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ISSUING OF FINANCIAL GUARANTEES AND INSTRUMENTS
DCs, more commonly known as letters of credit are a widely used method to effect payments in domestic and international trade. A written undertaking is issued by a bank (usually referred to as the issuing bank) on the instructions of the buyer of goods to the seller. The payment is made under conditions stated in the undertaking. Payments are always up to a stated limit and against stipulated documents. The use of a DC provides enough safeguards for the parties involved. The seller is ensured payment, provided he complies with terms he agreed to while the buyer can include all terms and conditions within the DC that satisfy him on the quality and quantity of the goods without having to sight / inspect the goods themselves.
We can help you by issuing a documentary credit on your behalf and only making payment after receipt of titles and other documents that comply fully with the terms of the credit.
You can enjoy:
- Same-day service - documentary credit issued on application date if received before 3:00pm on a working day
- Our special services - we can help you draft documentary credit terms and conditions and fax you a copy of the documentary credit if required on issuance date.
- Online application - you can send a documentary credit application to us by E-mail.
Back-to-back Documentary Credit
If you want to extend the guarantee of your export documentary credit to your supplier, we can help by issuing a Back-to-Back Documentary Credit against your export documentary credit. Once you submit your own draft and invoice, together with the other shipping documents presented by your supplier to secure payment under the export credit, you can quickly receive the export proceeds to pay your supplier and the balance credited to your account.
At PB we offer:
- Professional advice - we will advise you of any hidden problems behind the terms of the master documentary credit and of the ways to mitigate the potential risks
- Expertise service - we will help you tailor the terms of the back-to-back documentary credit to avoid possible documentation risks
Standby Documentary Credit
PB can help to provide payment assurance to your suppliers for open account trade by issuing a standby documentary credit. Your supplier (the beneficiary) can draw under the credit if necessary by simply providing a certificate of statement that a specific agreement has not been complied with.
A standby documentary credit may be used for many purposes, including:
- to cover non-performance or default on a contract
- as a form of guarantee by a parent company for credit facilities given to its subsidiaries
- to support an importer's open account purchases
- to serve as bid or tender bonds
- to cover advance payment of a trade transaction
We can offer you:
- Professional advice - we will give you advice on the risks and liabilities associated with different types of standby documentary credit
- Expertise service - help you design standby documentary credit terms and conditions
PB is pleased to help you with financing no matter what instrument you use - documentary credits (L/C).
We can extend an import loan to you for settlement of a bill drawn under documentary credit or collection. You can pay off the loan at a later date from the sales proceeds of the goods as agreed. There are some criteria and conditions as agreed between PB and the client.
Benefits that you can enjoy with the import loan:
- Flexibility - You may choose to book your loan in foreign or local currency
- Improved cash flows – Helping you expand your business
- Increased negotiation power – Helping you offer better payment terms
- Caring service - We will remind you by mail before maturity and by phone on the due date for arrangement of funds to help you avoid unnecessary overdue payment interest
Documentary Transfer
We will issue a transferred documentary credit on your behalf with terms and conditions that mirror the master documentary credit from your buyer, even you have not arranged any banking facilities with us. You can cover your payment to the supplier after receipts of proceeds under a transferable documentary credit.
PB offers:
- Professional advice from us on the contents of the master documentary credit to mitigate risks
- Expertise handling of substituting documents to avoid documentation risks
- Prompt follow-up actions to ensure accurate distribution of bill proceeds upon payment
Export Financing
PB supports its clients in their export sales by providing both pre-shipment and post-shipment financing.
Pre-Shipment Financing
- Operating Lines of Credit - Depending on the nature of the trade transaction, Exporters can set up special lines of credit with us to cover specific export contracts.
