Export Import Financing Letter of Credit.ppt

,letterofcreditcitdseminartuesday,june22nd,2004,methodsofpayment,methodsofpayment,cashinadvancelettersofcreditdocumentarycollectionsight/timedraftsakad/p,d/aopenaccountriskmitigation:exportcreditinsurancestandbyl/cs,l/c,cashinadvance,importerpaysexporterpriortoshipmentexporterhasnoriskofnon-paymentornon-acceptanceimporterhasriskthatexporterwillnotshipthegoodsasorderedusedoccasionallyforsmallamounts,newcustomers,one-timesales,importer,exporter,lettersofcredit,protectstheinterestsofboththeimporterandtheexporterexporterisassuredpaymentprovidedtermsofl/caremetimporterisassuredtermsofl/chavebeenmetbeforesheisrequiredtopayusedforlargeramounts,highercreditrisks,sometimesmandated,documentarycollections,exporterroutesdocumentsthroughbankingchannels,wheretheyareheldforpaymentoracceptanceexporterexportersimportersimporterbankbanklesscostlythanal/candavoidstyingupimporterslineofcreditaverageof2-4weeksforexportertocollectonasightdraftconsignmentissuesusedforlowerriskcustomers,goods,openaccount,exportershipsgoodsandbillstheimporterforpaymentatsightoratafuturedateimporterhasuseoffunds,noproductriskexporterhasriskofnon-paymentriskcanbeshiftedthroughcreditinsurance,standbyl/csusedforwell-establishedcustomerswithgoodcredit,lettersofcredit,typesoflettersofcredit,tradeimportexportstandby,definitionofatradeletterofcredit,aletteraddressedtoabeneficiary(exporter)byabank(issuingbank)whereinthebankundertakes,onbehalfofanapplicant(importer)toeffectpaymenttothebeneficiaryformerchandiseshippedorservicesperformedprovidedthatthebeneficiarypresentstherequireddocumentsincompliancewiththetermsoftheletterofcredit,documentscommontoanexportl/c,commercialinvoicepackinglistbillsofladingcertificateoforiginothercertificates:quality,inspectionbeneficiarystatements,1.importerandexporterenterintoasalesagreement,agreement,exporter,importer,2.importerappliesforaletterofcreditwiththeissuingbank,application,issuingbank,importer,3.issuingbankadvisestheletterofcredittou.s.bank,usuallyviaswift,l/c,swift,4.u.s.bankauthenticatesthel/candadvisesl/ctobeneficiary,u.s.bank,letterofcredit,beneficiary,5.exporterpreparesthedocumentsandshipsthegoods,6.exportersendsshippingdocumentstou.s.bankforexamination,documents,fbm,u.s.bank,7.assumingcleandocuments,u.s.bankpaysexporterbydebitingissuingbanksaccountoruponreceiptoffundsfromaseparatereimbursingbank.documentssenttoissuingbank.,exporter,u.s.bank,documents,issuingbank,8.issuingbankexaminesdocumentsanddeliverstoimporteragainstpayment.importertakespossessionofgoodsbypresentingdocuments.,documents,importer,docs,9.theexporterhasbeenpaid,theimporterhastheirgoods,thebankshavebeenreimbursed,andthecycleiscomplete!,agreement,application,letterofcredit,documents,letterofcredit,documents,documents,exporter,issuingbank,u.s.bank,goods,importer,specialusesoflettersofcredit,bankersacceptances,onatimedraft,thebankonwhomthedraftisdrawncommitstopaythefaceamountatmaturitybystamping“accepted”acrossthedraft.iftheexporterwishesearlypayment,theacceptingbankmaydiscountthedraftandpaytheexporteratsight.u.s.bankcanofferyouverycompetitiveratesforbasifthedraftisdrawnonus!,standbyletterofcredit,standbyl/csareanirrevocablecommitmentissuedbyabankforastatedtimeperiodtopayabeneficiaryastatedamountofmoneyuponpresentationofspecifieddocumentsstatingthattheapplicantdidnotfulfilltheircontractualobligations.,transferablelettersofcreditoftenusedbyanexportintermediarytopayavendororproducerthel/cmaybetransferredonlyonce,buttheremaybeseveralpartialtransfereesvendorcontrolspresentationofdocumentstobankintermediarymaysubstitutehisowninvoiceanddraft,butitstillmaybedifficultforthevendorandbuyertoremainunknowntoeachother,assignmentofproceedssimilartotransferablel/cinthatitiscommonlyusedbyanexportintermediarytopayaproducerorvendorintermediary(beneficiary)controlsdocumentpresentation,notthevendor,allowinghim/hertokeepinformationonthevendoroutofthepaperworkvendorreliesonintermediaryforproperpresentation/performanceunderthetermsofthel/cbeforefundswillberemittedtothem,confirmationsofexportlettersofcredit,confirmed-asecondbank,usuallyintheexporterscountry,guaranteestheobligationoftheissuingbank,providinganextralayerofprotection-especiallyimportantifthecountryortheissuingbankisconsideredrisky.,moreonconfirmations.,givesthegreatestdegreeofpaymentprotectionandanimmediatepaymentsource,providedthedocumentsareclean.addedcost,normallytotheexporter.exportermustinstructtheimportertohavethel/cissuedwitharequestforconfirmation.theconfirmingbankmakesacreditdecisionbasedonthecreditoftheissuingbankandthecountryrisk.approvalwilldependalsoonavailabilityunderanestablishedlineofcredit.,addingaconfirmationorengagementtopurchasedocuments:,agreement,application,letterofcredit,letterofcredit,documents,documents,exporter,issuingbank,advisingbank,documents,goods,importer,faxport,confirm.bank,benefitsoflettersofcredit,totheexporter:paymentprotectionrelianceonissuingbankscreditrather