LC & UCP

8/6/2019 LC & UCP

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Documentary Letters of CreditMethods of International Trade settlement

1. Advance payment

2. Open account system

3. Barter system / Counter trade

4. Bills for collection

5. Documentary letters of credit

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Documentary Letters of Credit ICC¶s banking commission drew up the first version of

the UCP in 1933 and it was revised every 10 years or

so since then.

UCP are accepted by banks and trading partners inevery country in the world.

Dual purpose is to provide a code of good practice

and to spell out a series of legally binding obligations.

Issued by Banks as guaranteed payment instrumentson export sales.

Most engaged instrument in international trade.

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Documentary Letters of Credit UCP 600 replaced and superseded UCP 500 as the

ICC set of rules governing letters of credit.

Attempt is made to address the developments in

banking, transport and insurance industries.

More user friendly, both in structure and language.

Attempt is made for overall reduction in documentary

rejections.

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Documentary Letters of Credit one of the safe methods of international trade

settlements

´ Constructive delivery´ by handing over documents or transferring title to or control over the goods ispossible

It guides the buyer as responsible for stipulating therequired documents and conditions

stipulates the liabilities of the issuing bank, advisingbank, confirming bank, negotiating bank, etc

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Documentary Letters of CreditWhy letter of credits?

Current financial crisis has driven manyexporters to look to bank undertaking as a

means of securing their exports.

Those who have traded on open account termsfor many years are looking out for more

protection in certain markets.

This has given rise to a demand in the need forissuance of documentary credits and

confirmation thereof.

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Documentary Letters of CreditUCP 600

The new revision of uniform customs and practice of

documentary credits, commonly referred as UCP 600,

came into force on July 1, 2007

It was promulgated by ICC¶s commission on Banking

techniques and practice. The commission were

assisted by a consulting group, consisting of morethan 40 experts from 26 countries.

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Documentary Letters of CreditHighlights of UCP 600

Simplified structure, easier to read

New sections on definitions and interpretations

Discounting of deferred payment credits

Insurance document with an exclusion clause

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Addresses of the beneficiary and applicant

Original documents ± at least one original of each

stipulated document must be tendered.

Transport articles ± ³clean on board´ stipulation

12 articles of ³e ucp´

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Provides for five banking days to review the

documents for compliance

Dramatically liberalised the consistency requirement

between the documents ( linkage issue )

UCP 600 establishes irrevocable L/C as the default

credit

The flight stamp shown on an Airway Bill will be thedate of shipment

Bank can hold documents, pending applicant waiver

or receipt of additional instructions from the presenter

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Documentary Letters of CreditHighlights of UCP 600 ± 39 Vs 49

General Provisions 1 ± 5

Liability 6 ± 13

Examination 14 ± 17

Documents 18 ± 28

Miscellaneous Issues 29 ± 33 Disclaimers 34 ± 37

Transfer & Assignment 38 ± 39

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Documentary Letters of CreditPar ties to A Letter Of Cr edit Transaction

Applicant / Importer

Beneficiary / Exporter

Issuing Bank

Advising Bank

Confirming Bank

Negotiating Bank

Reimbursing Bank

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Documentary Letters of CreditTypes of Cr edits

Sight credit

Deferred payment credit

Acceptance credit

Negotiation credit

Confirmed credit

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Documentary Letters of CreditTypes of Cr edits

Freely negotiable credit

Restricted credit Revolving credit

Transferable credit

Back-to- back credit

Anticipatory credit ± Red clause credit , Green clausecredit

Standby letter of credit

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Documentary Letters of CreditDocuments in international trade

Financial documents

Commercial documents

Transport documents

Risk covering documents

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Documentary Letters of CreditFinancial Documents

Bill of Exchange

Sight Bill of Exchange

Usance Bill of Exchange

Commercial documents

Commercial Invoice

Consular Invoice Customs Invoice

Legalised Invoice

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Documentary Letters of CreditCommercial documents

Certificate of origin

Generalised system of preferences (GSP)

Packing list

Weight certificate

Certificate of analysis and quality

Certificate of inspection

Health certificate

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Documentary Letters of CreditTranspor t Document

Bill of Lading (B/L)

Received for shipment B/L

On Board B/L

Clean B/L

Claused B/L

Straight B/L

Charter party B/L

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Documentary Letters of CreditRegulatory Documents

Export Declaration Forms

G R / SDF Form

P P Form

Softex Form

Export Certificate

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Documentary Letters of CreditTranspor t Document

Airway Bill

Postal Receipt

Courier Receipt

Multimodel Transport Documents

Risk Cover ing

Documents

Insurance Policy

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Documentary Letters of CreditDiscr epancies

An irrevocable LOC do not automatically assure

payment for International trade

An inexperienced business makes mistakes whichresults in rejection of claims by banks

Excessive terms and conditions in the LC

More ambiguous the context of the UCP

Opening banks make more stringent reviews ondocuments

Applicants ³engineer´ discrepancies in collusion with

banks

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Documentary Letters of CreditCommon Discr epancies

Late shipment / Presentation

Description of goods between invoice and LC

Incorrect / incomplete Bill of exchange

Inconsistent documents

Unsigned B/L, AWB

Faulty Insurance

Overdrawing LC

International standard banking practice (ISBP) 2007

will be applicable for UCP 600 credits

LC & UCP

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