructions of a customer (applicant) or on its behalf to – b) Authorises another bank to effect such payments or to accept and pay such bills of exchange (drafts) OR
8/13/2013
4
What is LETTER OF CREDIT
An arrangement ( however named) whereby a Bank (Issuing bank) acts at the request and on the instructions of a customer (applicant) or on its behalf to – c) Authorises another Bank to negotiate against stipulated documents provided that the terms are complied with.
8/13/2013 5
PARTIES TO A LETTER OF CREDIT
• • • • • • • •
1. Applicant (opener) 2. Issuing Bank (Opening bank) 3. Beneficiary 4. Advising Bank 5. Confirming Bank 6. Negotiating Bank 7. Reimbursing Bank 8. Second beneficiary
6
8/13/2013
Opening of documentary credit
CONTRACT
IMPORTER
OPENING ISSUE CREDIT BANK SUPPLIES GOODS
EXPORTER
Opening of credit ? Addresses concerns of both importer and exporter. ? Exposure becomes real and fund based if applicant defaults. ? Credit worthiness of the customer should be evaluated
8/13/2013 7
Advising bank
CONTRACT
IMPORTER
EXPORTER
OPENING BANK
ISSUE CREDIT
ADVISING BANK
Advising bank guarantees genuineness of the credit. Does not vouch for competence or willingness of opening bank to pay.
8/13/2013 8
Confirming bank
CONTRACT
IMPORTER ADVISING BANK
EXPORTER
CONFIRM Confirming bank guarantees payment by opening bank ING BANK Means and creditworthiness of issuing bank to be assessed
8/13/2013 9
OPENING BANK
ISSUE CREDIT
Negotiating Bank
CONTRACT
IMPORTER
EXPORTER
D O C S P A Y
OPENING BANK
ISSUE CREDIT DOCUMENTS PAYMENT
ADVISING BANK
NEGOTIATING BANK
Negotiating bank pays beneficiary first and reimbursement from the opening / confirming bank. 8/13/2013
claims
10
Mechanics of Documentary Credit
CONTRACT GOODS IMPORTER DOCS SHIPPING COMPANY GOODS DOCS
EXPORTER
OPEN CREDIT OPENING BANK
ADVISING/
DOCUMENTS PAYMENT
NEGOTIATING
DOCUMENTS PAYMENT
BANK
8/13/2013
11
TYPES OF LETTER OF CREDIT
• • • • • • •
1. REVOCABLE 2. IRREVOCABLE 3. CONFIRMED 4. SIGHT CREDIT & USANCE CREDIT 5. BACK TO BACK 6. TRANSFERABLE 7. STANDBY
12
8/13/2013
DOCUMENTATION
• • • • • • • •
1. AIRWAY BILL 2. BILL OF LADING 3. CERTIFICATE OF ORIGIN 4. COMBINED TRANSPORT DOCUMENTS 5. BILL OF EXCHANGE (draft) 6. INSURANCE POLICY 7. PACKING LIST 8. INSPECTION LIST
13
8/13/2013
INCO TERMS,2000
• There are 4 groups of terms --• (1) Group E – Departure • (i) EXW – Ex works • (2) Group F – Main Carriage unpaid (seller is
• • •
called upon to deliver the goods to a carrier) (i) FCA – Free Carrier (ii) FOB – Free on Board (iii) FAS – Free alongside Ship
14
8/13/2013
INCO TERMS,2000
(3) Group C – Seller has to contact for carriage but without assuming the risk of loss of or damage to the goods. (i) CFR – Cost and freight (ii) CIF - Cost, Insurance and freight (iii) CPT - Carriage paid to (iv) CIP - Carriage & Insurance Paid to
8/13/2013 15
INCO TERMS,2000
• (4) Group D – Seller has to bear all cost and • • • • •
risks needed to bring the goods to the country of destination (i) DAF – Delivered at Frontier (ii) DDU – Delivered duty unpaid (iii) DDP – Delivered duty paid (iv) DEQ – Delivered ex- quay (v) DES – Delivered ex ship
8/13/2013
16
doc_580894232.ppt
A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services provided certain documents have been presented to the bank
I, WELCOME YOU TO THIS PRESENTATION
Sir, we will talk about
• 1. What is LETTER OF CREDIT (L.C.)
