Any arrangement, however, named or described,
whereby a bank (issuing bank) acting at the request
and on the instructions of a customer (the applicant) or
on its own behalf:
l makes a payment to a third party (beneficiary) or,
l authorizes another bank to effect such payment or
l authorizes another bank to negotiate
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1Prepared by Nguyen Minh Duc 2009 1
NOTES IN DOCUMENTARY
CREDITS.
Prepared by Nguyen Minh Duc 2009 2
LETTER OF CREDIT
l “Any arrangement, however, named or described,
whereby a bank (issuing bank) acting at the request
and on the instructions of a customer (the applicant) or
on its own behalf:
l makes a payment to a third party (beneficiary) or,
l authorizes another bank to effect such payment or
l authorizes another bank to negotiate
Prepared by Nguyen Minh Duc 2009 3
l facilitate the obtainment of a financial transaction,
give to a concrete transaction an independent
credit support and a payment agreement well
defined.
l satisfy the financial needs of the seller and the
purchaser providing both the solvency of a bank.
l reduce the commercial credit risk, since the
payment is guaranteed by the issuing bank, the
seller is no longer worried by the payment
capacity of the purchaser.
l reduce some political risks but does not eliminate
the same.
ADVANTAGES OF USING THE
DOCUMENTARY CREDITS
2Prepared by Nguyen Minh Duc 2009 4
ADVANTAGES OF USING THE
DOCUMENTARY CREDITS
l open the business universe for sellers and
buyers since the lack of trust between
them could be minimized using the
documentary credits,
l both parts has the security to receive the
payment/goods if they ship the goods &
comply with the terms of the credit.
l guarantee that documents will be
examined by experts
Prepared by Nguyen Minh Duc 2009 5
CREDIT VS. CONTRACTS
l D/C are separate transactions from the sales or
other contracts on which they may be based.
l banks are not concerned with such contracts.
l the undertaking of a bank to fulfill its obligations is
not subject to claims or defenses by the applicant
resulting from his relationship with the issuing
bank or the beneficiary.
l “beneficiary can not avail himself of the
contractual relationships existing between banks
or between applicants and the isuing bank.”
Prepared by Nguyen Minh Duc 2009 6
CREDITS VS.
GOODS/SERVICES/PERFORMANCES
l “in credit operations all parties
concerned deal with documents, and not
with goods, services and/or other
performances to which the documents
may relate”
3Prepared by Nguyen Minh Duc 2009 7
INSTRUCTIONS TO ISSUE/AMEND
CREDITS.
l CHARACTERISTICS:
l shall be complete and precise
l not including excessive detail in the credit or
any amendment
l not referenced to any other credit issued or
amended in the past.
l issuance/amendments must state precisely
the documents against which payment,
acceptance or negotiation is to be made.
Prepared by Nguyen Minh Duc 2009 8
FORM AND NOTIFICATION OF
CREDITS
l Kind of credits:
l revocable
l irrevocable
l “in case of no indication the credit shall
be deemed to be irrevocable”
Prepared by Nguyen Minh Duc 2009 9
ADVISING BANK LIABILITY
l advising bank shall take reasonable care
to check the apparent authenticity of the
credit which advises
l any problem establishing the authenticity
of the credit must be informed to issuing
bank and beneficiary.
4Prepared by Nguyen Minh Duc 2009 10
REVOCABLE CREDITS
l may be amended or cancelled at any
moment and without prior notice to the
beneficiary.
l CONSIDERATIONS
l issuing bank shall reimburse to a third bank
that has paid, negotiate documents prior to
the receipt of the amendment or
cancellation only if documents appear to be
according terms and conditions of the credit.
Prepared by Nguyen Minh Duc 2009 11
LIABILITY OF ISSUING BANK
l IRREVOCABLE: a definite undertaking to.
l pay at sight
l pay at maturity
l an irrevocable letter of credit can be closed only if all the parts
involved agreed to do so.
l issuing bank is bound by any amendment issued by it from the
time of the issuance.
l only if documents are apparently according with the terms
and conditions of the credit
Prepared by Nguyen Minh Duc 2009 12
LIABILITY OF THE CONFIRMING BANK
l CONSIDERATIONS
l confirmation means that confirming bank assume the
risk to pay the credit for account of the issuer bank
l confirming banks are, in most cases, correspondents of
the issuing bank.
l confirming bank should pay the credit to beneficiary with
no delay
l confirms another bank and acts under instructions of the
issuing bank (there could be a third bank acting as
confirming).
l constitutes a definite undertaking in addition to that of
the issuing bank.
5Prepared by Nguyen Minh Duc 2009 13
LIABILITY OF THE CONFIRMING BANK –
CONT.
l The confirming bank must:
l pay at sight.
l pay at maturity of deferrement.
l accept drafts drawn by beneficiary and pay
them at maturity.
l negotiate without recourse to drawers,
drafts drawn by the beneficiary and/or
documents presented under the credit.
