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    Bank of America Solutions for ExportersAn Exporters Guide to Global Trade Services

  • 2Bank of america merrill lynch SolutionS for exporterS

    Table of Contents

    An Exporters Guide to Global Trade Services

    1 Introduction to Global Trade Services1 Trade Services

    3 Trade & Supply Chain Solutions

    6 Risks

    12 Export Letters of Credit Defined 13 Letter of Credit Overview

    18 Letter of Credit Parties and Roles

    19 20 Important Characteristics of an Export Letter of Credit

    21 Understand and Control Your Export Letters of Credit

    23 IncotermsInternational Shipping/Trade Terms

    28 A Discussion of UCP 600

    35 A Discussion of the e-UCP(Reference to UCP 500 can be carried over to UCP 600)

    37 Examination of Documents under the UCP 600

    38 Letter of Credit Sample and Comments on Specific Fields

    40 Comments on Specific Fields in Preceding SampleConfirmed Letter of Credit

    45 Payment to a Third PartyTransfers and Instructions to Pay Proceeds45 What Is a Transferable Letter of Credit?

    47 What Are the Options for Transferring an LC?

    47 Transferring the LC

    49 What Are the Benefits and the Risks of Using a Transferable LC?

    50 Confidentiality Issues

    51 Other Considerations

    52 Transferable Letter of Credit Sample and Comments onSpecific Fields

    54 Comments on Specific Fields in Preceding SampleTransferable Letter of Credit

    59 Transferred Letter of Credit Sample

    62 Instructions for Completion of Request for Entire Transfer of Credit without Substitution of Invoices

    64 Instructions for Completion of Request for Partial Transfer of Credit with or without Substitution of Invoices

    66 Redirecting the Proceeds of a Letter of Credit

    67 Instructions for Completion of Instruction to Pay Proceeds

    70 Working with Your Buyer

    76 Working with Your Bank76 Trade Banking

    77 What to Expect from Bank of America Merrill Lynch

    77 Bank of America Export Advice

    78 Understanding Export Letter of Credit Processing

    82 Instructions for Completion ofExport Letters of Credit Document Transmittal Letter





  • 3Bank of america merrill lynch SolutionS for exporterS

    The material presented in this guide is for informational purposes only, and is not intended as an exhaustive treatise on international banking, nor is it intended to explore all the possible risks involved in using import letters of credit or other services mentioned.

    Table of Contents

    84 How You Get Paid 84 What is Negotiation?

    85 How Long Does it Take to Get Paid?

    86 Assured and Prompt Payment

    87 Letter of Credit Payment Flowchart and Explanation

    88 Documents Typically Required Under an Export Letter of Credit

    91 Road or Rail Transport Documents

    91 A Detailed Look at Drafts

    92 Discrepancy Resolution

    95 Common Discrepancies in Documents

    94 Reducing Your Days Sales Outstanding onLetter of Credit Payments

    94 Document Presentation Guidelines

    95 Payment MethodsWire, Check, and International Draft

    95 Typical Fees on Export Letter of Credit Transactions

    96 Letters of Credit

    97 Documentary Collections

    99 Document Presentation and Payment for Export Receivables

    101 Collections for Exporters 101 Documentary Collections

    105 Direct CollectionTerms and Conditions for Use

    107 Instructions for Completion of Direct Documentary Collection Form

    109 Bankers Acceptance Financing Under Export Letters of Credit109 Bankers Acceptances

    111 Who Can Finance with Bankers Acceptances?

    114 An In-depth Look at Bankers Acceptances

    120 Financing Options for U.S. Exporters120 Financing with Acceptances or Other Instruments

    122 Supplier Financing

    123 Structured Trade Finance

    128 Glossary






  • Bank of america merrill lynch SolutionS for e xporterS

    Chapter 01Introduction to Global Trade Services

  • Bank of america merrill lynch SolutionS for exporterS 1

    Chapter 01

    Introduction to Global Trade Services

    Trade ServicesWhat do we mean by trade services?Trade is a broad term covering a variety of transactions linked to the export and import of goods. Traditional trade

    services include letters of credit, international collections, and bankers acceptances, as well as short, medium and

    long-term export-related lending.

