1、International Settlement5 Letter of Credit目录CONTENTSDefinition of Letter of Credit5.1Features of Letter of Credit5.2Role of Banks under Letter of Credit5.3Parties to Letter of Credit5.45.55.6Application and Issuing of Letter of CreditProcedures of Documentary Letter of Credit目录CONTENTSMain Contents
2、of Letter of Credit5.7Checking and Examination of Letter of Credit5.8Discrepant Documents Handling under Letter of Credit5.9Types of Letter of CreditUniform Customs and Practice for Documentary CreditsUniform Customs and Practice for Documentary Credits Supplement for Electronic Presentation5.125.10
3、5.115.15.1 Definition of Letter of Credit According to Uniform Customs and Practice for Documentary Credits,ICC Publication No.600(UCP 600),Credit means any arrangement,however named or described,that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a comply
4、ing presentation.5.1 Definition of Letter of Credit Generally speaking,a letter of credit is an undertaking at the request of the applicant,written by the issuing bank to the beneficiary,informing it that the bank will pay a sum certain in money,if it provides complying documents within a prescribed
5、 time of period.5.25.2 Features of Letter of CreditFirst,the issuing bank undertakes the primary liability to effect payment.Second,all patties concerned are exclusively dealing with documents.Third,the credit is independent and self-sufficient.The feature of the letter of credit can be summarized a
6、s banking credit,document transaction and self-sufficient.5.35.3 Role of Banks under Letter of CreditBanks act upon specific instructions given by the applicant in the application formBanks will act in good faith and exercise reasonable care to verify that documents submitted appear to be as listed
7、in the credit.Banks are not liable,nor can they held accountabilities for the acts of the third parties 5.3 Role of Banks under Letter of CreditBanks assume no liability or responsibility for loss arising out of delays or loss in transit of messages,letters documents and etc.Banks assume no responsi
8、bility regarding to quantity or quality of goods shipped.So long as the documents presented to banks appear on their face to comply with the terms and conditions of the credit,banks take the liability to effect payment as stipulated in the documentary credit.5.45.4.3 Beneficiary5.4.2 Issuing Bank5.4
9、.6 Claiming Bank 5.4.5 Nominated Bank5.4.4 Advising Bank 5.4.7 Reimbursing Bank 5.4.1 Applicant5.4.1 ApplicantApplicant means the party on whose request the credit is issued.It is usually the buyer/importer in business.Issuing Bank means the bank that issues a credit at the request of an applicant o
10、r on its own behalf.It should effect payment provided complying documents are presented.It is primary liable for the credit and it owns the right to refuse documents with discrepancies.5.4.2 Issuing Bank5.4.3 BeneficiaryBeneficiary means the party in whose favor a credit is issued.It is usually the
11、seller/exporter or middleman.5.4.4 Advising Bank Advising Bank means the bank that advises the credit at the request of the issuing bank.It is also called notifying bank.5.4.5 Nominated Bank5.4.5.1 Paying/Accepting BankThe issuing bank may nominate another bank,in most cases the advising bank,to eff
12、ect payment or to make acceptance under a credit.Such a bank is referred to as the paying bank or accepting bank as the case may be.5.4.5.2 Confirming BankConfirming bank is the bank that adds its confirmation to a credit upon the issuing banks authorization or request.Sometimes,the advising bank or
13、 some other bank will add confirmation at the request of the beneficiary without authorization or instruction from the issuing bank,which constitutes a“Silent confirmation”5.4.6 Claiming BankWhen a bank effects payment,acceptance or negotiation in accordance with the instructions from the issuing ba
14、nk,it is entitled to request the issuing bank or the bank nominated by the issuing bank to cover the reimbursement that has been made.Such a paying bank,accepting bank or negotiating bank,which claims reimbursement from the issuing bank or the bank nominated by the issuing bank,is claiming bank.5.4.
