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1 Name and Address of Beneficiary: Sureshot International Limited 190 Middleton Road Royton Oldham, Lancs, UK, OL2 5LT 2 Name and Address of Advising Bank for example: HSBC Trade Services Export Documentary Credit Department 51 De Montfort Street Leicester, LE1 7BB SWIFT Address : MIDL GB22 3 LC Expiry Date Should be at least 120 days from the date of opening. (This is purely to avoid LC amendments. This does not imply any delay in shipments) 4 Place of Expiry : HSBC 5 Latest shipping date : 180 days from the date of opening of LC 6 Period allowed for Document Presentation : Allow 30 days for shipment, and 30 days after shipment for document negotiation. The LC should allow for stale documents, ie documents presented more than 30 days after shipment, but within the validity of the LC. 7 Transhipment : to be permitted 8 Partial Shipments : to be permitted (We do not part-ship without your concurrence, however, if the shipment accompanies their specific invoices they are treated as "Part-shipment") The LC shall not limit the number of collections and / or draft presentations. 9 Shipments From: Any airport or port in any country Shipment To: The GCA of the Southern Caribbean. Instead of specifying names of various countries in the LC as part of shipment the word "GCA", General Currency Areas, will take care of this requirement). No specific airline or vessel to be stipulated on the LC. The LC must say "Description as per Proforma Invoice". INCO Shipping Terms : will apply. In case of CIF then we will use our own freight forwarder and ship the material to the Customer’s port of Destination. Documents that will be provided for all shipments : Commercial Invoice copies in duplicate, packing lists, Bills of Lading consigned to your bank, draft at sight. Copies of all required documents should be acceptable. The LC should include the following clause: " Except as far as otherwise expressly stated, this documentary credit is subject to the Uniform Customs and Practises for documentary credit (1993 revision) of the International Chamber of Commerce publication number 500. General information A documentary credit or letter of credit (LC) is a financial instrument in which the issuing bank undertakes to guarantee payment under specified terms and conditions to a third party on behalf of a second party. It guarantees an exporter payment for goods or services, provided the terms of the L/C are met. For importers who are looking for new suppliers, one of the primary considerations when deciding on the payment terms is to ensure that the goods supplied are the goods ordered. The two main instruments to ensure this are documentary collections, whereby the customer or importer only makes payment in exchange for documents of title for the goods shipped, and a letter of credit, where the importer There are four primary factors in a Letter of Credit transaction: the importer, the exporter, the issuing bank (acting on behalf of the importer), and the advising bank (acting on behalf of the exporter). Best practice when dealing with a Letter of Credit starts before it is received. Firstly the company should consider whether it is necessary to use a Letter of Credit, or if another method of payment could be acceptable, less expensive, more desirable or more appropriate. Before the credit is issued, both the company and Sureshot will agree on all terms and conditions in a purchase and sale contract. Then the company will instruct its bank to issue a documentary credit in accordance with the contract. The documentary credit contains only those details that are to be reflected in the documents to be submitted by Sureshot. Advantages of using an L/C Import L/Cs may help: Reduce your commercial risk by ensuring that Sureshot will not be paid until evidence has been provided that the goods are ready for dispatch. Conserve your cash by eliminating the need to make advance payments or deposits, this may be negated by the bank requiring full payment for the LC. Support access to bank credit (in many countries, L/Cs are pledged by exporters as security against working capital loans) Disadvantages Setting up LC’s is very complex and time consuming and may delay the project LC’s are expensive, they may cost up to 8% of their value to set up All the money value of the LC will be held by the bank and not be available to the company The costs for use and management of the LC’s will fall onto the supplier, these may account for a further charge of 5% of the value of the LC. Over 50% of letters of credit are rejected on first presentation, which can cause expensive delays for both the company and Sureshot. On a small transaction the charges for the LC may be totally out of proportion with its use. Perhaps the main advantage is providing security to the company, but the security offered comes at a price and must be weighed against the additional costs resulting from bank charges. Advantages for the Supplier Assure Sureshot of payment, the bank that issued the L/C is obligated to pay regardless of the views of the customer. Provide greater security of payment, if confirmed by an approved bank. To Sureshot the red clause letter of credit guarantees financing from the bank before shipment of goods Disadvantages Can be very difficult to work with. Very difficult and expensive to borrow against. Complicated to write assignments. Difficult to find companies that will accept assignments. Almost impossible to find companies external to the UK who will accept assignments. Generally, Sureshot only accept payment by LC when all other avenues have been rejected. Types of Letter of Credit There are several types of LC including; Revocable credit This type of credit may be amended or cancelled without the beneficiary's consent. It is generally used when the applicant and the beneficiary are members