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Since parties do not know each other well enough in international trading, they
carry doubts for each other and usually are under risk. Seller has the purpose of
getting paid of the goods he sold and the buyer receiving the goods on time as stated
in the agreement. International letter of credits are named in various ways because
they have different features.
- Documentary Credit:
The conditions of the articles on the letter of credit are fulfilled based on the
documents. It has to be proved by documents. Go to sample
-
Letter of Credit : Letter of Credit usually used
- Commercial Credit:
A commercial letter of credit is a contractual agreement between a bank, known as
the issuing bank, on behalf of one of its customers, authorizing another bank, known
as the advising or confirming bank, to make payment to the beneficiary.
- Standby Letter: Standby
letters of credit are created as a sign of good faith in business transactions,
and are proof of a buyer's credit quality and repayment abilities.
How to open Letter of Credit ?
For example :
Seller: Used printing equipment dealer from Germany
Buyer: Printing House from
Australia
Description of Goods: MAN Roland RVK and Heidelberg 52-2 used printing machines.
Total amount 120.000 euro. Go to Sample
- The seller and the
buyer agree to sign a sales agreement.
- The buyer opens a Letter
of Credit based on that agreement.
- The bank of buyer forwards
this Letter of Credit to the Advising Bank in the country of seller.
- Advising bank forwards
to the seller’s bank without any interference.
Banks in International Letter Of Credit Payments
- Issuing Bank : Issuing
bank is the bank that opens the letter of credit. After opening the Letter of credit
upon fulfilling the requirements, the issuing bank absolutely has to pay the money.
Therefore issuing banks do not open international letter of credit without taking
themselves under guarantee.
- Advising Bank : The
role of Advising Bank is to convey that the letter of credit is opened in favor
of the seller and what the terms and conditions of the letter of credit are. Advising
bank has no obligation about the payment.
- Confirming Bank : Seller
may ask the letter of credit to be opened under the guarantee of another bank due
to various reasons. The responsibility of the Confirming Bank is as irrevocable
as the Issuing Bank. Under any circumstances, it guarantees to pay.Go to Sample
IF CLAUSE 49: Letter of Credit Confirmation Shows
- CONFIRM: There is guarantee
of another bank.Go to Sample
- MAY ADD: Confirming
Bank decides whether to add its guarantee or not under its own will.
- WITHOUT: Under these
circumstances there is no guarantee of another bank.
Advantages of International Letter of Credit in terms of Buyer
- Bank does not pay to
the seller who does not fulfill the conditions of letter of credit. This is a guarantee
for the Buyer.
- Provides loading of
the goods on time and in compliance with the conditions of agreement. For example
for goods: used printing machines
Advantages of International Letter of Credit in terms of Seller
- Seller receives the
money when he sends the documents determined under the terms of Letter of Credit.
- Provides financing
facility to the seller.
Consequently, International Letter of Credit is a type of payment which provides
the highest level of security for both seller and buyer.
International Letter of Credit Fraud
- A malevolent buyer
may possibly opens a letter of credit from an issuing bank that doesn’t exist. The
seller loads the used printing machines. However they will not paid because they
cannot find a real bank. Determined under the terms of Letter of Credit.
- A malevolent seller
may receive the money from the bank by forging documents without loading any goods
or with worthless goods and puts the buyer in a difficult situation.
What is ICC uniform customs and practice for documentary credits ucp 600 40 E?
International Trade occurs between people with different languages, cultures, and
laws. Therefore it is necessary to have standardized regulations in order to perform
letter of credit transactions properly. ICC is the association that prepares the
standard regulations of letter of credit. UCP600 is the name of current regulations
of letter of credit. The language of UCP600 is English. UCP600 is effective since
July 1st 2007. UCP600 is the last version of ICC preparation revised seven times
before. UCP 600 consists of 39 articles in total. Go to sample
What is Irrevocable Letter of Credit 40 A?
No changes can be made on the letter of credit without notice to the Seller. Irrevocable
Letter of Credit guarantee of payment to a beneficiary. LC can not be canceled.
For example for beneficiary or seller: used printing equipment dealer.Go to sample
What is Revocable Letter of Credit?
Revocable Letter of Credit is no longer affective under UCP 600 regulations. Every
Letter of Credit is Irrevocable from now on.
What is at sight payment letter of credit 41 A?
- The seller submits
the documents of the letter of credit to the bank.