Post-Shipment Financing
PB provides financing for either short and/or medium terms. (i.e. short term financing - under 180 days)
Letter of Credit Confirmations
- If an Exporter is uncomfortable with the risk of the bank and/or country from which a Letter of Credit is issued, we can offer to assume the payment risk by confirming or adding its payment guarantee to the Letter of Credit. When we confirms a Letter of Credit, the Exporter need only be concerned with complying with the terms and conditions of the Letter of Credit since the payment risk is assumed by us.
Letter of Credit Discounting
- Instead of an Exporter waiting until the maturity date of an accepted term Letter of Credit for receipt of funds, we may discount the accepted draft based on prevailing interest rates. This allows the Exporter to receive payment, net of discount charges, as soon as the draft is accepted. In addition to enhancing cash flow, the Exporter usually benefits from the discount rate being less than its own borrowing rate as the discount rate is based on the risk of the accepting bank.
Letter of Credit Refinancing
- While an Exporter usually bears the cost of discounting payments under Letters of Credit, a popular way of shifting such burden to the foreign buyer is through a Letter of Credit payable at sight, where the payment is refinanced over a predetermined period. This provides the Exporter with immediate cash flow together with protection against non-payment at maturity and related political risks, such as non-availability of foreign currency, etc. Our ability to accommodate these types of transactions often clinches the deal for our customer!
Discounting Drafts
- We can arrange to discount drafts drawn on foreign banks so that the Exporter is paid the amount of the draft less the discounting charges upon shipment rather than waiting for the draft to mature. By utilizing its extensive correspondent banking network, we can often provide this export financing option to the Exporter. The process of discounting either drafts or foreign invoices can be tailored to meet a company's export financing needs.
Discounting/Financing of Open Account Receivables
- By financing open account receivables, we facilitates an Exporter's growing, international business which may improve the balance sheet and ease budgetary constraints associated with such growth.
It also helps Exporters meet competitive pressures to provide buyer financing.
Letter of Credit Particulars
Latest Negotiation Date
The latest negotiation date is the last day of the period of time allowed by the letter of credit (L/C) for the presentation of documents and/or draft(s) to the bank. The latest negotiation date is not necessarily the L/C expiry date. In case the L/C does not stipulate the latest negotiation, it is within 21 days after the date of issuance of the transport documents, but on or before the L/C expiry date.
Expiry Date and Place
The expiry date and place is the last day of validity of the credit and the place allowed by the letter of credit (L/C) for the presentation of documents and/or draft(s) for payment, acceptance or negotiation. In case the validity of an L/C is stated in a period of time, for example "this credit is valid for three months" or "this credit is available for two months" or "this credit is good for one month", but does not specify the date from which the time is to run, its validity starts from the issuance date of L/C by the issuing bank. The bank normally discourages stating the L/C validity in a period of time.
In case the expiry date and/or the latest negotiation date falls on a day on which the bank is closed for reasons not including the acts of God, strikes, riots, civil commotions, lockouts, insurrections, wars or any other causes beyond the bank's control, the expiry date and/or the latest negotiation date is extended to the succeeding first day on which the bank is opened. Such extension, however, does not extend the latest date of shipment.
Draft (s) Drawn On
The draft (s) drawn on answers the question "Which bank or who is the drawee (the payer) of the draft?" The draft is most often drawn on the confirming bank or the issuing bank. In some cases, the draft is drawn on the applicant.
Draft (s) Drawn At
The draft(s) drawn at answers the question "The draft is drawn at what terms?" It can be a sight draft (i.e., payment on demand or on presentation) or a term draft (i.e., payment at a fixed or determinable future time).
Draft (s) Drawn Under
The draft (s) drawn under answers the question "The draft is drawn under which credit and the credit is of which bank?"
Latest Shipment
The latest shipment---latest date of shipment or last date for shipment---is the last day of the period of time allowed by the letter of credit (L/C) for shipment, dispatch or taking in charge.
Port or Point of Origin and Port or Point of Destination
The port or point of origin is the port or place of loading, dispatch or taking in charge. The port or point of destination is the port or place of discharge or delivery. Some of the expressions that may appear in the letter of credit (L/C) indicating the origin and the destination are:
1. "shipment from ... to ..."
