job project 3 letter of credit

7/30/2019 Job Project 3 Letter of Credit

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Letter of Credit

Learning objectives:

The students are required to

1. understand the definition and features of L/C;

2. master the contents and the types of L/C;

3. know the procedures of payment by L/C;

4. can read, check and amend L/C. 5. master the useful words and sentences


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Letter of Credit

Ability objectives:

Understand L/C.

Master the skills of checking and amending L/C.

Job projects:

Check and amend L/C.


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Warm-up activities (1-1)

Revision:

What kinds of Contract do we often have?

There are two kinds:

1) Sales Contract/Purchase Contract

2) Sales Confirmation and Purchase Confirmation

What are the contents of contract? Contract usually includes three parts:


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(1) head of the contract

(2) body of the contract

(3) signature

What is letter of Credit?

Its a kind of written document issued by a bank on

application of the importer in which the bank promisesto pay on certain conditions.


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What is the relationship between L/C and the Contract?

L/C is opened against a contract. Upon it is accepted, it

becomes an independent document and will not be

subject to the contract any more.


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Letter of Credit (1-1)

How many kinds of L/C are they? And what are they?

There are 12 kinds of letters of credit mentioned here. 1. Revocable L/C/irrevocable L/C

2. Confirmed L/C/unconfirmed L/C

3. Sight L/C/usance L/C

4. Bankers acceptance credit


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5.transferable L/C (or) assignable L/C (or)

transmissible L/C /non-transferable L/C

6.Divisible L/C/indivisible L/C

7. Revolving L/C

8.L/C with T/T reimbursement clause 9. L/C without recourse / L/C with recourse


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10. Documentary L/C/clean L/C

11. Deferred payment L/C/anticipatory L/C

12. Back to back L/Reciprocal L/C

13. Usance L/C payable at sight or Buyers usance L/C


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The Procedures of payment by L/C

How many parties involved in the operation of L/C?(Six)

Buyer/applicant contract Seller/beneficiary inform apply to check/amend

to buy for opening inform effect shipment

make out

Issuing Bank issue and send Advising Bank

check against present for

reimburse

Paying Bank send for Negotiating Bank

check against

(Reimbursing Bank) comply with


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1. Both the seller and the buyer sign the contract andagree to pay by L/C.

2. The buyer, the applicant, applies to a bank in hisplace to establish an L/C in accordance with thecontract. The bank is called the issuing bank or theopening bank.

The opening bank opens an L/C and sends it to a bank

in the sellers place. This bank is called the advisingbank. The advising bank notifies the seller, the

beneficiary, of the arrival of the L/C.


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The seller checks the L/C against the contract andamends the L/C if necessary. If the L/C is found in

accordance with/comply with the contract/in goodorder, the seller will effect shipment and get all theshipping documents ready/make out all the shippingdocuments and presents them to a bank for negotiation.This bank is called the negotiating bank.


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The negotiating bank checks the documents against

the L/C. If all the documents are in compliance with

the terms of the L/C, the bank negotiates the

beneficiary.

After negotiation, the negotiating bank sends the

documents to the issuing bank or a bank appointed by

the issuing bank for reimbursement. This bank iscalled the


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paying bank or reimbursing bank. The paying bank

checks the documents against the L/C and reimburse

the negotiating bank.

6. Finally, the issuing bank asks the buyer, or the

applicant to buy the shipping documents.


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What is the basic content of an L/C?

Basic content of an L/C:

1. Parties concerned in an L/C

1) applicant / for account of / accountee or derer /

opener/in the name of/at request of/you are authorized

to draw on 2) issuing/establishing/opening bank

advising bank

notifying bank


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2. advised throughbank advised by airmail / cablethroughbank / be advised through / transmitted

through 3. negotiating bank / available with

(Usually its the correspondent bank of issuing bank)

3) beneficiary/in favor of / in ones favor /favoring

4) reimbursement bank / reimbursing bank

5) paying bank / accepting bank


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4. L/C Clause 1) Drawn Clause

