Post on 22-Dec-2015
transcript
4Who Should Take the Risk?Who Should Take the Risk?
Pre-PayPre-PayPre-PayPre-Pay
LetterLetterofof
CreditCredit
LetterLetterofof
CreditCredit
DocumentsDocumentsAgainstAgainstPaymentPayment
DocumentsDocumentsAgainstAgainstPaymentPayment
DocumentsDocumentsAgainstAgainst
AcceptanceAcceptance
DocumentsDocumentsAgainstAgainst
AcceptanceAcceptanceOpenOpen
AccountAccountOpenOpen
AccountAccount
??????Buyer TakesAll the Risk
Seller TakesAll the Risk
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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 Issues
2) Set Policies for Each Method
a. Cash in advance – wire transfers Vs. check
b. Open account – discount policy,controls etc.
c. Documentary Collections – payment at sight
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 Be Sent Back for Collection
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Documentary CollectionsDocumentary Collections
Buyer/ImporterBuyer/Importer Seller/ExporterSeller/Exporter
Seller’s BankSeller’s BankBuyer’s BankBuyer’s Bank
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 bank’s credit for the buyer’s
A bank’s promise to pay upon the satisfactory compliance with the L/C’s terms and conditions by the L/C’s Beneficiary
Note – Banks Deal in Documents ONLY
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Letters of Credit
Parties to a letter of creditLetter of Credit Types
Import Export Standby
L/C cycle
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Parties to a Letter of Credit
SELLER(EXPORTER)
BENEFICIARYORGINAL BENEFICIARYSECOND BENEFICIARY
TRANSFEREEASSIGNEESHIPPERDRAWER
BUYER(IMPORTER)
ACCOUNT PARTYAPPLICANTACCOUNTEE
DRAWEE
PARTY LETTER OF CREDIT TERM
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Parties to a Letter of Credit (Cont’d)
BUYER’S BANK ISSUERISSUING BANKOPENING BANKPAYING BANK
ACCEPTING BANKDRAWEE
ISSUING BANKCORRESPONDENT
ADVISING BANKCONFIRMING BANK
TRANSFERRING BANKNEGOTIATING BANKACCEPTING BANK
PAYING BANK
PARTY LETTER OF CREDIT TERM
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Standby Commercial
Back up in case of non-payment or non-performance
Generally not expected to be drawn
Used for services/goods
“After the fact”
Primary source of payment
Used for actual goods
Somewhat simultaneous
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L/C
L/CL/CApplicationL/CApplication
Buyer/ ImporterApplicant - 1
Buyer/ ImporterApplicant - 1
Seller/ ExporterBeneficiary - 4
Seller/ ExporterBeneficiary - 4
Advising BankConfirming Bank
Negotiating Bank -3
Advising BankConfirming Bank
Negotiating Bank -3Issuing Bank
2Issuing Bank
2
TransactionCycle
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DOCs
DOCs
DOCs$
$
$
MerchandiseMerchandiseBuyer/ Importer - 8,9bBuyer/ Importer - 8,9b Seller/ Exporter - 5,11Seller/ Exporter - 5,11
Advising BankConfirming Bank
Negotiating Bank - 6,10
Advising BankConfirming Bank
Negotiating Bank - 6,10Issuing Bank - 7,9aIssuing Bank - 7,9a
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Sight 20
Pay to the order of $
Dollars
To
At January 5 00
ABC Exporter 8,020.00
Eight Thousand Twenty Dollars and 00/100
Standard Chartered Bank
New York, NY
ABC Exporter
DRAFT
Drawn under Documentary Credit No. M0491110NS00616, of theStandard Chartered Bank, Seoul, Korea, dated September 17, 1999
Endorse the back!
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•Common Documents
DraftTransport Document (b/l)Commercial invoiceInsurance policy or certificatePacking listCertificate of origin, weightBeneficiary 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 dateExpiry datePartial shipmentsMerchandise descriptionCan you provide documents required
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Domestic International
Known bankKnown country
riskKnown customs
and language
Unknown bank (??)
Country stabilityCurrency stabilityForeign laws and
usages
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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