Category Archives: Letter of Credit (LC)

How to Endorse a Negotiable Bill of Lading ?

In the earlier articles we have discussed about documents required under letter of credit (LC) and how to prepare and submit compliant document.

In this article we will discuss about, what is Negotiable Bill of Lading, Why endorsement is required, who should endorse and what are the endorsements required.

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How to Check if Letter of Credit is Workable

In the earlier articles,  we have discussed about LC format MT700, and how to prepare and check documents under LC. This article provides a checklist for exporter after Letter of Credit (LC) is opened before shipment of goods. This will help exporter better understand the details in LC and whether exporter will be able to comply with its terms. If not, exporter should ask to get amendment in relevant clause.

Where ever possible exporter should ask for a draft copy of LC to check terms, so as to avoid amendments after LC is opened.

Exporter should look for below terms/clauses:

  1. Issuing Bank
    • Check name of issuing bank (swift code) and if its a trustworthy bank. How is the experience of others exporters in dealing with this issuing bank.
    • In case of financing requirement, check if exporter’s bank has lines of the issuing bank.
  2. Check all dates in LC
    1. Date of Issue (31C), Date of Expiry (31D) and Latest date of Shipment (44C):
    2. Check if  deadlines mentioned is acceptable. It is advisable to have margin in date of shipment and expiry to avoid requirement of amendment in LC.
    3. Verify the expiry location of the letter of credit. “Field 31D: Date and Place of Expiry” and “Field 41A: Available With … By …”. Both should be preferable in country of exporter.
  3. Presentation Period (48):
    • As per RBI Master Direction “Export of Goods and Services”, exporters are expected to present export documents within 21 days of shipment. Thus LC should preferably mention 21 days.
    • Incase of more than 21 days, banks may handle them  provided they are satisfied with the reasons for the delay. It is advisable to clarify the same with exporter’s bank.
  4. Name and Address of Beneficiary (59) and Applicant (50) are correctly stated.
  5. Description of Goods & Service (45A):
    • Complete description of goods
    • Units and Price
    • Mention of performa invoice or underlying contract should be avoided.
  6. Incoterms (45A):
    • Incoterms and shipment mode must match each other
    • If CIP or CIF incoterm is used, insurance document requirement to be mentioned in 46A.
  7. Insurance (46A)
    • Clause to be covered.
    • Where is the claim payable.
    • Insurance to cover from which point to which point.
  8. Currency and Amount (32B) in Letter of credit should match with sales contract
  9. Negotiation Clause (41A): Is LC restricted or available with any bank? Based on arrangement of exporter with existing bank or negotiating bank, it will help arrange pre shipment &/or post shipment finance.
  10. Payment Terms:
    • Is it available by sight payment, deferred payment, acceptance or negotiation. (41A)
    • Is the tenor stated correctly, number of days from sight or date of invoice, transport document etc. (42C)
  11. Documents Required (46A):
    • List of documents required
    • Number of original and copy required.
    • Type of transport documents required.
    • Type of Insurance documents required.
    • Clause requiring applicant documents : LC should avoid clauses requiring documents that are to be issued, signed or countersigned by the applicant.
    • Beneficiary Certificate: Such clause can be avoided.
  12. Non Documentary Conditions (47A).
    • All documents to require LC number can be avoided.
    • Check if any clause of UCP600 has been excluded or not. If excluded, understand its impact on exporter.
  13. Port of Loading (44E) and Port of Discharge (44F):
    • Advisable to mention Port of loading as Any Port in India (exporter country)
    • Port of discharge is consistent with sales contract.
  14. Letter of Credit Charges (71B):
    • Understand and determine which fees must be paid by the exporter according to the letter of credit conditions.
    • “Courier Fee / Postage Fee”, “Advising Fee”, “Discrepancy Fee”, “Handling Fee / Negotiation Fee”, “Amendment Commission”, “Confirmation Fee”, “Reimbursing Bank Charges”.
  15. Partial Shipments (43P): Whether it is allowed or not and whether the same is as per sales contract
  16. Transhipments (43T):  Preferable, it should be allowed.
  17. Reimbursement Instructions (53A)
  18. Confirmation Status (49): Is it confirmed LC or has an option for adding confirmation and who will bare the cost of the same. This field will have these three options: Confirmed, Without, May Add. If case where the LC is already confirmed where is confirming bank located.