2) Shipping Documents Clause

3) Shipment / shipment Clause

4) Goods Description

5) Instruction to Negotiating Bank 6) Banking Charges


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7) Discrepancy Clause

8) Undertaking Clauses

5. Details of the L/C itself

1) Categories / form / kinds of the L/C: irrevocable

/documentary/sight L/C

L/C No. / Our Ref. No


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3) Amount of the L/C

L/C amount / credit amount/amounting to / foramount of / for a sum of / for amount RMBamount not exceeding / up to an amount of / to theextent of / maximum amount

/up to an aggregate amount of / for amount

about /USD5000+ 5%more or less 5%plus orminus 5%


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Ability Training

Task (1-1)

1. Translate the following into English:

1) 2) 3)5 4)36500 5)10 6) 85000


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Ability Training

Task (1-2)

Suggested answer:

1) amount RMB 2) up to an aggregate amount of Hongkong Dollars

3) for a sum (sums) not exceeding a total of

GBP50,000

4) to the extent of HKD36,500 5) for the amount of USD100,000


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Ability Training

Task (1-3)

6) for an amount not exceeding total of JPY85000

Try to tell if the following expiry place is in our favor

or not.

a) Drafts drawn under this credit must be presented

for negotiation in China before 5th May, 2006.


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Ability Training

Task (1-4)

b) This credit remains valid until May 5, 2006 for

negotiation in London.

c) Draft(s) accompanied by the documents specified

herein must be presented to the drawee bank not later

than May 5, 2006.

d) Documents must be presented to us within 15 days

after date of B/L date.


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3. Drawn clause

The drawn clauses stipulate what kind of draft isrequired.

1) The credit is available with any bank by negotiation,

against presentation of beneficiarys draft(s) at sight,

drawn on us in duplicate and accompanied by the

following shipping documents:


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2) This credit is available by beneficiarys draft(s),

drawn on issuing bank, in duplicate, without recourse,at sight, for 100% of the invoice value. Draft mustindicate the number and date of this credit

4. About Shipping Documents

Have a clear idea about the required title of the

documents including the copies and the requirementsfor making.


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3) We hereby establish our irrevocable L/C in your

favor up to an aggregate amount of 35,900.00 (in

words) available by your draft drawn at sight on us for100% invoice value.

5. About Shipping Documents

Have a clear idea about the required title of the

documents including the copies and the requirementsfor making.


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Clean On Board Bill of Lading, Signed Commercial

Invoice, Packing List, Insurance Policy, Certificate of

Origin, Certificate of Inspection etc. (See the exampleson P16-17)

The documents should give clear indication of the title

of the documents and copies, such as in duplicate/in two copies

in triplicate/in three copies


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in quadruplicate / in four copies

in quintuplicate

in sextuplicate

Signed commercial invoice in duplicate

Full set of (two originals and one copy)

Clean on board ocean B/L (clean means no remarkson the B/L)

3/3 or 2/3 B/L


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Made out to order To order of the shipper / xxx Bank

To bearer

Delivery / Consigned to only blank endorsed /

endorsed in blank / blank endorsement marked

Freight Prepaid / paid / collect / to collect / to be

collected

(according to the price terms: CIF Freight Prepaid

or Paid)


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To bearer

Delivery / Consigned to only blank endorsed /

endorsed in blank / blank endorsement marked

Freight Prepaid / paid / collect / to collect / to be

collected

(according to the price terms: CIF Freight Prepaid

or Paid)

notify applicant / opener / Corp.


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6. Insurance Policy / certificate

7. Certificate of Chinese origin / GSP Form A

Certificate of Origin

8. About description of goods DESCRIPTION OF GOODS; SHIPMENT OF

GOODS;COVERING THE FOLLOWING

GOODS; EVIDENCING SHIPMENT OF;SHIPMENTOF;COVERING THE FOLLOWING GOODS


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BY(STEAMER);CONSIGNMENT;COVERING SHIPMENT;

MERCHANDISE etc.

9. About shipment/shipment clause

Terms of shipment often includes the port of loadingand port of destination, and partial shipment andtransshipment allowed or not.