2. "dispatch from ... to ..."
3. "carriage from ... to ..."
4. "delivery from ... to ..."
5. "forward from ... to ..."
6. "taken in charge at ... for transportation to ..."
In practice, the letter of credit (L/C) often indicates an incorrect port or point of origin in the triangle trade. For example in the triangle trade presentation, the flow chart shows that the third party ships the goods directly to the buyer. It is incorrect if the buyer stipulates in the L/C "shipment from Osaka to New York" or "shipment from Shenzhen to New York". Shenzhen is located inland. Export goods from Shenzhen usually are dispatched from Hong Kong. In such case, the correct stipulation would be "shipment from Hong Kong to New York". To avoid mistake and save the time and cost of a letter of credit amendment, it is important to indicate in the Sales Confirmation (Pro Forma Invoice) the correct port or point of origin and port or point of destination.
Other L/C Particulars
- Confirmed
- Irrevocable
- Transferable
- Paying, Accepting or Negotiating Bank
- Partial Shipment
- Transshipment
- Freight Prepaid
International Commercial Terms (INCOTERMS)
The INCOTERMS (International Commercial Terms) is a universally recognized set of definitions of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance, and other costs and risks. The complete definition of each term is available from the current publication---INCOTERMS 2000.
| International Commercial Terms ( INCOTERMS ) | | GROUP | TERM | STANDS FOR | | E | EXW | Ex Works | | | | F | FCA | Free Carrier | | FAS | Free Alongside Ship | | FOB | Free On Board | | | | C | CFR | Cost and Freight | | CIF | Cost, Insurance and Freight | | CPT | Carriage Paid To | | CIP | Carriage and Insurance Paid To | | | | D | DAF | Delivered At Frontier | | DES | Delivered Ex Ship |
EXW {+ the named place}
Ex Works
Ex means from. Works means factory, mill or warehouse, which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks.
In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee.
In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the termEx Factory, which means the same as Ex Works.
FCA {+ the named point of departure}
Free Carrier
The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.
The term FCA is also used in the RO/RO (roll on/roll off) services.
In the export quotation, indicate the point of departure (loading) after the acronym FCA, for exampleFCA Hong Kong and FCA Seattle. Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.
FAS {+ the named port of origin}
Free Alongside Ship
Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen.
The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.
FOB {+ the named port of origin}
Free On Board
The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight.
In North America, the term FOB has other applications. Many buyers and sellers in Canada and the U.S.A. dealing on the open account and consignment basis are accustomed to using the shipping termsFOB Origin and FOB Destination.
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destinationmeans the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer's premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer's country, depending on the agreement between the buyer and seller.
In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).
CFR {+ the named port of destination}
Cost and Freight
The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written asC&F. Many importers and exporters worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for exampleCFR Karachi and CFR Alexandria.
Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
CIF {+ the named port of destination}
Cost, Insurance and Freight
The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for exampleCIF Pusan and CIF Singapore.
Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight.
CPT {+ the named place of destination}
Carriage Paid To
The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka.
CIP {+ the named place of destination}
Carriage and Insurance Paid To
The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for exampleCIP Paris and CIP Athens.
DAF {+ the named point at frontier}
Delivered At Frontier
The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for exampleDAF Buffalo and DAF Welland.
DES {+ the named port of destination}
Delivered Ex Ship
The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DES, for exampleDES Helsinki and DES Stockholm.
DEQ {+ the named port of destination}
Delivered Ex Quay
The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for exampleDEQ Libreville and DEQ Maputo.
DDU {+ the named point of destination}
Delivered Duty Unpaid The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for exampleDDU La Paz and DDU Ndjamena.
DDP {+ the named point of destination}
Delivered Duty Paid
The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for exampleDDP Bujumbura and DDP Mbabane.
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