U.S. Wall Street Union Bank Ltd

Letter of credit (L/C) is a certificate of conditional payment guaranteed by banks, and it has become a common settlement method in international trade activities. According to the general provisions of this settlement method, the buyer first deposits the payment to the bank, the bank opens a letter of credit, notifies the bank of the seller in the other place to inform the seller, the seller delivers the goods according to the terms stipulated in the contract and the letter of credit, and the bank makes the payment on behalf of the buyer.

In international trade activities, the buyer and seller may not trust each other, and the buyer is worried that the seller will not deliver the goods as required by the contract after the advance payment. The seller is also concerned that the buyer will not pay after delivery or presentation of shipping documents. Therefore, it is necessary for two banks to act as the guarantor for both the buyer and the seller, to collect the documents on behalf of the bank credit instead of commercial credit. The instrument used by the bank in this activity is the letter of credit.

It can be seen that the letter of credit is a certificate of conditional payment guaranteed by the bank and has become a common settlement method in international trade activities. According to the general provisions of this settlement method, the buyer first deposits the payment to the bank, the bank opens a letter of credit, notifies the bank of the seller in the other place to inform the seller, the seller delivers the goods according to the terms stipulated in the contract and the letter of credit, and the bank makes the payment on behalf of the buyer.

The letter of credit has three characteristics: First, the letter of credit is not attached to the sale contract, and the bank emphasizes the written form authentication of the letter of credit separated from the basic trade when reviewing the documents. Second, the letter of credit is payment against documents, not based on the goods. The issuing bank should pay unconditionally as long as the documents are in conformity. Third, letter of credit is a kind of bank credit, it is a kind of guarantee document of the bank.

1. Format of Letters of Credit: the International Chamber of Commerce (ICC) established the Standard Form for the Issuing of Documentary Credits in 1970:

1) The Standard Form for the Issuing of Documentary Letter of Credit-Advice for the Beneficiary (The Standard Form for the Issuing of Documentary Letter of Credit-Advice for the Beneficiary)

2) The Standard Form for the Issuing of Documentary Letter of Credit-Advice for the Advising Bank (The Standard Form for the Issuing of Documentary Letter of Credit-Advice for the Advising Bank)

3) The Standard Form for the Notification of Documentary Letter of Credit (The Standard Form for the Notification of Documentary Letter of Credit)

4) The Standard Form for the Amendment to Documentary Letter of Credit (The Standard Form for the Amendment to Documentary Letter of Credit)

2. Form of letter of credit:

1) To open by airmail: a letter of credit issued by the issuing bank in the form of a printed letter and sent to the advising bank by airmail.

2) To open by cable: The issuing bank communicates the terms of the L/C to the advising bank by various telecommunication methods such as telex, fax and SWIFT.

a) Brief cable: The issuing bank will only inform the issuing bank of the main contents of the L/C in advance, and the detailed terms will be sent to the advising bank by separate airmail. The copy is legally invalid and cannot be used as a basis for negotiation of documents.

b) Full cable: The issuing bank opens the L/C by telecommunication and communicates the full terms of the L/C to the advising bank. Full copy is the basis for negotiation of documents.