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Examples:

SHIPEMNT FROM TO

SHIPMENT FROM TO W/T/VIA HONGKONG TRANSHIPMENT ALLOWED OLY IN

HONGKONG

TANSHIPMENT IS ALLOWED ONLY GOODS INCONTAINER

LATEST SHIPMENT DATE; LATEST DATE OFSHIPMENT; SHIPMENT LATEST; SHIPMENTNOT LATER THAN
http://sc.chinaz.com/html/icons/downpage/948382860.htm


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10. About banking charges

Banking charges usually refers to the charges of

negotiation , notifying , amendment and postage a) All your banking charges are for beneficiarys

account.unacceptable All banking charges outside issuing banks country are

for account of beneficiary.acceptable


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11. Discrepancy clause

a) AN ADDITIOANL CHARGE OF USD15.00 FOR USDOLLARS L/C, CAD20.00 FOR CANADIAN DOLLARSL/C OR EQUIVALENT OF CAD 20.00 FOR L/CS INOTHER CURRENCEIES IS PAYABLE BY THEBENEFICIARY FOR EACH PRESENTINGDOCUMENTS WHICH DOES NOT STRICTLYCOMPLY WITH THE TERMS OF THIS L/C. AND

RELATIVE AMOUNT WILL BE DEDUCTED FROMPROCEEDS AT TIME OF REIMBUSEMENT.


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b) IF DOCUMENTS CONTAIN DISCREPANCIES, A SPECIALDISCREPANCY HANDLING FEEOF HKD200.00 WILL BECHARGED.

c) A USD30.00 (OR EQUIVALENT) FEE SHOULD BEDEDUCTED FROM THE REIMBURSEMENT CLAIM FOREACH PRESENTATION OF DISCREPANT DOCUMENTSUNDER THIS DOCUMENTARY CREDIT. THIS CHARGESHOULD FOR THE ACCOUNT OF BENEFICIARY.


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What is the reimbursement clause?

Reimbursement clause

a) We shall reimburse the negotiating bank as pertheir instructions upon our receipt of documents instrict compliance with the credit terms.

b) We hereby engage with the drawers, endorsers andbona-fide holders of draft(s) drawn under and in

compliance with the terms of the credit that the sameshall be duly. The amount of each draft must be


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endorsed on the reversed of this credit by negotiationbank.

What are the ways to pay if the issuing bank has thecorrespondent account with the negotiating bank?

1 Authorize to debit the account of issuing bank In reimbursement, we hereby authorize you to debit

our account with your bank (your head office Beijing)upon negotiation under your


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advice to us.

2) Authorize to credit the account of issuing bank.

In reimbursement of your payment made under theL/C, we shall credit your account with us under yourtelex advice to us.

12.Soft conditions

1 This credit is not operative only after havingobtained the


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import license and in any case only after our telex

advice to you.

2 The merchandise is subject to a subsequentinspection in Panama. If the specification of

merchandise is not in conform with our standard,

payment should be refused.


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Ability Training

Task (2-1)

Go over the L/C on P20 and find out the needed

information.

1.What is the issuing bank?

2.What kind of L/C is it?

3.Who is the beneficiary?

4.Who is the applicant?

5.When is the L/C opened?


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Ability Training

Task (2-2)

6. What is the L/C No.?

7. What about the date and place of expiry of the

L/C?

8. What is the amount of the L/C?

9. When is the latest date of shipment?

10. How many original B/L are required?


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What are the ways to issuing an L/C?

There are two ways of issuing way:

1. L/C is issuing by letters and sent by ordinary mail,air mail or express

2. L/C is issuing by cable.

1Brief cable advice: preliminary advice The beneficiary should not ship the goods with


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the brief cable advice, because banks will not accept itand negotiate with it. Usually the cable states clearly

with Full details to follow or Operative instrumentmailing or Mail confirmation to follow. Brief cableadvice is just for the beneficiary to get the goods ready.

2by full cable/telex Its a legal L/C with all necessary details.

3Swift


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3Swift Explanation

Sample of an L/C by telex.

The credit is available with any bank by negotiation.

The credit is available with freely negotiable by any

bank.

