International payment 4 th Edition World Trade Press
Basic Documentary Credit Procedure
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LAW102 VIEET, bt1
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- Issuance • Procedure Refer to the diagram on the facing page for each numbered step. • Buyer and Seller
- Issuance • Buyer (Applicant/Importer)
- Issuance 23 Amendment
| Basic Documentary Credit Procedure
• Settlement • Settlement (a subpart of utilization) describes the different ways in which payment may be effected to the seller from the buyer through the banks. • Note Issues relating to applying for a documentary credit, confirmed vs. unconfirmed credits, special types of credits, settlement, correspondent and confirming banks will be discussed after the basic procedure is explained. 19 Issuance_•_Procedure_Refer_to_the_diagram_on_the_facing_page_for_each_numbered_step._•_Buyer_and_Seller'>Issuance • Procedure Refer to the diagram on the facing page for each numbered step. • Buyer and Seller 1. The buyer and seller agree on the terms of sale: (a) specifying a documentary credit as the means of payment, (b) naming an advising bank (usually the seller's bank), and (c) listing required documents. 20 Issuance • Buyer (Applicant/Importer) 2. The buyer applies to his bank (issuing bank) and opens a documentary credit naming the seller as beneficiary based on specific terms and conditions that are listed in the credit. • Issuing (Buyer's) Bank 3. The issuing bank sends the documentary credit to the advising bank named in the credit. 21 Issuance • Advising (Seller's) Bank 4. The advising bank informs (advises) the seller of the documentary credit. 22 Issuance 23 Amendment • When the seller receives the documentary credit it must be examined closely to determine if the terms and conditions (1) reflect the agreement of the buyer and seller, and (2) can be met within the time stipulated. • Upon examination, the seller may find problems. Some examples: 24 Amendment • The seller might disagree with the terms and conditions. For example, the transaction price listed in the credit may be lower than the originally agreed upon price, or perhaps the seller has specified that the total price is to include shipping, whereas the seller originally quoted a price without shipping. • The seller might find himself unable to meet specific requirements of the credit. For example, the time may be too short to effect shipment, or certain documents may not be available. 25 Amendment • If the buyer still wants to proceed with the transaction, but with modification to the terms of the credit, he or she should contact the buyer immediately and request an amendment. • Amendments must be authorized by the buyer and issued by the issuing bank to the seller through the same channel as the original documentary letter of credit. This can be an involved undertaking so any amendments should be initiated only when necessary and as soon as a problem is identified. 26 |