Principal parties to a letter of credit and their rights and obligations (1) the applicant. The person who applies to a bank for a letter of credit is also called the issuer in the letter of credit. Obligations: To open credit in accordance with the contract; Pay a proportional deposit to the bank; Right to timely payment of redemption documents: inspection and return of redemption documents; Inspection, return (both based on the letter of credit) description: the application has two parts, that is, the application to the issuing bank and the statement and guarantee to the issuing bank (stating that the ownership of the goods before the payment of the redemption document belongs to the bank; The issuing bank and its agent are only responsible for the apparent conformity of documents; The issuing bank is not responsible for any errors in the delivery of documents; Not responsible for "force majeure"; A warrant for payment due; Guarantee payment of all expenses; Issuing bank reserves the right to add additional deposit at any time; Have the right to decide to insure the goods and increase the level of insurance at the expense of the applicant.
(2) Issuing bank. A bank that issues a letter of credit on the authorization of the applicant for issuing the credit shall bear the responsibility of guaranteeing payment. Obligations: Correct and timely opening of L/C; The right to undertake the responsibility of the first payment: to collect the handling fee and the deposit; Reject non-conforming documents of the beneficiary or negotiating bank; After payment, if the issuing applicant is unable to pay the redemption bill, the documents and goods can be disposed of; The balance of insufficient goods can be recovered from the applicant.
(3) Advising bank. It refers to the bank entrusted by the issuing bank to pass the letter of credit to the exporter, which only proves the authenticity of the letter of credit and does not undertake other obligations, and is the bank where the export is located. Also prove the authenticity of the letter of credit; The forwarding bank is only responsible for forwarding. (4) Beneficiaries.
Refers to the person entitled to use the credit as specified in the credit, that is, the exporter or the actual supplier. Obligations: After receiving the L/C, it shall check with the contract in time. In case of discrepancy, it shall request the issuing bank to modify or refuse to accept the L/C as soon as possible, or request the issuing applicant to instruct the issuing bank to modify the L/C; If accepted, the goods will be delivered and notified to the consignee, and the documents will be prepared to present to the negotiating bank for negotiation at the specified time; Responsible for the correctness of documents, in case of discrepancy, the issuing bank's instructions for amendment shall be executed and documents shall be delivered within the time limit specified in the credit.
Rights: The right to cancel the contract and reject the letter of credit unilaterally after notifying the other party; After the presentation of documents, if the issuing bank closes down or refuses to pay without reason, it can directly ask the issuing applicant to pay; Before payment, if the applicant is bankrupt, the shipment of the goods can be stopped and handled by himself; If the credit is not in use at the time of closing of the issuing bank, the applicant may be asked to open another credit.
(5) Negotiating bank. A bank that is willing to buy a documentary draft from a beneficiary. According to the payment guarantee of the issuing bank of the credit and the request of the beneficiary, advance or discount the documentary draft delivered by the beneficiary in accordance with the provisions of the credit, and claim compensation from the paying bank specified in the credit (also known as the purchasing bank, the negotiating bank and the draft bank); It's usually the notification line; Limited and free negotiation).
Obligations: strictly review documents; Advance or discount documentary bills; Endorse a letter of credit; Rights: negotiable or non-negotiable; Documents can be processed after negotiation; After negotiation, the issuing bank may close down or refuse to pay under pretext to recover the advance from the beneficiary (6). In most cases, the paying bank is the issuing bank.
The bank (which may be the issuing bank or another bank on its behalf) that pays the beneficiary for documents conforming to the credit. The right to pay or not to pay; (7) The confirming bank is entrusted by the issuing bank to add "guarantee honour" to the bank guaranteeing the letter of credit in its own name; Irrevocable firm commitment; Independently responsible for letter of credit, payment against documents; Claim only from the issuing bank after payment; If the issuing bank refuses to pay or goes bankrupt, it has no recourse against the beneficiary and negotiating bank.
(8) Acceptance bank. The bank that accepts the draft presented by the beneficiary is also the drawee bank. (9) Reimbursing bank. The bank (also known as clearing bank) entrusted by the issuing bank in the letter of credit to clear the advance to the negotiating bank or the paying bank on behalf of the issuing bank. Only pay without reviewing documents; Make payments regardless of refunds; If not reimbursed by issuing bank.
(1) The applicant shall fill in the application and pay the deposit or provide other guarantees according to the contract, and ask the issuing bank to open the L/C. (2) The issuing bank shall issue the L/C to the beneficiary according to the contents of the application and send it to the advising bank where the exporter is located.
