|
|
|
|
Standby Letters of Credit A standby letter of credit is used as support where an alternative, less secure, method of payment has been agreed. They are also used in the United States of America in place of bank guarantees. Should the exporter fail to receive payment from the importer he may claim under the standby letter of credit.
Certain documents are likely to be required to obtain payment including: the standby letter of credit itself; a sight draft for the amount due; a copy of the unpaid invoice; proof of dispatch and a signed declaration from the beneficiary stating that payment has not been received by the due date and therefore reimbursement is claimed by letter of credit. The International Chamber of Commerce publishes rules for operating standby letters of credit - ISP98 International Standby Practices. Standby Letter of Credit is an undertaking by the issuing bank to honour claims from the beneficiary if and when the applicant defaults on his obligation arising out of an agreement, contract or commercial transaction entered into by these two parties. So long as the claim is presented by the beneficiary in the manner specified in the Credit instrument the Bank will effect payment to the debit of applicant’s account without enquiring into the nature of default and details of the contractual obligation on the part of the applicant. Where the applicant is not satisfied with the beneficiary’s claim, that has been honoured by the bank, he may institute action against the beneficiary, without involving the Bank Unlike commercial Letter of Credit where the beneficiary makes a claim after performing his obligation in shipping the merchandise, the beneficiary under Standby Letter of Credit makes a claim for the non-fulfillment or performance of the contract by the applicant. It should therefore be appreciated that the purpose and risks attendant to the Standby Letter of Credit are thus different from those of Commercial Letter of Credit. Where possible a separate limit covering the issue of Standby Letter of Credit should be set-up for customers who frequently require such Credits. |
|
|
|
RELATED ARTICLES
Export Bills For Collection Export Bills For Collection is a documentary collection or a clean collection where the seller (drawer) sends through his banker (Remitting Bank) financial and/or commercial documents which represent the underlying goods to the buyer (drawee) through his banker (Collecting Bank) with instructions that the documents be released to the buyer either against payment or acceptance of the bill. Export Bills Negotiation Export bills negotiation is payment (with or without recourse) or acceptance made under documents presented under Documentary Credit subject to Uniform Customs and Practices for Documentary Credits ICC publication No 500 of 1993. Export Bills Purchased Export Bills Purchased is the discounting of a D/P bill (Documents Against Payment) or D/A bill (Documents Against Acceptance) to grant an advance to the customer against export documents. Irrevocable Credit Means the credit cannot be amended or cancelled without the agreement of all parties (the beneficiary, the applicant and the issuing bank). A credit therefore should clearly indicate whether it is revocable or irrevocable. In the absence of such indication, the credit shall be deemed to be irrevocable. An irrevocable letter of credit can neither be amended nor cancelled without the agreement of all parties to the credit. Under UCP500 all letters of credit are deemed to be irrevocable unless otherwise stated. Revocable Credit This type of credit may be amended or cancelled without the beneficiary's consent. Therefore, a revocable letter of credit does not constitute a legally binding undertaking by the issuing bank to make payment. However, the issuing bank must reimburse another bank with which a revocable letter of credit had been made available for sight payment, acceptance or negotiation – for any payment, acceptance or negotiation made by such bank prior to receipt by it of notice of amendment or cancellation.
|
| home | freeware | submit articles |
| created by : www.tonbiz.com(2007) |