Talk:Letter of credit

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HI, Want to know what is Stand By LC, I Recieved a LC as 60 Days Stand By LC, which should 60 days LC from BL date, —Preceding unsigned comment added by 121.245.54.17 (talk) 08:12, 3 May 2008 (UTC)

Contents

[edit] ?

do you think l/c can be false?

TINLA. If you are the beneficiary, your bank where you are supposed to be receiving your money has ways of checking to see if the LC is genuine, i.e., if money or collateral actually exists at the upstream end of the deal. The procedures surrounding LC's have been designed to insure that the beneficiary gets paid. knoodelhed 06:08, 20 July 2005 (UTC)

is there any other option for LC?

[Mayank Katiyar]

There are a number of options, and this is a study of its own. The first is that an L/C can be REVOCABLE - the issuing bank claims the right to withdraw its commitment either conditionally or without prior notice. If not said, an L/C is deemed IRREVOCABLE - first issued, the bank will pay when provided evidence as stated in the L/C. A CONFIRMED vs UNCONFIRMED L/C address the issue above: The issuing bank and advising bank has exchanged information that allows the advisng bank to "CONFIRM" it. "Restricted Negotiable" vs "Freely Negotiable" L/C: The issueing bank has nominated (or not) the bank the beneficiary may use. "Revolving" L/C - is reused over time for say the purchase of the same goods every month over time - typical 1 year.

"Transferable" vs "Non-Transferable" - if not stated the L/C is non-transferable and the nominated beneficiary cannot transfer the whole or parts of the L/C to any third party. The Transferable allows a broker to use the L/C issued by the buyer to pay for services and production to other parties that is required to complete the terms of the L/C. So the common term is "Transferable". From a producer of goods that seek protection for the production this may seek an L/C issued by a "Top 100 Bank" avoiding "MissPenny's Loansharks" dubious credit - and leave it then to the big bank to consider the risks involved by involving a bank far away. However the "Top100 Bank" will confirm the L/C first after complete "Due Diligence" procedure - where "MissPenny's Loansharks" may pass with flying colours. The issueing bank is still responsible to pay you - but the big bank has accepted to take the risk that the smaller bank will pay, and that you will be paid on exhibiting the evidence asked for ("Back-to-Back Payment). The transferable clause is relate to the term "Line of Credit" that is broken by a non-transferable L/C. See also http://www.export911.com/e911/export/particu.htm --Khflottorp 16:23, 8 July 2006 (UTC)

Letters of credit are not always irrevocable they can be:

a) Revocable

b) Irrevocable

c) Confirmed

d) Unconfirmed

e) Transferable

f) Others i.e. Back to Back  : Revolving

….the most common are Irrevocable/Confirmed

so I edited the page accordingly.- By Paul Albinson. Visit my website 20:07, 4 June 2007 (UTC)

What happen if the LC Value is little bit higher (IE within +1%)than the stipulated amount ?

   The UCP600 has a definition. Also look at the ISBP. Alan Davidson 14:33, 9 February 2007 (UTC)

[edit] Hard to read

The current form of the article has very long sentences and reads like legalese, even though the basic concept of an LC is pretty easy to understand. It would be nice to have a clear description at the top identifying the different roles (appliciant, beneficiary, etc) without using to many this-or-that formations or semicolons or parentheses. —The preceding unsigned comment was added by 216.18.85.235 (talk • contribs) 17:25, 4 December 2006 (UTC).

Totally agree with you and maybe one day some bright spark may attempt such a task. As for me I don't fully understand it and am making a hack at understanding it for a exam in 1 and a half days time, so even if I did understand I just don't have the time. Maybe after exams I will repay the favour of the kind contributors who have done the article so far by simplifying but not now. - By Paul Albinson. Visit my website 00:33, 5 June 2007 (UTC)

[edit] Covered Vs Uncovered LC

This document does not talk about Covered Letters of Credit (Wherein the issuing bank transfers the cover amount - to the beneficiary bank. This practice is in place in Russia as far as I know. Can the anchor put in some details about this aspect too?

[edit] Payment Terms Letters of Credit

Good Day

Can sombody assit me with the meanings of these abbreviations?


Payment terms are - DLC,RLC,FFDLC,FFRLC,SLC,BG or unconditional SLC/BG – —The preceding unsigned comment was added by 196.207.47.60 (talk) 21:27, 11 February 2007 (UTC).

[edit] Examples

It would be useful to give several examples of typical "stipulated documents" that must be presented, as well as typical "terms and conditions of the letter of credit". 24.16.25.69 17:11, 1 March 2007 (UTC)

The typical documents called under LC would be invoice, transport documents such as bill of lading, airway bill, lorry or railway receipt, packing list, insurance policy or certificate, certificate of origin and vaious certificates like certificate of analysis, inspection certificate, test report, beneficiary certificates which needs to state they have fulfiled certain conditions etc.

