Bank Collections, Trade Finance, and Letters of Credit
Letter of Credit
LOC in Trade Finance Programs
A partial loss to the insured’s cargo
Others Specialized Uses for LOC
Back-to-Back Letter of Credit Financing
Revolving and Evergreen Credits
Red Clauses in Credits
Transferable Credits
Standby Letters of Credit
One in which the issuer is obligated to pay a beneficiary upon the presentation of documents indicating a default by
The performance of an obligation
.
The account party in the payment of a debt
Confirmed Letters of Credit
One in which a second bank, has agreed to purchase documents and honor drafts onthe same terms as the original issuing bank
Enjoining Banks from Purchasing Documents in Cases of Fraud
Confirming banks are not permited to refuse a demand for payment when the documents comply with the LOC
The Rule of Strict Compliance
The terms of the documents must strictly conform to the requirements of the letter of credit and the UCP
Funcional Standard of Compliance
The UCP 600 Rule
Following a Letter of Credit Transaction
Seller's Compliance
Tells the seller
When to ship
How to ship
What to ship
What it must do
Buyer's Application
Between the buyer and the bank
The Independence Principle
States the independent of the sales contract between buyer and seller
Law Applicable
Article 5 of the Uniform Commercial Code
Documentary Letter of Credit
Can be used in transactions for the sale of goods or services or to guarantee performance of other business obligations
International
Domestic
The Bill of Exchange
Credit Risks
Seller assigns rights to collect to assignee or factor
Documentary Drafts Used in Trade Finance
The Documentary Draft
Provides the seller and buyer with a mechanism for financing the international sale
Trade finance
Provides immediate cash to the seller for the sale
Assists the buyer in financing its purchase
The Documentary Draft and the Bank Collection Process
Time Draft
Sent to the buyer for its acceptance
SightDraft
Payable on sight
Brief Requirements of a Bill of Exchange
The English Bills of Exchange Act requires
To: an specific person
A sum certain in money
Guarantee that it will be payed
Signed by the person giving it
Addressed by one person to another
An uncoditional order in writing
The Origin of the bill of exchange
Lies in the history of the merchants and traders of four teenth and fifteent century Europe