15、7 Reimbursing BankReimbursing Bank means a bank other than the issuing bank that reimburse the claiming bank with the instruction or authorization from the issuing bank.Reimbursing bank has no responsibility to check the documents under credit.The action of reimbursement is a“simple payment”for the
16、issuing bank.The reimbursing bank has the right to claim refund,which has been made before together with interest from the claiming bank if the issuing bank refuses to effect payment when documents are received.5.55.5.1 Application of Letter of Credit5.5.2 Issuing of Letter of Credit5.5.3 Amendment
17、of Letter of Credit5.5.1 Application of Letter of CreditTraditionally,the application for a L/C should include the following details:Full name and address of applicant and beneficiary;Type and amount of L/C;Expiry date and place of L/C;Terms of L/C,whether the L/C is available by sight payment,defer
18、red payment,acceptance,or negotiation;By whom and how the L/C is advised;Price terms;Whether partial shipments and transshipment are allowed;Place where goods are loaded on board/taken in charge/dispatched from,place of receipt,port of loading,port of discharge,place of final destination;The latest
19、date of shipment;Description of goods,including packing,details of quantity and unit price,if any;Details of the documents required;5.5.2 Issuing of Letter of CreditWhen the application has been submitted to the issuing bank for L/C issuing,the issuing bank should review the terms and conditions of
20、the proposed documentary credit to ensure that they are in compliance with the policies of the bank and in accordance with the legal requirement or regulation of the issuing banks countryMoreover,the issuing bank should carefully avoid to include the clause which requires the beneficiary to submit a
21、 document whose performance and creation are totally dependent on the third party not controlled by the beneficiaryWhen issuing the L/C,the issuing bank should keep in mind that the wording should be simple and specific.There are two ways to issue a letter of credit according to transmitting method:
22、credit issued by mail and credit opened by tele-transmission.5.5.2 Issuing of Letter of Credit5.5.3 Amendment of Letter of CreditOnly with the consent of the issuing bank,the confirming bank and the beneficiary,can the amendment or cancellation take place.The terms and conditions of the original cre
23、dit will remain in force for the beneficiary until the beneficiary informs the advising bank that it accepts the amendment.5.65.6 Procedures of Documentary Letter of CreditApplicantShipping companyBeneficiaryAdvising/Confirming/Nominated BankIssuing Bank 13 5.6 Procedures of Documentary Letter of Cr
24、edit(1)Applicant/Buyer and Beneficiary/seller sign a sales contract,specifying that documentary credit will be issued as payment method to the issuing bank;(2)Applicant applies for a documentary credit to the issuing bank;(3)Issuing bank issues a credit by tele-transmission/mail,requiring the advisi
25、ng bank to advise or confirm the credit.(4)Advising bank advises credit to the beneficiary upon verification of its authenticity;(5)After verifying of the credit,beneficiary ships the goods and prepares relative documents;(6)Beneficiary presents required documents to the nominated bank;(7)After care
26、ful examining of documents within 5 banking days,the nominated bank makes sight payment/deferred payment/acceptance/negotiation to the beneficiary.5.6 Procedures of Documentary Letter of Credit(8)Nominated bank sends the documents to issuing bank for reimbursement.(9)After careful examining of docum
27、ents within 5 business days,the issuing bank pays nominated bank;(10)Issuing bank advises the applicant to redeem documents provided complying documents are presented.(11)Applicant reimburses the issuing bank;(12)Applicant presents the redeemed documents to the shipping company;(13)Shipping company
28、delivers goods to applicant.5.75.7.1 Items on the Credit Itself5.7.2 Items on Draft 5.7.3 Items on the Transportation,Goods and Shipping Documents5.7.4 Other Items5.7.1 Items on the credit itself(1)Kinds of Credit(2)L/C amount and currency(3)L/C number:(4)Date and place of issue(5)Expiry date and pl
29、ace of the credit(6)Issuing Banks full name and address(7)Applicants full name and address(8)Beneficiarys full name and address(9)Advising Banks full name and addressIt is the drawn clause of the draft,which is used to illustrate the reason of the draft issuance.The clause may be written as“draft dr
30、awn under L/C No:issued by AAA Bank dated yy,mm.dd.5.7.2 Items on draft Items on transportation stipulation should state port of loading,port of discharge and place of destination,the latest date of shipment,and also whether partial shipment and transshipment are allowed.5.7.3 Items on the Transport
31、ation,Goods and Shipping Documents(1)The instructions to negotiating/accepting/paying bank(2)The issuing banks undertaking clause(3)The issuing banks name and signature(4)This documentary credit is subjected to UCP6005.7.4 Other Items5.8The following is a checklist for the beneficiarys examination o
32、f the credit:(1)The applicant and the beneficiarys names and addresses are correct;(2)The amount of the credit is in accordance with the contract,including unit price,shipping charges,handling cost,and total invoice amount;(3)The description of the goods is consistent with the sales contact;5.8 Chec