Above is not a comprehensive list. Depending on type of goods exported and countries to which it is exported, requirement of clauses and document may differ.

If you do not understand or have any queries in any of the above clauses or terms, you can get in touch with us.

Reference

  1. RBI Master Direction: Export of Goods and Services

Revised Guidelines for Trade Credit

RBI revised Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 on December 17, 2018 (link in reference). Revision is made to ECB guidelines, Trade Credit, borrowing by banks outside India and others.

This articles covers changes made to Trade Credit guidelines.

Continue reading Revised Guidelines for Trade Credit

Reimbursement Finance (Usance LC Reimbursement at Sight)

Post RBI disallowed LOU and LOC for buyers credit transactions, importers and banks are trying different structures which can assist in  Import finance. Some of these structures are

  1. Suppliers Credit
  2. Buyers Credit Against SBLC (Standby Letter of Credit)
  3. Reimbursement Finance (Usance LC Reimbursement at Sight)

Continue reading Reimbursement Finance (Usance LC Reimbursement at Sight)

How to Prepare and Check Letter of Credit Documents

Purpose of Letter of credit (“LC”) is to give payment security to the beneficiary subject to documents presented under the LC complying with the requirements of the LC.

To check if documents are compliant, banks examine the required documents based on:

  • The terms and conditions of the documentary credit.
  • The applicable rules of UCP 600.
  • The applicable content of ISBP 745.

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Letter of Credit Clauses Related to Suppliers Credit

Supplier’s Credit is a structure of financing Import into India. In this structure, overseas suppliers or financial institutions outside India provide financing to importer on Libor linked rates against Usance letter of credit (LC). Supplier’s credit internationally is also known as Usance Payable at Sight (UPAS) structure.

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Letter of Credit – MT 700 Format

Earlier article “Types of Swift Message used in Letter of Credit and Suppliers Credit” discussed details related to Category 7 message. This article further explore MT700 used for Letter of Credit Issuance. This will help importers understand various fields in MT700, related UCP 600 reference etc.

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Types of SWIFT Message used in Letter of Credit and Suppliers Credit

SWIFT system is used for Bank to Bank communication and Bank to Corporate communication. There are different type of Swift messages format related to specific purpose. This article focuses on Category 7 message.

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Suppliers Credit Process Flow

Supplier’s Credit is a structure of financing Import into India. In this structure, overseas suppliers or financial institutions outside India provide financing to importer on Libor linked rates against Usance letter of credit (LC). Importer and Overseas Bank will have to follow below process

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Buyers Credit for Co Operative Bank Customers

Importers banking with Co operative Bank’s both AD Category and Non AD Category, face issues with arranging buyers credit because

  • In case of AD Category Co operative Bank: Limited Lines in International Market or No Lines
  • Non AD Category Co operative Bank: They cannot deal directly in Import or Export transaction but have to route the transaction through tie up bank.

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Buyers Credit on Jewellery

In earlier articles on Buyers Credit on Import of Gold and Import of Platinum, Palladium, Rhodium, Silver, as stated, Reserve Bank of India (RBI) had permitted banks to approve Suppliers and Buyers Credit (Trade Credit) including the usance period of Letters of Credit for import of rough, cut and polished diamonds, for a period not exceeding 90 days, from the date of shipment.

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Difference between Buyers Credit and Letter of Credit (LC)

1. LC is one of the payment mode used in the International Trade between importer and exporter to cover third-party credit risk. Meaning if the importer defaults, his bank will have to pay on his behalf. Whereas, Buyers credit is a funding mechanism used by importer to funds his transaction. Continue reading Difference between Buyers Credit and Letter of Credit (LC)