of the same group of companies. A revocable letter of credit can be amended or cancelled at any time by the importer without the exporter’s agreement (unless documents have been taken up by the nominated bank). Little protection is offered to the exporter with a revocable credit and they are rarely seen. Sureshot will not accept this type of LC. Irrevocable credit Irrevocable credit means the credit cannot be amended or cancelled without the agreement of all parties (the beneficiary, the applicant and the issuing bank). A credit therefore should clearly indicate whether it is revocable or irrevocable. In the absence of such indication, the credit shall be deemed to be irrevocable. An irrevocable letter of credit can neither be amended nor cancelled without the agreement of all parties to the credit. Under UCP500 all letters of credit are deemed to be irrevocable unless otherwise stated. Here, the customers bank gives a binding undertaking to the supplier provided all the terms and conditions of the credit are fulfilled. Sureshot will only accept irrevocable LC’s. Unconfirmed An unconfirmed letter of credit is forwarded by the advising bank directly to the exporter without adding its own undertaking to make payment or accept responsibility for payment at a future date, but confirming its authenticity. Sureshot will not accept this type of LC. Confirmed credit The strength of a documentary credit is related to the financial standing of the bank that issues it. The economic strength of the country of the issuing bank is also a factor. A confirmed letter of credit is one in which the advising bank, on the instructions of the issuing bank, has added a confirmation that payment will be made as long as compliant documents are presented. This commitment holds even if the issuing bank or the buyer fails to make payment. The added security to the exporter of confirmation needs to be considered in the context of the standing of the issuing bank and the current political and economic state of the importer’s country. A bank will make an additional charge for confirming a letter of credit. Confirmation costs will vary according to the country involved, but for many countries considered a high risk will be between 2%-8%. There also may be countries issuing letters of credit which banks do not wish to confirm - they may already have enough exposure in that market or not wish to expose themselves to that particular risk at all. Sureshot will only accept LC’s confirmed by HSBC. Standby Letters of Credit A standby letter of credit is used as support where an alternative, less secure, method of payment has been agreed. They are also used in the United States of America in place of bank guarantees. Should the exporter fail to receive payment from the importer he may claim under the standby letter of credit. Certain documents are likely to be required to obtain payment including: the standby letter of credit itself; a sight draft for the amount due; a copy of the unpaid invoice; proof of dispatch and a signed declaration from the beneficiary stating that payment has not been received by the due date and therefore reimbursement is claimed by letter of credit. The International Chamber of Commerce publishes rules for operating standby letters of credit - ISP98 International Standby Practices. Sureshot will not accept this type of LC Transferable Credit A transferable credit is a credit under which the beneficiary (first beneficiary) may request the transferring bank, or in the case of a freely negotiable credit, the bank specifically authorized in the credit as a transferring bank, to make the credit amount available in whole or in part to other beneficiary-ies. A transferable letter of credit is one in which the exporter has the right to request the paying, or negotiating bank to make either part, or all, of the credit value available to one or more third parties. This type of credit is useful for those acting as middlemen especially where there is a need to finance purchases from third party suppliers. For most projects Sureshot will almost certainly require that one or more revolving LC’s be issued. Back-to-Back Letter of Credit A back-to-back letter of credit can be used as an alternative to the transferable letter of credit. Rather than transferring the original letter of credit to the supplier, once the letter of credit is received by the exporter from the opening bank, that letter of credit is used as security to establish a second letter of credit drawn on the exporter in favour of his importer. Many banks are reluctant to issue back-to-back letters of credit due to the level of risk to which they are exposed, whereas a transferable credit will not expose them to higher risk than under the original credit. For most large projects Sureshot will almost certainly issue back to back LC’s to various suppliers. Revolving Letter of Credit The revolving credit is used for regular shipments of the same commodity to the same importer. It can revolve in relation to time or value. If the credit is time revolving once utilised it is re-instated for further regular shipments until the credit is fully drawn. If the credit revolves in relation to value once utilised and paid the value can be reinstated for further drawings. The credit must state that it is a revolving letter of credit and it may revolve either automatically or subject to certain provisions. Revolving letters of credit are useful to avoid the need for repetitious arrangements for opening or amending letters of credit. For most projects Sureshot will almost certainly request one or more revolving LC’s to be issued. A Red Clause LC Red clause letters of credit are relatively uncommon in Europe and North America, but are used occasionally in the Far East (It appears that originally the special clauses on the LC were written in red ink, to draw attention to