By negotiation/acceptance/payment.


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Sample of an L/C by SWIFT

Basic header

Applicant header

User header:

(additional reading material)

M/O M=mandatory O= optional How to get to know whether the L/C is operative

instrument or not?


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1) Seek whether there is any primary key or test keyin the L/C.

2) Seek whether there are any sentences like as Noconfirmation instrument to followNo mailconfirmation to follow etc.

Code Currency and amount.


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Questions for discussion:

Is it the maximum amount of the L/C?

How do we do when we make out the invoice?

The amount of the invoice should not be more thanthat of the L/C

What is the date of expiry and what is the latest

shipment? When should we present documents for negotiation?


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Ability Training

Task 3

Read and understand the L/C on P113. Try to answer

the following questions:

What kind of L/C is it?

Which bank is the opening bank?

Is it a sight L/C or a time L/C? Why?

What is the advising bank?

Who is the drawee?


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Supplementary Material:

Swift L/C

Example BASIC HEADER

APPL. HEADER

USER HEADER

MT: 700 ISSUE OF A DOCUMENTARY CREDIT

SEQUENCE OF TOTAL

FORM OF DOCUMENTARY CREDIT

DOCUMENTARY CREDIT NUMBER


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DATE OF ISSUE

DATE AND PLACE OF EXPIRY

CURRENCY CODE, AMOUNT AVAILABLE WITH BY

G.S.P CERTIFICATE OF ORGIN FORM A IN 3 COPIES

INSURANCE POLICY OR CERTIFICATE IN DUPLICATE

ENDOSED IN BLANK WITH CLAIM PAYABLE IN JAPAN IN THECURRENCY

OF THE DRAFT COVERING 110 PERCENT OF INVOICE VALUEINCLUDING

INSTITUTE WAR CLAUSES INSTITUTE CARGO CLAUSES(ALLRISKS)


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INSTITUTE S.R.C.C. CLAUSES

BENEFICIARYS CERTIFICATE STATING THAT

ONE SET OF ORIGINAL

SHIPPING DOCUMENTS INCLUDING

CERTIFICATE OF ORGIN FORM A HAS

BEEN SENT DIRECTLY TO THE APPLICANTATTN. OSALM SECTION WITHIN TWO DAYS AFTER SHIPMENT BY AIR

COURIER.


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ADDITIONAL CONDITIONS

THIS CREDIT IS SUBJECT TO UNIFORM CUSTOMS ANDPRACTICE OF

DOCUMENTARY CREDITS1993 REVIDIONI.C.C.PUBLICATION NO 500.

T.T. REIMBURSEMENT UNACCEPTABLE

THE GOODS MUST BE CONTAINERIZED

A COPY OF CABLE ADVISING SHIPPING DETAILS FAX TOTHE ACCOUNTEE

WITHIN 2 DAYS AFTER SHIPMENT.


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CLEAN ON BOARD COMBINED TRANSPORT B/L OF ITOCHU

EXPRESS CO.LTD IS ACCEPTABLE. ALL BANKING CHARGES AND COMMISSIONS INCLUDING

REIMBURSEMENT

COMM. OUTSIDE JAPAN ARE FOR A/C OF BENEFICIARY.

PERIOD FOR

PRESENTATIONS DOCUMENTS TO BE PRESENTED WITHIN 10 DAYS AFTER

THE DATE OF

SHIPMENT BUT WITHIN THE VALIDITY OF THE CREDIT


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CONFIRMATION INSTRUCTIONWITHOUTINSTRUCTION TO BANK

ALL SHIPPING DOCUMENTS TO BE SENT DIRECTTO THE OPENING

OFFICE BY REGISTERED AIRMAIL IN ONE LOT

UPON RECEIPT OF THE DRAFTS AND DOCUMENTIN ORDERWE WILL

REMIT THE PROCEEDS TO YOUR ACCOUT WITH

THE BANK DESINATED BY YOU.

TRAILER


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Homework Review what have learnt today.

Read L/Cs on page 110 ,116. Try to

understand all the terms and conditions in the

L/C.