intal banking presentation 2

8/3/2019 Intal Banking Presentation 2

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1/12/2012 [email protected] 1

It is a method of payment on which a bankon behalf of a buyer undertakes to a seller

to effect payment when proper documentscovering shipment of goods or servicesrendered complying with terms andconditions stipulated in the letter of credit

are presented.

DOCUMENTARY CREDIT


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The instrument used under documentarycredit is known as Letter of Credit.

This same L/C is treated as import L/C ona buyers side and as export L/C on asellers side.


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Policy Issues

1) Choose Method of Payment

a. Establish country risk criteria

b. Standards for particular buyers

Payment history

Size of transactions/credit limit

Credit History


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Policy Issues2) Set Policies for Each Method

a. Cash in advance wire transfersVs.check

b. Open account discount policy, controlsetc.

c. Documentary Collections payment atsight

d. Letters of Credit Policy Letter L/C Checklist

3) Enforce the Policies That You Set


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A Foreign Check Does Not Represent

Immediate Payment

Foreign Checks Must BeSent Back for Collection


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Documentary CollectionsDocumentary Collections

Buyer/ImporterBuyer/Importer Seller/ExporterSeller/Exporter

Sellers BankSellers BankBuyers BankBuyers Bank


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Buyer/ImporterBuyer/Importer

Seller/ExporterSeller/Exporter BankBank

Seller/ExporterSeller/Exporter

Buyer/ImporterBuyer/Importer

UPSUPS


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A Letter of Credit is:

A substitution of the banks credit for the

buyers

A banks promise to pay upon the satisfactorycompliance with the L/Cs terms and

conditions by the L/Cs Beneficiary

Note Banks Deal in Documents ONLY


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Letters of Credit

Parties to a letter of credit

Letter of Credit Types

Import Export

Standby

L/C cycle


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Parties to a Letter of Credit

SELLER(EXPORTER)

BENEFICIARYORGINAL BENEFICIARYSECOND BENEFICIARY

TRANSFEREE

ASSIGNEESHIPPERDRAWER

BUYER

(IMPORTER)

ACCOUNT PARTY

APPLICANTACCOUNTEE

DRAWEE

PARTY LETTER OF CREDIT TERM


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Parties to a Letter of Credit (Contd)

BUYERS BANK ISSUERISSUING BANK

OPENING BANKPAYING BANK

ACCEPTING BANKDRAWEE

ISSUING BANK

CO

RRESPO

NDENT

ADVISING BANK

CO

NFIRMING BANKTRANSFERRING BANKNEGOTIATING BANKACCEPTING BANKPAYING BANK

PARTY LETTER OF CREDIT TERM


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Standby Commercial

Back up in case ofnon-payment or non-performance

Generally notexpected to be drawn

Used for

services/goods After the fact

Primary source ofpayment

Used for actual goods

Somewhatsimultaneous


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Standby L/C

Financial

Performance

Bid Bond

Performance Bond


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L/C

L/CL/CApplicationL/CApplication

Buyer/ ImporterApplicant - 1Buyer/ Importer

Applicant - 1Seller/ ExporterBeneficiary - 4Seller/ ExporterBeneficiary - 4

AdvisingBankConfirmingBank

NegotiatingBank -3


NegotiatingBank -3

IssuingBank2

IssuingBank2

Transaction

Cycle


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DOCs

DOCs

DOCs$

$

$

MerchandiseMerchandiseuyer/ Importer - 8,9buyer/ Importer - 8,9b Seller/ Exporter - 5,11Seller/ Exporter - 5,11


NegotiatingBank - 6,10


NegotiatingBank - 6,10

IssuingBank - 7,9aIssuingBank - 7,9a


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Sight 20

Pay to the order of $

Dollars

To

At January 5 10

ABC Co. 8,020.00

Eight Thousand Twenty Dollars and 00/100

Standard Chartered Bank

New York, NY

ABCCo.

DRAFT

Drawn under Documentary Credit No. M0491110NS00616, of the

XYZ Bank, Addis Ababa, dated September 17, 2002

Endorse theback!


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Common Documents

Draft

Transport Document (b/l)

Commercial invoice Insurance policy or certificate

Packing list

Certificate of origin, weight Beneficiary statements


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When you receive an L/C

CHECK IT CAREFULLY!!!

Review it ASAP

L/C mirror sales contract Can you perform

Can you provide ALL the documents


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Critical Things to Look For

Latest shipment date

Expiry date

Partial shipments Merchandise description

Can you provide documents required


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Domestic International

Known bank

Known country risk

Known customs andlanguage

Unknown bank (??)

Country stability

Currency stability

Foreign laws andusages


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Confirmation

ConfirmingBank

ConfirmingBank

IssuingBank

IssuingBank


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Credit Issues

As Applicant

your Credit Worthiness

yourCollateral

As Beneficiary

probably none


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Cost Issues

As Beneficiary

minimal cost usually

if confirmed, expect to pay As Applicant

based on your credit and/or collateral

use of other bank services


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Where to get more information

ICC Uniform Customs and Practice forDocumentary Credits (UCP 500)

ICC Guide to Documentary CreditOperations for the UCP 500

INCOTERMS 1990

International Standby Practices 1998jjj

(http://www.iccwbo.org)