(3) The advising bank shall deliver the L/C to the beneficiary after verifying the seal. (4) The beneficiary shall ship the goods, prepare the documents and issue the draft according to the provisions of the L/C after checking the L/C content in accordance with the contract provisions, and send the goods to the negotiating bank for negotiation within the validity period of the L/C. (5) The negotiating bank shall advance the payment to the beneficiary after verifying the documents according to the terms of the L/C.
(6) A negotiating bank can claim compensation from the issuing bank of drafts and shipping documents or its particular draughting bank. (7) The issuing bank shall pay to the negotiating bank after verifying that the documents are correct. (8) Issuing bank notifies the issuer of a redemption note. Main contents of the credit (1) A description of the credit itself.
Such as its type, nature, expiry date and expiry place. (2) Requirements for goods. Description according to the contract. (3) Requirements for transportation. (4) Requirements for documents, namely goods documents, transport documents, insurance documents and other relevant documents. (5) Special requirements.
(6) The issuing bank's obligation to guarantee payment to the beneficiary and the holder of the draft. (7) Most foreign certificates include the following note: "Unless otherwise provided, this certificate is processed in accordance with the ICC Uniform Practice for Documentary Credits (Revised 1993), ICC Publication No. 500 (ucp600)."
(8) Interbank wire transfer claim clause (t/t reimbursement clause). Standard format OF LETTER OF CREDIT Number: Reference: Author: Author: Title: to: Send to: Message Type: Message type: Priority: Priority: Delivery Monitoring: 27: Message page sequence of total 40A: form of documentary credit 20: documentary credit 31C: date of issue 31D: date of expiry place of expiry 51A: Documentary Credit 31C: Date of issue 31D: date of expiry Place of expiry 51A: applicant bank-BIC 50: applicant 59: beneficiary beneficiary 32B: currency code, amount 41D: Applicant Bank -BIC 50: Applicant 59: Beneficiary 32B: Currency code, amount 41D: Named bank and payment method available with... by... 42C: drafts at... 42A: Bill of Exchange payer -- Bank code drawee-BIC 43P: partial shipments 43T: transshipment 44A: loading on board/dispatch/taking in charge 44B: Loading on board/dispatch/taking in charge 44B: for transportation to... latest date of shipment 45A: description of goods and/or services 46A: Latest date of shipment 45A: Description of Goods and/or Services 46A: documents required 47A: additional conditions 71B: charges 48: period for presentation 49: Documents required 47A: Additional Conditions 71B: Charges 48: Period for presentation 49: Confirming instruction confirmation instructions: 78 lines GeiFuKuan/acceptance/negotiating bank's instruction instructions to paying/has/negotiating bank 72: Postscript sender to receiver information Characteristics of L/C payment mode 1.
The issuing bank has the primary and independent responsibility for payment. 2. A letter of credit is a self-contained document. Although the letter of credit is issued in accordance with the sale contract, once the letter of credit is issued, it becomes an agreement independent of the sale contract. 3. A letter of credit is a transaction of documents in which the parties concerned deal with documents rather than goods, services and/or other acts.
The bank is only responsible for the apparent conformity between documents and documents. Type of letter of credit (1) According to whether the draft under the letter of credit is accompanied by shipping documents, it is divided into documentary credit and clean credit. Documentary Credit is a letter of credit that is paid against a documentary bill of exchange or against documents only.
Documents here refer to documents that represent the ownership of the goods (such as ocean bills of lading, etc.), or documents that prove that the goods have been delivered (such as railway waybills, air waybills, parcel receipts). (2) A Clean Credit is a letter of credit payable against a Clean Draft without accompanying shipping documents.
A bank paying by a clean letter of credit may also require the beneficiary to submit this non-shipping document, such as an invoice, an advance statement, etc. In the international trade payment settlement, most of the use of documentary credit. (2) According to the liability of the issuing bank, it can be divided into: ① irrevocable letter of credit.
It means that once the letter of credit is issued, within the validity period, without the consent of the beneficiary and the relevant parties, the issuing bank cannot unilaterally modify or revoke it. As long as the documents provided by the beneficiary comply with the provisions of the letter of credit, the issuing bank must fulfill the payment obligation. ② Revocable letter of credit. Where the issuing bank has the right to revoke a credit at any time without obtaining the consent of the beneficiary or the parties concerned, the letter of credit should be marked "revocable".
However, UCP500 stipulates that as long as the beneficiary has obtained the guarantee of negotiation, acceptance or deferred payment according to the terms of the credit, the credit cannot be revoked or modified. It also provides that a credit shall be considered irrevocable if it does not indicate whether it is revocable. The latest > state that banks cannot open revocable letters of credit! (3) Depending on whether there is another bank to guarantee payment, it can be divided into: ① confirmed letter of credit.
A letter of credit issued by the issuing bank in which another bank guarantees the payment obligation for documents conforming to the terms of the credit. A bank confirming a credit is said to confirm it