33、king and Examination of Letter of Credit(4)The credit availability(sight payment,deferred payment,acceptance or negotiation)agrees with the contract conditions;(5)The latest date of shipment,L/C expiry date,documents presentation period allow sufficient time for processing the order,shipping the mer
34、chandise and preparing the documents for presentation to the bank;(6)The expiry place is as per the sales contract;5.8 Checking and Examination of Letter of Credit(7)Partial shipment or transshipment regulations are as per the sales contract;(8)The point of dispatch,taking in charge of the goods,por
35、t of loading,port of discharge and final destination are as agreed in the sales contact;(9)Insurance coverage and party to pay charges are as agreed;(10)Instructions on whom the draft are to be drawn and in what tenor(maturity and date)are correct;(11)The credit is confirmed or unconfirmed as per th
36、e sales contact;(12)There are no unacceptable conditions;(13)The issuing bank(or confirming bank)is with credit reputation,at least known to the beneficiary.5.95.9 Discrepant Documents Handling under Letter of CreditBanks have up to five banking days following the receipt of documents to examine and
37、 notify the party from which they receive documents of their acceptance or non-acceptance.If a bank involved find discrepancies in the documents,it will act as follows:(1)Return the documents to the beneficiary so that the beneficiary can correct them and represent them during the period of validity
38、.(2)Remit the discrepant documents with approval and consent of the beneficiary to respective issuing bank or confirming bank for settlement.(3)Return the discrepant documents to the beneficiary with instructions that he remits the documents directly to the issuing bank or confirming bank,for their
39、approval and settlement under the credit.5.9 Discrepant Documents Handling under Letter of Credit(4)Request by tele-transmission,with the beneficiarys consent,the issuing bank or the confirming banks authorization to proceed with payment,negotiation or acceptance against the discrepant documents pre
40、sented.(5)Require a beneficiarys guarantee or indemnity or banking undertaking to the paying bank,accepting bank or negotiating bank to honor the discrepant documents.The beneficiary will compensate the nominated bank if the issuing bank or confirming bank refuses to reimburse for settlement.5.105.1
41、0.1 Clean Credit and Documentary Credit5.10.2 Irrevocable Credit and Revocable Credit5.10.3 Sight Credit and Usance Credit5.10.4 Confirmed Credit and Unconfirmed Credit5.10.5 Sight Payment Credit/Deferred Payment Credit/Acceptance Credit/Negotiation Credit5.105.10.7 Transferable Credit5.10.6 Revolvi
42、ng Credit5.10.8 Back-to-Back Credit5.10.9 Red Clause Credit5.10.10 Reciprocal Credit5.10.11 Straight Credit5.10.1 Clean Credit and Documentary Credit 5.10.2 Irrevocable Credit and Revocable Credit5.10.3 Sight Credit and Usance Credit 5.10.4 Confirmed Credit and Unconfirmed Credit5.10.5 Sight Payment
43、 Credit/Deferred Payment Credit/Acceptance Credit/Negotiation Credit 5.10 Types of Letter of Credit5.10.6 Revolving CreditCredit Revolving on Time BasisCredit Revolving on Value Basis5.10.7 Transferable CreditIt is a documentary credit under which the first beneficiary has the right to give instruct
44、ions to the paying or accepting bank or to the bank entitled to effect negotiation to make the credit available to one or more other second beneficiary.5.10.8 Back to Back CreditA back-to-back credit is a new documentary credit opened on the basis of an already existing,nontransferable irrevocable d
45、ocumentary credit in favor of another beneficiary.5.10 Types of Letter of Credit5.10.9 Red Clause CreditA red clause credit has a special clause(red clause)that authorizes the advising bank or any other nominated bank to make advance payment partly or fully to the beneficiary prior to the presentati
46、on of the shipping documents.It is often used to assist manufacturers in paying for labor and raw materials used in manufacturing or to middlemen who need financing to conclude a transaction.5.10.10 Reciprocal CreditReciprocal letter of credit are two separate equivalent amount credit in barter or c
47、ompensation trade,where the applicant of the first credit will be the beneficiary of the second credit,and vice versa.5.10 Types of Letter of Credit5.10.11 Straight credit Straight credit is such kind of credit,the obligation of the issuing bank is extended only to the beneficiary in honoring draft
48、and documents and the credit expires at the counter of the issuing bank.5.115.11.1 The Forming Process of Uniform Customs and Practice for Documentary Credits5.11.2 The Main Difference between UCP500 and UCP600In order to facilitate the conduction of international trade,the International Chamber of
49、Commerce first introduced Uniform Customs and Practice for Documentary Credit(with the abbreviation as UCP)in 1933 to alleviate the confusion caused by individual countries different understanding and operation of international trade practice.5.11.1 The Forming Process of Uniform Customs and Practic
50、e for Documentary CreditsThe current version of UCP600 was approved by the ICC on banking techniques and practice during its meeting on Oct 24th and 25th,2006,and was put into use on July 1st,2007.In addition,the International Chamber of Commerce Banking Commission created the International Standard