- Documents are reviewed
by the bank and later they are approved.
- Upon approval, payment
is made to Seller immediately. It is very advantageous for the Seller and should
be preferred.Go to sample
What is BL (Bill of Lading)?
Is the document that shows the cargo is received. It is a valuable document. It
represents the goods.Go to sample
What is Transshipment 43 T?
It shows whether a transfer is made from a ship to another on the Letter of Credit.
Go to sample
What is Partial Shipment 43 P?
This field is between buyer and seller. Partial Shipment is: ‘’ALLOWED’’ if multiple
loads are permissible on the Letter of Credit. Go to sample
What is Description of Goods 45 A?
It is the total goods stated on the Proforma Invoice of Seller. Those are the
goods which the seller is required to load. For example Description of Goods:
MAN Roland RVK and Heidelberg 52-2 used printing machines. Total amount 120.000
euro Go to Sample
What is Latest Date of Shipment 44 C?
The goods have to be loaded to the trucks on the date of yy/mm/dd. For example:The
used printing machines have to be loaded to the trucks on the 090927. Latest Date
of Shipment 090927 Go to sample
What is For Transport to... 44 B?
It shows which country the loaded goods will be shipped. Go to Sample
What is Loading in Charge 44 A?
It shows which country the goods will be loaded from. Goods:used printing machines
Go to Sample
What is transferable letter of credit 47 A?
It is used when the Seller is also the intermediary firm of the trade. Companies
that work with broker-dealers usually prefer transferable letter of credit. It enables
the seller to assign the Letter of Credit to the company or companies, in other
words, the re-seller which they are supposed to receive the goods. Go to Sample
What is Back to Back letter of credit 72 ?
It is an alternative to Transferable Letter of Credit.
What is Certificate of Origin (CCVO) 46 A?
This certificate shows the manufacturer and producer country of the goods subject
to the export. Go to Sample
What is Reimbursing Bank 53 A?
It pays the value of letter of credit upon instructions of issuing bank and records
that as debt to the account of issuing bank. If requested, Reimbursing bank make
payments without going into details of the transaction of letter of credit. Go to Sample
What does Seller has to pay attention for Letter of Credit?
- Seller has to pay great
attention to the latest date of shipment. If seller loads the goods after the date
specified, the letter of credit may be discrepancy.Go to sample
- The international letter
of credit shall be preferred as CONFIRMED.Go to Sample
- The international letter
of credit shall be preferred as ''at sight payment''.Go to sample
- It is necessary to
pay attention to who will pay the all banking charges and reimbursement charges
of the letter of credit.Go to sample
- All the documents required
should be sent to the bank on time for the letter of credit. If this time line exceeds,
then the letter of credit will be discrepancy.Go to sample
- Has to pay attention
that the amount agreed with the Buyer and the amount on the Letter of Credit to
be same.Go to sample
- Transport Company should
be selected carefully. CMR and ATR documents should be followed up while they are
being prepared.
- No misspelling should
be on the documents. All the documents shall be fully completed as stated on the
letter of credit. A small mistake may cause the Letter of Credit to be discrepancy.
If the Seller thinks they are not able to meet the conditions of time schedule of
the Letter of Credit, they shall contact with the Buyer. Dates and conditions may
be changed. This is called AMENDMENT. In this case the Letter of Credit will not
be discrepancy.
Sample Letter Of Credit and How It Works?
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SAMPLE CASE
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Seller:
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GUNTER GMBH KOBLENZ 56072 GERMANY
(Used
printing machines dealer) |
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Buyer:
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STAR PRINTING 3020 VICTORIA AUSTRALIA (printing shop) |
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Buyers want to buy:
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MAN Roland RVK and Heidelberg 52-2 used printing machines. Total amount 120.000
euro
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Machine Location:
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HELSINKI PORT- FINLAND MAN Roland RVK and Heidelberg 52-2 used printing machines.
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SAMPLE LETTER OF CREDIT
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MT:
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700 ISSUE OF A DOCUMENTARY CREDIT
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Sequence of Total *27:
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1/1
 Means
of 1/1 this is only message in 1 page. If Sequence of Total 1/2 this is first message.