Prepared by Nguyen Minh Duc 2009 14
AMENDMENTS TO A DOCUMENTARY CREDIT
l confirming bank shall communicate without
delay to issuing bank about his decision.
l partial acceptance of amendments could be
confirmed are not allowed
l amendments could be rejected by beneficiary,
however, any presentation of documents to
the nominated bank or confirming bank should
be taken as those amendments were
accepted.
Prepared by Nguyen Minh Duc 2009 15
TERMS
l AT SIGHT: payment immediately against documents
acording terms and conditions of the credit.
l DEFERRED PAYMENT: payment on a due date calculated
usually from a shipment date
l ACCEPTANCE: idem as the previous with the inclusion of
a draft issued by beneficiary and accepted by confirming
bank.
l NEGOTIATION: the process of deliver the amount of the
documents to another party.
l MIXED PAYMENT: a mixture of sight with deferred
payment.
l documents must be presented to issuing bank or
confirmation bank or any other nominated bank.
6Prepared by Nguyen Minh Duc 2009 16
LIABILITIES AND RESPONSIBILITITES
l banks must examine all documents with reasonable
care to ascertain that are consistence between each
other and according to D/C terms.
l documents not stipulated in the credit will not be
examined by banks.
l all banks involved shall have each a reasonable time,
not exceeding seven banking days to examine the
documents and determine whether to take up or
refuse the same.
l if there are conditions not related to any document to
be presented, banks will deem such conditions as not
stated and will disregard them.
Prepared by Nguyen Minh Duc 2009 17
DISCREPANCIES IN DOCUMENTS AND NOTICE
l Issuing bank and Confirming bank are bound to:
l reimburse the nominated bank which has paid, incurred a
deferred payment, accepted or negotiated drafts
l take up documents
l only if documents appear to be according to D/C terms.
l banks involved must determine on the basis of the documents
received if the terms and conditions has been complied.
l any refusal of documents must state the discrepancies of
refusal.
l any bank involved shall be entitled to claim from the remitting
bank refund, with interests of any reimbursement which has
been unduely made (seven day term)
Prepared by Nguyen Minh Duc 2009 18
DISCLAIMER ON EFFECTIVENESS OF DOCUMENTS
l the form
l suffiency
l accuracy
l genuineness
l falsification
l legal effect
l general and particular
conditions stipulated in
the documents nor:
l the description
l quantity
l weight
l quality
l condition
l packing
l delivery
l value
l existence of goods
l good faith
l omissions
l solvency
l performance
BANKS ASSUME NO LIABILITY OR RESPONSIBILITY FOR:
7Prepared by Nguyen Minh Duc 2009 19
OTHER DISCLAIMERS (BANKS)
l for consequences arising delay or loss of any message, documents,
letters or any mutilation in the transmission, errors in translation.
l no liability for the interruption of their business activity by Acts of
God, riots, civil conmotions, wars, insurrections or any other causes
beyond their control.
l no liability for the utilization of other banks for the purpose to given
effect to the instructions of the applicant.
l charges are for account of the party who instruct to perform any
services/instructions.
l if there is an instruction to collect charges from any different party
and if charges cannot be collected the instructing party remains
liable for the payment thereof.
l the applicant shall be bound by and liable to indemnify the banks
against obligations and responsibilities imposed by foreign laws and
usages.
Prepared by Nguyen Minh Duc 2009 20
BANK-TO-BANK REIMBURSEMENT ARRANGEMENTS
l reimbursement bank could be another than issuing bank
(mostly).
l reimbursing bank shall pay to claiming bank.
l reimbursement instructions must be issued at the issuance
of the credit.
l issuing bank shall be responsible for any charge if
reimbursing bank does not honor the reimbersement on
first demand.
l reimbursing bank charges should be for account of issuing
bank, however issuing bank must indicate at the issuance
of the credit whom is the part who will pay those charges
Prepared by Nguyen Minh Duc 2009 21
DOCUMENTS
l issuer of documents-ambiguous terms shall not be used (first class,
well known, qualified, independent, official, competent, local).
l to be valid as originals, documents shall be marked as well and
appears to be signed (handwriting, facsimile, perforation, stamp,
symbol or any mechanical or electronic method)
l documents should be considered as copies if are not marked as
original.
l if multiple documents are required: “duplicate, two fold, two copies” the
presentation of one original and the remaining copies will satisfy this
requirement.
l any authentication, validation, legalisation, etc shall be satisfied by any
signature, stamp or label that of its face appears to satisfy this
condition.
l any other document different than the usual (transport documents,
invoices, insurance documents) are required, the credit should stipulate
by whom such documents are to be issued and the data content,
otherwise banks will accept any document that appears to be those
required.