    What is the history of trade?To understand trade services it is helpful to understand the world of international banking and trade. The economic

    history of man has led us from self-sufficiency to division of labor, from provision of bare necessities to satisfaction

    of sophisticated needs. The primitive caveman attended to his own needs only, but civilization soon progressed to

    a stage in which each man specialized in what he could do best and exchanged his surplus output for that of his

    neighbor. This was the beginning of trade.

    When small city-states developed into nations, the need for trade increased. No nation could supply all of its needs

    with its own resources. Consequently, these small city-states had to begin trading with one another. What may have

    started as barter led to the development of currency, silver and gold coins and eventually to paper notes. Today,

    business is conducted not only domestically but also abroad. As the search for new markets and lower-cost labor has

    led to international commerce, so it has led to finding alternative ways to do financial business overseas. The buyers

    and sellers in international trade are confronted with diverse geographic, social, economic, and political conditions.

    The dynamic interplay of these forces requires the trading partners to assess the risks of the transaction and decide

    how they may be reduced or eliminated.

    What is the primary role of a bank in international trade?The primary role is to provide risk mitigation and financing alternatives to the buyer and sellerergo the creation of

    the letter of credit, post shipment financing, etc.

    What happens in a trade transaction?A seller approaches or is approached by a potential buyer. Trade transactions begin with the negotiation of a contract

    between a buyer and a seller and end with the exchange of goods or services for monetary payment. Why do you need

    Bank of America Merrill Lynch Global Trade Services?

    As noted above, trade can be domestic or international. Clients utilize Bank of America Merrill Lynch Global Trade

    Services specifically to overcome the risks of doing business abroad, where the cultures, regulations, and payment

    conventions may differ significantly from those in the United States. In the United States, you could potentially perform

    your own credit ratings for your customers, and, with a sense of security, offer payment terms on an open account

    basis, so that your bank would get involved only in the collection and/or disbursement of funds. Overseas, you need

    greater protection due to dealing with buyers who are less well known, and the potentially limited legal ability to

    collect. Hence, a bank provides up-front financial protection in the form of letters of credit.

  • Bank of america merrill lynch SolutionS for exporterS 2

    Chapter 01

    Introduction to Global Trade Services

    What are the methods of payment?Nations, companies and individuals have engaged in trade for centuries and from the beginning have searched for

    the best means of securing payment. Today an exporter has four basic alternatives for obtaining payment for goods

    shipped to a buyer. Each method addresses certain levels of risk for the buyer and the seller.

    Cash in Advance: The buyer pays in advance of shipment of goods or according to the terms, such as cash on delivery. Buyers do not prefer this option because they are out the cash well before they receive the goods.

    Open Account:The seller ships the goods in advance of payment or according to the negotiated terms. In this instance, the seller relies on the buyers good faith that the payment will be made after the buyer has received the


    Letters of Credit (LC): This is a trade finance instrument issued by a buyers bank in favor of a beneficiary/seller, which substitutes the banks creditworthiness for that of the buyer. In a narrow sense, it is a specialized instrument

    used to guarantee payment for a shipment of goods or services from one party to another. An LC is payable against

    conforming documents.

    Collection: There are two types of collections: clean, and documentary.


    Check: Payment by check is typical for domestic open account transactions, but less appropriate for

    international transactions. This is because sellers must give the check to their banks for collection and

    conversion to their home currency, a process that can take three to six weeks. A more satisfactory method

    therefore is the wire transfer; the buyers instruct their banks to arrange for the sellers bank account to be

    credited directly.

    Draft: A draft is an instrument much like an ordinary check in appearance which in this circumstance is used as

    a formal demand for payment. It is also known as a bill of exchange.

    Documentary: A documentary collection provides a buyer and seller with a measure of protection whereby a

    bank intermediates to exchange payment for documents of title to the goods. The collecting bank releases the

    documents, which normally allows the buyer to take delivery of the goods. The bank then either wires the buyers

    payment to the remitting/sellers bank for credit of the sellers account or creates an acceptance covering the

    transaction. There are two forms of documentary collections, regular and direct:

    Regular: After making a shipment, sellers present the shipping documents to their banks, who in turn send them

    to the buyers bank for payment or acceptance.

