Welcome to the ABC’S of Letters of Credit In this presentation we will be covering the (Exporter’s Perspective) of dealing with letters of credit
One of the items you will be negotiating is the Price , but What are some components that are included in the price? It includes the Product, but does it include: Insurance Freight (Ocean, Inland) Duties Loading Unloading
A letter of credit provides the assurance to the exporter that he will be paid by the importer’s bank if he ships and presents documents in accordance with the terms and conditions of the letter of credit. This provides control to the exporter of obtaining payment if he complies with the conditions. It is however imperative that the exporter reviews the terms of the letter of credit to determine that he will be able to meet terms and conditions prior to shipping so that he can better assure himself that he has control over the payment and subsequent to his compliance, gets paid. It also provides assurance to the importer that payment would be effected to the exporter only after he complies to present the required documents in accordance with the terms and conditions of the letter of credit which is determined by the importer at the time of issuance of the letter of credit which outlines his requirements for shipment and documents that the exporter is to present in order that he gets payment.
Letters of Credit – Is an instrument issued normally by a financial institution on behalf and for account of the importer which provide payment assurance to the exporter if the exporter complies with the terms and conditions of the letter of credit.
Commercial Import Letters of Credits are also subject to the Uniform Customs and Practice for Documentary Credits or (otherwise known as the UCP) The current revision is the UCP 600) Revision 2007). These are the rules that govern commercial letters of credit. All parties to a letter of credit are also bound to these rules when they are a party to the letter of credit transaction and all should be aware of these rules which affect their responsibility in the transaction.
Next you will see a sample of a request from an exporter which you may use as a guideline of items you may want to discuss with the importer prior to their establishing the letter of credit so that the terms are set up correctly from the beginning.
Here you will note the flow of the letter of credit, where the importer first goes to his bank and requests the letter of credit to be issued. The issuing bank then sends the letter of credit through the advising bank or confirming bank in the country of the beneficiary who will in turn give the letter of credit to the exporter. The exporter then ships the goods and presents the documents to a negotiating bank which may be the advising or confirming bank who will in turn send the documents to the issuing bank. The issuing bank will then give the document to the importer and send the payment through the negotiating bank to effect payment to the exporter. This demonstrate the flow, but in the following slides we will go through the actual details that occur through this flow.
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