But total of 2 messages
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Form of Doc. Credit *40 A:
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IRREVOCABLE
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Doc. Credit Number *20:
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145A789
It
is a combination of alphabet and numeric maximum sixteen characters. You can see
this number field Additional Cond. 47 A
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Date of Issue 31 C:
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090804
The
undertaking to make payment by the issuing bank takes effect from this date. The
date is read as August 04th, 2009. You can see this format field 31D and field 44C
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Applicable Rules 40 E:
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UCP LATEST VERSION
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Date And Place Of Expiry *31 D:
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090921 Germany
The
date is read as September 21th, 2009. Format is yy/mm/dd. And the name of the beneficiary/seller
country. For example Poland, Brazil, Nigeria, Germany, United States Of America,
China etc . Name of district should not be indicated.
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Applicant *50:
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STAR PRINTING 3020 VICTORIA AUSTRALIA
Buyers
company name and address should be written completely and correctly
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Beneficiary *59:
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GUNTER GMBH KOBLENZ 56072 GERMANY
Sellers
company name and address should be written completely and correctly.
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Amount *32 B:
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Currency EUR Amount 120.000
Amount
of the credit should be indicated. ISO approved below currency codes. GBP (Great
Britain Pound), USD (United States Dollar), NLG (Netherland Guilder), MYR (Malaysian
Ringgit), FRF (French Franc), EUR (Euro) ,HKD (Hong Kong Dollar), SGD (Singapore
Dollar), etc.
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Percentage Credit Amount Toler:
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00/00
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Available with/by *41 A:
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DEUTGB2XXX BY PAYMENT
SWIFT
address of the SELLER'S bank must be written completely and correctly. SELLER'S
bank name and country can be write this field. Below codes must be indicated under.
- BY ACCEPTANCE
- BY DEF PAYMENT
- BY MIXED PYMT
- BY NEGOTIATION
- BY PAYMENT
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Partial Shipments 43 P:
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ALLOWED
Shipment
is ‘’NOT ALLOWED’’ if 1 load is permissible on the Letter of Credit. Please be carefull.
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Transshipment 43 T:
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ALLOWED |
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Loading in Charge 44 A:
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HELSINKI PORT- FINLAND |
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For Transport to... 44 B:
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SYDNEY |
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Latest Date of Ship. 44 C:
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090927 |
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Description of Goods 45 A:
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DELIVERY TERMS: CPT (INCOTERMS 2000) SYDNEY
COVERING: AS PER PROFORMA INVOICE NO:114 MAN Roland RVK and Heidelberg 52-2 used
printing machines. Total amount 120.000 euro. |
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Documents required 46 A:
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+ COMMERCIAL INVOICE IN 3-FOLD FOR TOTAL AMOUNT OF 120.000,-
+ INTERNATIONAL CONSIGNMENT NOTE MADE OUT TO THE ORDER OF APPLICANT MARKED FREIGHT PAID AND NOTIFY APPLICANT
+ 1 ORGINAL COMBINED CERTIFICATE OF VALUE (CCVO)
+ A CERTIFICATE IS REQUIRED FROM THE BENEFICIARY CONFIRMING THAT THR FLOWING DOCUMENTS HAVE BEEN SENT DIRECTLY BY COURIER TO AUSTRALIA .... BANK
1 ORGINAL CLEAN ON BOARD OCEAN BILL OF LADING
1 PACKING LIST
1 COPY OF COMBINED CERTIFICATE OF VALUE AND ORIGIN
+ A CERTIFICATE IS REQUIRED FROM THE BENEFICIARY CONFIRMING THAT SHIPMENT IS PARTIAL OR FINAL |
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Additional Cond. 47 A:
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+ ALL DOCUMENTS MUST BEAR LC REF. NO 145A789
+ THIS L/C IS TRANSFERABLE
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Details of Charges 71 B:
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ALL BANKING CHARGES AND COMMISSIONS OUTSIDE OF AUSTRALIA |
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Presentation Period 48:
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28 DAYS AFTER SHIPMENT DATE BUT WITHIN THE L/C VALIDITY |
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Confirmation *49:
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CONFIRM |
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Reimbursing Bank 53 A :
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UBSKLM789 |
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Instructions to the PAYING/ACC 78:
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AT DISPOSAL, ADVISE US BY SWIFT/TESTED TELEX 3 BUSINESS DAYS AFTER THE DATE OF DISPOSAL
ADVISE, PLEASE CLAIM REIMBURSEMENT FROM REIMBURSING BANK |
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Sender to Receiver Information 72:
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L/C IS SUBJECT TO UCP DC ICC IN USE PLEASE ADVISE URGENTLY TO BEN. |
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