    Direct: The seller/exporter delivers the documents with a collection letter to the foreign collecting bank directly

    and sends a copy of the collection letter to the sellers bank for follow-up (tracing and payment settlement). The

    collection letter or form is provided by the sellers bank and bears that banks letterhead.

    If a seller selects Open Account or Cash in Advance as the payment method, documentation covering shipment

    of merchandise is handled outside of the banking channels. The banking system is only involved in the remittance

    of funds. However, if the seller selects payment under a collection or letter of credit, a bank adds its service and

    documentary expertise on behalf of either the buyer, the seller, or both. In all cases, the actual movement of funds is

    done via one of our traditional cash management products such as direct debit or credit to the account, wire transfer,

    or check.

  • Bank of america merrill lynch SolutionS for exporterS 3

    Chapter 01

    Introduction to Global Trade Services

    What types of agreements are made between the buyer and the seller?The sales contract is an agreement between the buyer and the seller in which the various terms, conditions and

    details of the transaction are specified. Given the complexities of international trade, it is important that the sales

    contract states, in terms clear to all parties, the requirements involved in the transaction. In the simplest form, the

    sales contract is an accepted order to buy or offer to sell that arises from correspondence between the buyer and

    seller. The agreement may be made verbally or in writing. The buyer may initiate the correspondence by inquiring as to

    the price and terms of sale for specific merchandise or by simply placing an order for the merchandise when the price

    and terms have previously been established.

    The sales contract has four main components: description of the goods, price, method of payment and timing of

    delivery. Although contracts can be verbal, they are more likely to be in writing in those situations where there are

    more unknowns. The sales contract should clearly specify the documents required for any international transaction.

    The letter of credit must specify the documents required for presentation. The seller is responsible for the production

    and procurement of all documents. Documents required under letters of credit will be more thoroughly discussed in

    Chapter 6.

    How does Bank of America Merrill Lynch support its Global Trade & Supply Chain Services clients?As discussed on the following pages, Bank of America Merrill Lynch is able to act in many ways for our clients.

    We act as financial service consultants.

    We provide import and export transaction processing and handling services to our clients.

    We act on our clients behalf both domestically and overseas via our global branch network.

    We provide various credit and financing services to support their import/export needs.

    We provide economic analyses and forecasts about various countries around the world

    Trade & Supply Chain SolutionsWhat international trade & supply chain services are available with Bank of America Merrill Lynch?As a powerful global organization, Bank of America Merrill Lynch is uniquely positioned to serve corporations needs

    in markets worldwide with trade & supply chain services and expertise to help them seize international opportunities

    wherever they arise.

    Our services range from trade processing services and lending to liquidity management, payment services, export

    finance, structured trade finance, and foreign exchange services. We deliver what your organization needs to succeed

    in international business by offering innovative, tailored solutions, a wealth of trade expertise, the latest in technology,

    and a network of offices around the world.

    Bank of America Merrill Lynch finances international trade through bankers acceptances, receivables finance and

    many types of letters of credit. We also offer collections and reimbursement services.

    Bankers AcceptancesA bankers acceptance is a negotiable instrument that is drawn on, and accepted by, a bank to finance a trade-

    related transaction. They are often an inexpensive way to finance trade transactions. Bankers acceptances are

    versatile and can be used for several purposes: acceptances can cover both documentary letter of credit and open

    account transactions. They can finance imports, exports, and domestic transactions. They offer a source of funds at

    competitive rates since banks are not required to provide reserves for funding such transactions. Acceptances are

    very liquidthey can readily be sold in secondary markets.

    Non-Discounted Bankers Acceptances: Bank of America Merrill Lynch either creates and accepts or accepts

    a time draft drawn on us which relates to a specific financial transaction in which our client is involved. We are

  • Bank of america merrill lynch SolutionS for exporterS 4

    Chapter 01

    Introduction to Global Trade Services

    obligated to pay the specified amount on the maturity date of the draft. Our obligation for payment to any holder of

    the draft at maturity date is absolute and unconditional, independent of the underlying financial transaction.

    Discounted Bankers Acceptances: A time draft under a trade transaction such as a documentary letter of credit

    issued by us or by another bank. The draft is drawn on, accepted and discounted by us. Drawer is paid at time of

    acceptance of draft.

    Letters of CreditA letter of credit is...


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