8Prepared by Nguyen Minh Duc 2009 22
BILL OF LADING
l Port to port shipment - banks shall accept a b/l if:
l indicates:
l the name of the carrier and is signed or otherwise authenticated
l that the goods have been loaded on board or shipped on a
named vessel (pre printed wording).
l the port of loading and the port of discharge stipulated in the
credit.
l consists of a sole original bill of lading or the full set issued.
l appears to contain all the terms and conditions of carriage.
l contains no indication that is subject to a charter party and/or
no indication that the carrying vesse is propelled by sail only.
l in all other respects meets the stipulations of the credit.
Prepared by Nguyen Minh Duc 2009 23
BILL OF LADING-CONT.
l transhipment: means unloading and reloading from
one vessel to another vessel during the course of
ocean carriage.
l unless is prohibited by the terms of the credit, banks
will accept a B/L which indicates that the goods will be
transhipped, provided that the entire ocean carriage is
covered by one and the same B/L.
l if transhipments are prohibits, banks will accept a B/l
which indicates that transhipment will take place as
long as the relevant cargo is shipped in containers,
trailers and or lash barges as evidenced by the B/L
provided that the entire ocean carriage is covered by
one and the same B/L or incorporates clauses stating
that the carrier reserves the right to tranship.
Prepared by Nguyen Minh Duc 2009 24
NON NEGOTIABLE SEA WAYBILL
l Banks will accept: a document which indicates
l the name of the carrier or have been signed or authenticated
l that the goods have been loaded on board, or shipped on a named
vessel
l the port of loading and the port of discharge stipulated in the credit.
l even if the place of taking in charge different from the port of loading and
final destination different from the port of discharge.
l consists of a sole original bill of lading or the full set issued.
l appears to contain all the terms and conditions of carriage.
l contains no indication that is subject to a charter party and/or no
indication that the carrying vesse is propelled by sail only.
l in all other respects meets the stipulations of the credit.
9Prepared by Nguyen Minh Duc 2009 25
MULTIMODAL TRANSPORT DOCUMENT
l A multimodal transport document shall cover at least two
different modes of transport, banks will accept a document
which indicates:
l the name of the carrier or have been signed or
authenticated
l that the goods have been dispathced, taken in charge or
loaded on board
l the place of taking in charge and place of final destination
stipulated in the credit, which may be different from the
place of loading and the place of final destination.
l consists of a sole original bill of lading or the full set issued.
l appears to contain all the terms and conditions of carriage.
l contains no indication that is subject to a charter party
and/or no indication that the carrying vesse is propelled by
sail only.
l in all other respects meets the stipulations of the credit.
Prepared by Nguyen Minh Duc 2009 26
AIR TRANSPORT DOCUMENT
l Banks will accept any document which indicates:
l the name of the carrier or have been signed or authenticated
l that the goods have been accepted for carriage.
l where the credit calls for an actual date of dispatch, indicates a
specific notation of such date, the date of dispatch so indicated on
the air transport document will be deemed to be the date of
shipment.
l indicates the airport of departure and the airport of destination
stipulated in the credit.
l appears to be the original for consignor/shipper even if the credit
stipulates a full set of originals or similar expresions.
l appears to contain all the terms and conditions of carriage.
l in all other respects meets the stipulations of the credit.
l even if the credit prohibits transhipment, banks will accept an air
transport document which indicates that trnashipment will or may
take place, provided that the entire carriage is covered by one and
the same transport document.
Prepared by Nguyen Minh Duc 2009 27
ROAD, RAIL OR INLAND WATERWAY TRANSPORT DOCUMENTS
l WHEN THE CREDIT NEED TO BE PRESENTED ANY ROAD,
RAIL, INLAND WATERWAY TRANSPORT DOCUMENT, IF ITS
NOT OTHERWISE STIPULATED IN THE CREDIT ACCEPT
ANY DOCUMENT WHICH:
l APPEARS TO INDICATE THE NAME OF THE CARRIER AND
HAVE BEEN SIGNED OR AUTHENTICATED.
l INDICATES THAT THE GOODS HAVE BEEN RECEIVED FOR
SHIPMENT, DISPATCH OR CARRIAGE OR WORDING TO THIS
EFFECT
l INDICATES THE PLACE OF SHIPMENT AND THE PLACE OF
DESTINATION STIPULATED IN THE CREDIT
l IN OTHER RESPECTS MEETS THE STIPULATIONS OF THE
CREDIT.
l IF TRANSHIPMENTS ARE NOT ALLOWED IN THE CREDIT, THE
BANKS WILL ACCEPT A DOCUMENT WHICH INDICATES THAT
TRANSHIPMENT MAY TAKE PLACE ONLY IF THE ENTIRE
CARRIAGE IS COVERED BY ONE AND THE SAME TRANSPORT
DOCUMENT AND WITHIN THE SAME MODE OF TRANSPORT.
