The “Rules and Uniform Practices for Documentary Credits” (Revised 2007 – Publication No. 600 of the International Chamber of Commerce), appears in art. 2 explain”
Advising Bank: means the bank that informs the creditor at the request of the issuing bank.
Originator: means the party to whom the credit is granted.
Beneficiary: means the party to whom the credit is granted.
Presentation of compliance: means presentation that is in accordance with the terms and conditions of the credit, with the relevant provisions of these regulations and with standard international banking practice.
Confirmation: means a firm commitment by the confirming bank, as well as the issuing bank, to honor a compliance demonstration or negotiation.
Confirming Bank: means the bank that sends its confirmation of credit, with the permission or at the request of the issuing bank.
Credit: means any agreement, however named or described, that is irrevocable and constitutes a firm commitment by the issuing bank to honor show compliance.
Issuing Bank: means the bank that grants credit at the request of an originator or on its own account.
Negotiation: means the purchase by the designated bank of drafts – drawn on a bank other than the designated bank – and/or documents under cover of a presentation of compliance, expecting or agreeing to advance funds to the person -benefit on or before the bank’s business day. on which the designated bank must be reimbursed.
Nominated Bank: means the bank with which the credit is available or any bank in respect of credit available with any bank.
Presentation: means both delivery to the issuing bank or to the designated bank under documentary credit protection, with the documents themselves delivered.
Presenter: means a beneficiary, bank or other party making a presentation.
So CONFIRM: It is an instrument through which a bank – the issuer or opener -, acting on behalf and order of a client – the importer -, undertakes or requests payment or pay, through another bank – the correspondent or payee -, to its beneficiary – the exporter -, the amount specified therein, when that beneficiary delivers the documents, subject to its terms and conditions.
INTERPRETATION COMMUNICATION:
Computer or Command
It is the importer or the client, who, when he submits the request to open the documentary credit to the issuing or opening bank, initiates the activity.
Issuing or Opening Bank
It is the bank in which the importer submits the application to open credit. By granting the opening of the same, this bank becomes jointly liable with the importer in favor of the beneficiary/exporter, to pay the amount specified in the credit .
Bank of correspondent or payee
Located in Plaza del Exportador. He notifies/notifies the beneficiary/exporter of the credit, and can also be a certifier, adjuster, receiver, caller, payer.
Beneficiary / Exporter
He is the one who receives the amount of the credit, for that situation he must fulfill what is specified in it.
THE PARADISE METHOD:
At Sight: The credit is collected when the shipping documents are presented by the exporter/beneficiary, once they have been reviewed and approved by the bank – negotiating bank , payer or the issuing bank.
Acknowledgment: It is a credit that has been accumulated over time. The shipping documents are accompanied by one or more bills of exchange, acceptable to the bank, in which case that bank becomes the accepting bank.
Negotiable: It is a credit obtained in a term, similar to the term of acceptance, by which the beneficiary / exporter, with the bill(s) of exchange, can accept and discount the aforesaid bill(s) of exchange, that is, the beneficiary/exporter has the power to collect before maturity. Interest on the aforementioned financing advance is usually charged to the importer.
Deferred: The credit is collected in installments. No exchange account is provided. The beneficiary/exporter has to wait for it to be collected.
SPIRITUAL BELIEFS:
Red Clause Loans – Red Clause Loan –
The red clause instruction can be in a documentary credit, which gives the beneficiary / exporter the right to receive payment in advance, when it is simply received with the confirmation of the guarantee of the documents indicated in the show credit. For this advance, the beneficiary may not be any guarantor for the issuing, certifying, paying or arbitrator bank. This particular type of documentary credit can be established with and without reimbursement.
Red Clause without refund: the bank that issues, confirms or designates money on to the beneficiary, carries out the operation at its own risk.
Red clause with reimbursement: the bank that makes the advance has the right to refund money from the issuing bank, and this, in turn, from the payer. The credit risk is assumed by the issuing bank or the ordering party, and not by the designated or paying bank.
Credits with Green LIST – Green Clause Credit –
EThe green clause credit allows the beneficiary to collect the amount in advance. It must be a real guarantee for the certifying, paying or negotiating bank, which consists of a certificate of deposit of the goods to be shipped, in a warehouse or warehouse.
Cash advances in Red Clause and Green Clause are funds towards the exporter/beneficiary. This activity involves higher costs for the importer, which is why, in this sense, these types of credit are unusual.
BACK TO BELIEVE
The beneficiary of the credit is not the producer/manufacturer himself, and the credit cannot be transferred. The beneficiary can take this credit as collateral to open a second credit, that is, a second beneficiary.
The second credit, which is guaranteed by the first credit, has the same features and conditions. There will be two credits, one issued by the issuing bank, and the other backed by the previous one. This operation is complex and high risk for banks, which is why its use is not common.
The bank that issues the second credit does not have to be the bank that notified the credit, or the verifier.
