1. Letters of Credit / Documentary
Collections / Guarantees

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- Negotiate your Sales/Purchase Contract
- Know your supplier / buyer

3. Negotiate your contract
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 Type of merchandise, unit price
 Freight charges
 Insurance of merchandises
 Delivery responsibilities
 Last date of shipment
 Documents required
 Sign a pro-forma invoice

4. Methods of payment
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1. In advance: Seller requests payment before shipment
2. Open accounts: The seller ships the goods before receipt of payment. This
provides 100% security for the buyer.
3. Documentary Collections
At Sight:
The seller ships the goods but sends the documents of title to the buyer’s
bank.
The documents are remitted to the buyer only after payment.

5. Methods of payment ( cont’d)
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4- Documentary Collections
Acceptance:
If the seller instructs the buyer’s bank to deliver the shipping documents against the
acceptance of a bill of exchange, the bank in this case does not guarantee the payment
on maturity date.
Note: AVAL
5- Letters of Credit:
Ensure that terms and conditions of the credit have been fulfilled before proceeding
with the payment.
Payment is based on documents only

6. Issuance of a Credit
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Issuing Bank/Advising Bank/Confirming Bank
The issuing bank is the buyer’s bank.
The advising bank is a bank in the seller’s country which notifies the
credit to them.
It is a conditional bank undertaking of payment given to the seller,
upon the buyer’s request, to pay an amount specified within a time
prescribed, when the seller presents documents in conformity with the
L/C

7. Types of credit
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A- Irrevocable Credit:
It gives the seller greater assurance of payment. The credit cannot be
amended or cancelled unless all the parties (issuing bank, confirming
bank and beneficiary) agree.
B- Confirmed Irrevocable Credit:
It gives the seller a double assurance of payment since a bank in his
country has added its own undertaking to that of the issuing bank.

8. Transferable credit
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A transferable credit is normally used when the first beneficiary does
not supply the merchandise himself but is a middleman. The first
beneficiary wishes to transfer part or all of his rights and obligations to
the actual supplier of goods (second beneficiary).
 The credit can only be transferred once and the second beneficiary
cannot retransfer to a third beneficiary. The terms of the original
credit stay the same, except:

9. Transferable credit (cont’d)
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 The name and the address of the first beneficiary.
 The amount of the credit and the unit price.
 The period of validity (expiry date)
 The last date for presentation of documents
 The shipment date

10. Transferable credit (cont’d)
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1. Insurance Amount
2. The transferring bank should advise the second beneficiary bank that
payment will be remitted upon receipt of funds from the issuing bank of
the original credit.

11. :
Incoterms:
The purpose of Incoterms is to provide a set of International Rules for the
interpretation of the most commonly used Trade Terms in foreign trade :
FOB, CIF, etc
Uniform Customs and Practice for Documentary Credits:
They are the International Chamber of Commerce rules for the compliance
of issuing letters of credit and checking documents.

14. Summary
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The buyer and the seller conclude a sale/purchase contract calling for
a letter of credit
The buyer instructs his bank (the issuing bank) to issue a credit in
favour of the seller (beneficiary)
The issuing bank asks a bank in the seller’s country to advise and/or
confirm the credit
The seller has to be satisfied with the terms and conditions of the
credit.

15. Summary ( Cont’d)
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 The seller sends the documents evidencing the shipment to the bank
where the credit is available.
 The bank checks the documents against the credit. If they meet the
requirements of the credit, the bank will request payment from the
issuing bank.

16. Bill of Exchange
DATE:____________________
At_________________after date for value received,
Pay to the order of Bank ______________________the sum of
__________________________________USD___________
DRAWEE:
__________________________________
__________________________________
__________________________________
__________________________________
Signature:
____________________________

17. Guarantee
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 The guarantees are instruments issued by Banks to guarantee the
payment of an amount in case of default of payment on execution of a
contract.
 The guarantees are:
1- Financial: to guarantee non payment of a loan or financial obligation.
2- Non Financial:
Tender Bonds; Performance Bond; Advance payment on a contract.