10
Prepared by Nguyen Minh Duc 2009 28
COURIER AND POSTAL RECEIPTS
l BANKS WILL ACCEPT ANY DOCUMENT WHICH
l APPEARS TO HAVE BEEN STAMPED OR OTHERWISE
AUTHENTICATED AND DATED IN THE PLACE FROM WHICH IS
STIPULATED THE GOODS ARE TO BE SHIPPED.
l IN ALL OTHER RESPECTS MEETS THE STIPULATIONS OF THE
CREDIT.
l IF A COURIER DELIVERY PROOF IS NEEDED, BANKS WILL
ACCEPT A DOCUMENT THAT APPEARS TO INDICATE THE
NAME OF THE COURIER SERVICE AND APPEARS TO HAVE
BEEN STAMPED, SIGNED OR OTHERWISE AUTHENTICATED BY
SUCH NAMED COURIER.
l INDICATES THE DATE OF PICK-UP OR OF RECEIPT OR
WORDING.
l IN ALL OTHER RESPECTS MEETS THE STIPULATIONS OF THE
CREDIT
Prepared by Nguyen Minh Duc 2009 29
TRANSPORT DOCUMENTS ISSUED BY
FREIGHT FORWARDERS
l Banks will accept any document which:
l indicates the name of the freight forwarder
as carrier or multimodal transport operator
l signed or otherwise authenticated by the
freight forwarder
Prepared by Nguyen Minh Duc 2009 30
CLEAN TRANSPORT DOCUMENTS
l the clean transport documents are those who does not
have any notation which declares any defective
condition on the goods and or the packaging.
l banks will reject any transport document if such
clauses appears in the document unless the credit
allowed specific clauses that must be stated at the
issuance of the credit.
11
Prepared by Nguyen Minh Duc 2009 31
FREIGHT PAYABLE / PREPAID
TRANSPORT
l banks will accept documents where the freight have
still to be paid, unless other instruction in the text of
the credit.
l if the credit states that the freight should be prepaid,
banks will accept any document that is clearly marked
as “prepaid” or this payment is marked in any way, or
when its mentioned than the payment of freight is for
any other party different than the consignee.
l “freight prepayable” or “freight to be prepaid” does not
means that the freight has been prepaid.
l banks will accept transport documents bearing
reference by stamp or otherwise to costs additional to
the freight unless otherwise stated in the credit
Prepared by Nguyen Minh Duc 2009 32
INSURANCE DOCUMENTS
l Insurance documents must:
l Appear to be issued and signed by insurance companies or underwriters
or their agents.
l all the originals must be presented unless otherwise authorised in the
credit.
l a insurance policy could be accepted instead of a declaration under an
open cover pre-signed by insurance companies or their agents.
l not be issued after the shipment date, unless a notation when the cover
date is effective at the latest from the date of loading on board or
dispatch or taking in charge of the goods.
l be issued in the same currency as the credit.
l cover the 110 % of the cif / cip value, if its not possible to determine such
value in documents the insured amount shall be the 110% of the invoice
value or the amount negotiated under the credit or whichever is the
greater.
l cover notes issued by brokers will not be accepted, unless authorised in the
credit.
Prepared by Nguyen Minh Duc 2009 33
TYPE OF INSURANCE COVER
l should be stipulated in the text of the credit (precisely),
“usual risks” or “customary risks” shall not be issued,
l banks will accept insurance documents as presented
without responsibility for any risks not being covered.
l missing instructions regarding the insurance will allow
banks to accept documents as presented.
l indications in insurance documents related that the cover is
subject to a franchise or a deductible should be accepted
by banks
l “all risks” insurance cover
l if its stipulated “insurance against all risks” the notation
of any “all risks” clause shall be comply with this
requirement.
12
Prepared by Nguyen Minh Duc 2009 34
COMMERCIAL INVOICES
l This document must:
l appear to be issued by the beneficiary named in the
credit, except if the credit is transferable.
l be made out in the name of the applicant, except if the
credit is transferable in which case the first beneficiary
can subtitute the name of the applicant.
l have the identical description of the goods as stated in
the credit.
l need not to be signed
l banks may refuse invoices issued for amounts in excess of
the permitted in the credit, the payment could be done up to
the amount permitted by the credit.
Prepared by Nguyen Minh Duc 2009 35
NOTES REGARDING EXPIRATION DATES AND
PLACES FOR PRESENTATION OF DOCUMENTS
l all credits must stipulate the expiration
date and place where the documents
must be presented.
l documents shall be presented on or
before of the expiration date stated in the
credit.
Prepared by Nguyen Minh Duc 2009 36
LIMITATION OF THE EXPIRATION DATE
l if a transport documents is required