The documents presented in the second credit are considered invalid, depending on the validity of the first credit. In this special type of credit, the beneficiary of the original credit becomes the originator of the second credit -back to back credit-, likewise the difference is due to documents sent by the instead, the difference in values is calculated at commission or profit. the intermediary – the beneficiary of the original credit.
REVISION CREDIT – Credit changes –
The credit is opened for a specific amount that will be used for a specific term, and will be renewed automatically once the beneficiary has used it, with presentation of the corresponding and compliance documents.
From an operational point of view, it is similar to a divisive credit. It has the advantage of lower costs by not having to perform multiple separate credit openings for each shipment.
Example: a recurring documentary credit is opened, monthly quota US $ 100,000, valid for 6 (six) months, a total of US $ 600,000. It means that the beneficiary will be able to send up to US $ 100,000 per month for 6 consecutive months.
The credit can be worked in two ways:
cumulative: The unused amount due to a lower amount in the load is accumulated for the next load. Assuming that the monthly load is US$ 85,000, the unused balance, that is, US$ 15,000, can be added to the margin of US$ 100,000 in the next month.
Uncollectible: The amount not used in a load is lost, therefore, it cannot be collected in the next load. Taking the same example as in the cumulative case, the unused margin is lost, that is, US$15,000.
The opening of this type of credit is considered for large orders and shipments will be extended over time, for example large grains.
A cumulative distribution credit is recommended, as the exporter considers that there is no guarantee that he will meet the amount on the scheduled dates, to compensate in the next shipment on the margin that to come from the previous shipment. The issuing bank can cancel the credit when the importer does not pay on one of the shipments.
All revolving credits are cumulative, so a non-cumulative credit must be shown when you open the credit.
FAITH AGREEMENTS
In the operation of International Banking, Credit Agreements provide financing for imports or exports that are managed between banks in different countries, which is why it generally gives into sales – exports – capital goods, which in principle will promote the sale of these manufactured goods in the exporting country.
CREDIT PURCHASE
Buyer’s credit finances the purchase of capital goods and equipment in the medium and long term.
European Union countries – for example: Germany, Spain, France, Italy – usually provide this type of financing, due to the sale of machinery and manufacturing equipment in these countries, considered as incentive for the exportation of the aforementioned. inheritance The US and Japan are also mentioned.
To access this financing, the importing bank must have signed a special agreement with the exporting bank.
Since it is a financing of two years or more, it is necessary to cover commercial risks and political and extraordinary risks, which is why it is specified to provide credit. Financing is very beneficial to the importer by offering monthly, bi-monthly, quarterly and semi-annual installment payments, with a low interest rate, and in the case of capital goods it is understood by extending over over the useful life of the good, it is as if its use were amortized.
A Buyer’s Credit Agreement requires prior consultation with the bank where the buyer/importer works, indicating the capital asset or machinery, value and country of origin of the product and the bank where the person is -make/export works.
Lic
Teacher/counselor – International trade – international banking – Was an officer of the bank of the province of Buenos Aires
2024-12-01 23:00:00
#Documentary #credit #Financing #instrument #Lic
This text provides a comprehensive overview of various types of documentary credits used in international trade.Here’s a breakdown of the key concepts and examples provided:
**Types of Documentary credits:**
* **Sight Credits:** Payments are made immediately upon presentation of the required documents. (Similar to cash on delivery.)
* **Deferred Payment Credits:** Payments are made at a specific future date, regardless of whether the goods have been delivered.
**Advance Payment Options:**
* **Red Clause Loan:** Allows the beneficiary (exporter) to receive a portion or all of the credit amount in advance, usually secured by a deposit of the goods.
* **Red Clause without Reimbursement:** The issuing bank assumes the risk of the advance.
* **Red Clause with Reimbursement:** The issuing bank is reimbursed by the importer’s bank.
* **Green Clause credit:** Similar to a Red Clause loan but secured by a deposit of the goods in a warehouse, providing extra security for the bank.
**Other Credit Structures:**
* **Back-to-Back Credit (Double Credit):** A second credit is issued based on the security of a primary credit.
* The beneficiary of the original credit becomes the applicant for the second credit.
* Frequently enough used for complex supply chains where multiple parties are involved.
* **Revolving Credit:**
* Primarily used for ongoing or recurring transactions.
* Allows for multiple shipments (draws) up to a predetermined limit within a specific timeframe.
* Can be either “cumulative” (unused amounts roll over) or “non-cumulative.”
**Key Points to Remember:**
* **importers and exporters:** Each party has specific roles and responsibilities within a documentary credit transaction.
* **Banks:** Banks play a crucial role in facilitating these transactions,issuing,confirming,advising,and paying credits.
* **Documentation:** Accurate paperwork is essential to ensure the smooth processing of payments.
]**Disclaimer:**
This facts is for general knowledge purposes onyl and should not be considered professional financial advice. Consult with trade finance experts before making any decisions related to documentary credits.