them!). A red clause LC has a clause that allows the beneficiary to make an initial drawing, on the condition that authorizes the confirming bank of other nominated bank to make advances to the beneficiary before presentation of the commercial documents. The advance payment is usually made against the Beneficiary's Certificate confirming his undertaking to ship the goods and to present the documents to the bank in compliance with the terms and conditions of the letter of credit or Customs Warehouse Receipt of Goods that are intended to be shipped to the applicant of the letter of credit. Obviously the applicant will need to have some confidence in the beneficiary, who has the opportunity to divert the funds for other purposes, and/or simply fail to ship anything at all! Evergreen Letters of credit. These are repeating letters of credit produced for a special purpose and the average supplier will not usually come across them. Sight A credit can be payable at sight or at term. At sight means that payment is due upon presentation of documents after shipment of the goods or after a service is provided. For most projects the payment must be made upon presentation of evidence of equipment ready for shipping (at sight of documents). Eligibility No limitations, however, the customer must have either have credit facilities for the full value or 100% cash collateral which will be held by the bank against the LC. Documentation Most LC’s raised in the Caribbean will at some stage go through the Bank of America, whom we have found to be both hopeless and excruciatingly expensive. On our last dealings with an LC, the Bank charged almost 10% for the privilege of the money going through their facility, and they took two weeks to process it, causing the goods to miss the sailing. Care in preparing and processing documents will help prevent delays and avoid the huge expense of making corrections. This checklist may help you minimize errors in preparing the documents, should you require it we can provide a far more detailed checklist. A general guide to the required documentation Verifiable evidence in the documents that they all refer to the same transaction. The quantity of goods (e.g. number of parcels), gross and net weight, the marks and import license number must be consistent on all documents. Only goods to be supplied under the credit may appear on the documents. Show proof that all dates specified in the credit have been respected. All documents should be prepared in the prescribed number of copies. If goods being shipped are covered by more than one LC, separate sets of documents must be issued for each credit. The Bill Of Exchange / Draft Prepare according to the exact documentary credit conditions. The draft has to contain all the references to the credit under which it is drawn. Date, sign and endorse (if necessary). Unless the credit otherwise specifies, the amount of the draft must coincide with the invoice. The Invoice Make it out in the same currency as the credit. The applicants address should be the same as specified in the credit. The invoice must agree exactly with the credit regarding description of goods, value of goods, individual prices and delivery conditions (if any). The invoice must be signed, if required, and any special notations, confirmations and authentications specified in the credit must be included and signed. The invoice should illustrate the following: marks/delivery conditions agreed upon, weight data and import license number (if any). The Insurance Document The insurance document has to be the same as specified in the credit, i.e. policy or certificate. Insurance is to cover the risks mentioned in the credit in the currency of the credit and for the prescribed amount. The policy or certificate must be dated prior to, or on the same date as, the transport document. It should agree with the other documents regarding description, weight and marks of the goods, mode of transport and route. All copies issued by the insurance company have to be attached and, insofar as necessary, endorsed. The Transport Document Transport documents can be negotiable or non-negotiable. Non-negotiable documents (e.g. air waybills, rail bills of lading) do not provide the same protection against unauthorized access to the merchandise that negotiable documents (e.g. marine/ocean bills of lading) do. The transport document should be the type called for in the credit. Credit stipulations regarding the parties to be mentioned in the bill of lading (shipper, order/consignees, or person to notify) as well as special notations and indications have to be observed. The bill of lading should be endorsed. The details of package units (cans, number, marks and weight, etc) should agree with the other documents. For CFR and CIF shipments, there should be a notation on the transport document to the effect that freight has been prepaid. The transport document has to be properly signed by the carrier or its agent. Changes are to be stamped "correction approved" and initialled by the carrier or its agent. |
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CUSTOMER GUIDE TO DOCUMENTARY CREDIT or LETTERS of CREDIT (LC) or (LOC) General terms for LC’s The LC opening bank must be approved both by Sureshot and our bank All LC’s must be irrevocable, payable at sight upon presentation of documents. Confirmation must be added by our bank. The currency of payment must be in made payable in a currency acceptable to Sureshot. The LC. must be written in the English language. SPECIFIC TERMS FOLLOW BELOW |
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Letters of Credit |
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CONTACT US AT — England tel: + 44 (0) 161 624 2916 fax: + 44 (0) 161 627 0594 E-mail: info@sureshot-intl.com South Africa: tel: + 27 11708 2703 fax: + 27 11708 2705 E-mail: milequip@iafrica.com |