OR DOCUMENTARY CREDIT OR JUST CREDIT 2. WHO ARE THE PARTIES TO A LETTER OF CREDIT 3. What are the different types of Letter of Credit 4. DOCUMENTATION 5. INCO TERMS,2000
8/13/2013 2
What is LETTER OF CREDIT (L.C.) OR DOCUMENTARY CREDIT • International Chamber of Commerce (ICC), Paris defines it as – An arrangement (however named) whereby a Bank (Issuing bank) acts at the request and on the instructions of a customer (applicant) or on its behalf to – a) Make a payment to or to the order of a third party (beneficiary) or is to accept bill of exchange (draft) drawn by the beneficiary. OR
8/13/2013 3
1.
What is LETTER OF CREDIT
An arrangement (however named) whereby a Bank (Issuing bank) acts at the request and on the instructions of a customer (applicant) or on its behalf to – b) Authorises another bank to effect such payments or to accept and pay such bills of exchange (drafts) OR
8/13/2013
4
What is LETTER OF CREDIT
An arrangement ( however named) whereby a Bank (Issuing bank) acts at the request and on the instructions of a customer (applicant) or on its behalf to – c) Authorises another Bank to negotiate against stipulated documents provided that the terms are complied with.
8/13/2013 5
PARTIES TO A LETTER OF CREDIT
• • • • • • • •
1. Applicant (opener) 2. Issuing Bank (Opening bank) 3. Beneficiary 4. Advising Bank 5. Confirming Bank 6. Negotiating Bank 7. Reimbursing Bank 8. Second beneficiary
6
8/13/2013
Opening of documentary credit
CONTRACT
IMPORTER
OPENING ISSUE CREDIT BANK SUPPLIES GOODS
EXPORTER
Opening of credit ? Addresses concerns of both importer and exporter. ? Exposure becomes real and fund based if applicant defaults. ? Credit worthiness of the customer should be evaluated
8/13/2013 7
Advising bank
CONTRACT
IMPORTER
EXPORTER
OPENING BANK
ISSUE CREDIT
ADVISING BANK
Advising bank guarantees genuineness of the credit. Does not vouch for competence or willingness of opening bank to pay.
8/13/2013 8
Confirming bank
CONTRACT
IMPORTER ADVISING BANK
EXPORTER
CONFIRM Confirming bank guarantees payment by opening bank ING BANK Means and creditworthiness of issuing bank to be assessed
8/13/2013 9
OPENING BANK
ISSUE CREDIT
Negotiating Bank
CONTRACT
IMPORTER
EXPORTER
D O C S P A Y
OPENING BANK
ISSUE CREDIT DOCUMENTS PAYMENT
ADVISING BANK
NEGOTIATING BANK
Negotiating bank pays beneficiary first and reimbursement from the opening / confirming bank. 8/13/2013
claims
10
Mechanics of Documentary Credit
CONTRACT GOODS IMPORTER DOCS SHIPPING COMPANY GOODS DOCS
EXPORTER
OPEN CREDIT OPENING BANK
ADVISING/
DOCUMENTS PAYMENT
NEGOTIATING
DOCUMENTS PAYMENT
BANK
8/13/2013
11
TYPES OF LETTER OF CREDIT
• • • • • • •
1. REVOCABLE 2. IRREVOCABLE 3. CONFIRMED 4. SIGHT CREDIT & USANCE CREDIT 5. BACK TO BACK 6. TRANSFERABLE 7. STANDBY
12
8/13/2013
DOCUMENTATION
• • • • • • • •
1. AIRWAY BILL 2. BILL OF LADING 3. CERTIFICATE OF ORIGIN 4. COMBINED TRANSPORT DOCUMENTS 5. BILL OF EXCHANGE (draft) 6. INSURANCE POLICY 7. PACKING LIST 8. INSPECTION LIST
13
8/13/2013
INCO TERMS,2000
• There are 4 groups of terms --• (1) Group E – Departure • (i) EXW – Ex works • (2) Group F – Main Carriage unpaid (seller is
• • •
called upon to deliver the goods to a carrier) (i) FCA – Free Carrier (ii) FOB – Free on Board (iii) FAS – Free alongside Ship
14
8/13/2013
INCO TERMS,2000
(3) Group C – Seller has to contact for carriage but without assuming the risk of loss of or damage to the goods. (i) CFR – Cost and freight (ii) CIF - Cost, Insurance and freight (iii) CPT - Carriage paid to (iv) CIP - Carriage & Insurance Paid to
8/13/2013 15
INCO TERMS,2000
• (4) Group D – Seller has to bear all cost and • • • • •
risks needed to bring the goods to the country of destination (i) DAF – Delivered at Frontier (ii) DDU – Delivered duty unpaid (iii) DDP – Delivered duty paid (iv) DEQ – Delivered ex- quay (v) DES – Delivered ex ship
8/13/2013
16
doc_580894232.ppt