The terms and cnditions include the tenor of payment, the presentation period for documents to be presented, reimbursement insreuctions, regulatory conditions etc, for which a document may or may not be called for.

[edit] What is Letter of credit?

Could somebody add some information about Letter of credit to introduction of this article? In plain English? Because "irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit" just doesn't seem to fit my definition of plain English. ;-) —The preceding unsigned comment was added by 83.131.175.214 (talk) 08:57, 2 April 2007 (UTC).

Agreed but I can't think of a better way of saying it. Perhaps "A letter of credit is a contract that is used as payment during the import and export of goods until they are received. They can then be exchanged for cash."- By Paul Albinson. Visit my website 20:05, 4 June 2007 (UTC)

To understand the letter of credit better, we need to go to the basics of it. In international trade, the buyer and seller, located in different countries, do not know each other, are not comfortable about the credit worthiness and business standing of the parties. Add to this, different laws and regulations in different countries make the matter more complicated. Here the letter of credit plays a role. A bank (issuing bank) issues an LC in favour of beneficiary (seller) at the request of applicant (buyer). Thus the issuing bank gives its own credit worthiness to the seller on behalf buyer. It is a conditional payment mechanism where issuing bank promises to make payment to beneficiary provided the documents stipulated in the LC are presented at the counters of the issuing bank in stipulated presentation period. It is irrevocable undertaking meaning, if the beneficiary complies to the terms of the LC, the issuing bank is bound to pay. Suppose there is a dispute between buyer and seller over quality of goods and seller has presented complying documents to issuing bank, buyer cannot stop issuing bank from making payment and the dispute needs to be resolved separately. Thus, the contract between issuing bank and beneficiary is independant of the contract between applicant and beneficiary. Now the question arrives as to why applicant cannot stop issuing bank from making payment? Remeber one thing that the issuing bank is only replacing its credit worthiness to that of applicant and not undertaking to ensure the quality, quantity etc. of the goods and hence precisely article 5 clearly states - Banks deal in documents only.

[edit] Day Counting

Is the day counint started from the date LC issued, or the date goods were shipped? Jackzhp 22:26, 4 April 2007 (UTC)

Are you referring to day counting in context of the tenor of payment or the presentation of documents as both have different rules. In case of calculation of tenor, the days will be counted from the next day the date from which the days are to be counted. For e.g. if tenor is 60 days from the invoice date and if the invoice date is 01-12-2007, then the 60 days will be calculated from 02-12-2007.

For presentation of documents, calculation of period is tricky and depends on the words used to define. The words such as "to", "till", "until", "from" is used before the period included the date. If "before" and "after" is used prior the period, it excludes the date. For e.g., if presentation period is 15 days "FROM" shipment date and shipment date is 01-11-2007, then for calculation of presentation period will start from 1st November. Bur if presentation period is 15 days "AFTER" shipment date and shipment date is 01-11-2007, then for calculation of presentation period will start from 2nd November. hope this clarifies the point.

Regards

[edit] How to resolve LC discrepancies?

Hi everyone

I’m new to Trade Financing (handling of LCs), hope someone could provide some solutions so that I can better understand the operations.

Term LC (60 days) was incorrectly established as Sight LC. Both Importer (in Singapore) and Exporter (in Korea) overlook the tenor issue (Sight vs 60 days). The LC was established in USD.

Partial Shipment arrived. However, the Shipping documents were still not available. Importer applied for Shipping Guarantee to take delivery of goods. Subsequently, the shipping documents arrived, Importer present it to the Shipping Agent to cancel the Shipping Guarantee, which was returned to Importer’s Banker.

The day before payment day (Thur), it was discovered that the tenor was wrong. The Importer’s Banker advised the Importer to contact the Exporter and request the Exporter to inform their Banker (2nd Advising Bank) to change the tenor from Sight to 60 days and instruct the 1st Advising Bank to send an authenticated telex to confirm the discrepancy so that the Importer’s Banker can pay later (i.e. 60 days). The Importer’s Banker claimed that it could be rectified if the authenticated instructions are received before 13:00 (Singapore time) on the payment date (Fri) for USD payment. The reason, Asia is 1 day ahead of US.

But the Supplier came back stating that their Banker cannot change the tenor from Sight to 60 days. Moreover, their Negotiation Bank has already credited their account with the fund.

(1) Was the solution provided by the Importer’s Banker feasible?

(2) Would the Negotiation Bank pay the Exporter first before receiving money from the Importer’s Bank?

Thanks davis57 Davis57 07:24, 19 July 2007 (UTC)

[edit] classification

  • revocable vs. irrevocable
  • confirmed vs. unconfirmed
  • revolving vs non-revolving
  • transferable vs. intransferable
  • assignable vs. non-assignable

and what does "red clause" mean?

Jackzhp (talk) 16:11, 16 April 2008 (UTC)