Upload
ngothien
View
234
Download
5
Embed Size (px)
Citation preview
Bank of america merrill lynch SolutionS for importerS 11B a n k o f a m e ri c a m e rri l l ly n c h S o l u t i o n S f o r e x p o r t e rS
Bank of America Solutions for ImportersAn Importer’s Guide to Global Trade Services
2Bank of america merrill lynch SolutionS for importerS
An Importer’s Guide to Global Trade Services
2 Introduction to Global Trade Services2 Overview of Trade Services
3 Understanding Your Payment Options
5 Trade Solutions
9 Risks
15 Working With Your Bank16 Services to meet the diverse needs of the importer
22 Import LCs Defined27 Frequently Asked Questions
29 Parties and Roles in Commercial LC Transactions
30 Mitigating the Risk of Fraud in the Trade Arena
31 AML Policies and Office of Foreign Assets Control (OFAC) Compliance at Bank of America Merrill Lynch
33 20 Most Important Characteristics of an Import LC
34 Understand and Control Your Import LCs
35 Opening a Commercial LC
42 Understanding the commercial LC application
45 A Discussion of UCP 600
55 S.W.I.F.T. Samples and Comments on Specific Fields
57 Comments on Specific Fields in Preceding Sample
62 Purchase Order-to-Pay Service
66 A Closer Look at Letter of Credit Documents66 What are some of the typical documents required in an LC?
78 Frequently Asked Questions
79 A Discussion of ISBP for the Examination of Documents under Documentary Credits
81 Documentary Collection for Importers84 Cash Flow
01
02
03
04
05
06
Table of Contents
3Bank of america merrill lynch SolutionS for importerS
The material presented in this guide is for informational purposes only, and is not intended as an exhaustive treatise on international banking, nor is it intended to explore all the possible risks involved in using import letters of credit or other services mentioned.
Table of Contents
88 Bankers’ Acceptances Under Import LCs 91 Bankers’ Acceptance Cash Flow
93 Obtaining Your Merchandise
95 Incoterms—International Shipping/Trade Terms
100 Standby LCs and Special Purpose LCs 100 Standby LCs
103 Special Purpose LCs
106 International Cash Management and Foreign Exchange Services106 International Treasury Management Services
109 Foreign Exchange Services
110 CashPro FX
111 Seminars and Workshops
112 Accounting Considerations
114 International Trade Glossary120 Table of Weights and Measures
07
08
09
10
11
12
Bank of america merrill lynch SolutionS for importerS
Chapter 01Introduction to Global Trade Services
Bank of america merrill lynch SolutionS for importerS 2
Overview of Trade ServicesWhat do we mean by trade services? Trade is a broad term covering a variety of transactions linked to the export and import of goods. Traditional trade
services include letters of credit (LCs), international collections and bankers’ acceptances.
What is the history of trade? The economic history of man has led us from self-sufficiency to division of labor, from provision of bare necessities
to satisfaction of sophisticated needs. The primitive caveman attended only to his own needs, but civilization soon
progressed to a stage in which each individual specialized in what he could do best and exchanged his surplus output
for that of his neighbor. This was the beginning of trade.
When small city-states developed into nations, the need for trade increased. No nation could supply all of its needs
with its own resources. Consequently, these small city-states had to begin trading with one another. What may
have started as barter led to the development of currency, silver and gold coins, and eventually to paper notes and
negotiable instruments such as LCs.
As far back as the fifteenth century B.C., Phoenician traders carried LCs to foreign ports in the form of clay tablets,
stamped with the seals of prominent merchants. During the Middle Ages, LCs were written on sheepskins and used
extensively by traders such as Marco Polo.
Today business is conducted not only domestically but also abroad. As the search for new markets and lower cost
labor has led to international commerce, so it has led to finding alternative ways to do financial business overseas.
The buyers and sellers in international trade are confronted with diverse geographic, social, economic and political
conditions. The dynamic interplay of these forces requires the trading partners to assess the risks of the transaction
and to decide how the risks may be reduced or eliminated.
What is the primary role of a bank in international trade? The primary role of a bank is to provide risk reduction alternatives to both the buyer and the seller. This booklet will
attempt to examine the many facets of international trade from an importer’s, or buyer’s, point of view.
What happens in a trade transaction? A seller approaches or is approached by a potential buyer. Trade transactions begin with the negotiation of a contract
between a buyer and a seller and end with the exchange of goods or services for monetary payment.
Why do you need Bank of America Merrill Lynch Global Trade Services? As noted above, trade can be domestic or international. Clients utilize Bank of America Merrill Lynch Global Trade
Services specifically to overcome the risks of doing business abroad, where the cultures, regulations and payment
conventions may differ significantly from those in the United States. In the United States, you could potentially perform
your own analysis on your potential sellers and, with a sense of security, close a deal. In this case, your bank would
get involved only in the collection and/or disbursement of funds. Overseas, you need greater protection when dealing
with sellers who are less well known and where you could potentially have limited legal ability to collect for any loss
Chapter 01
Introduction to Global Trade Services
Bank of america merrill lynch SolutionS for importerS 3
Chapter 01
Introduction to Global Trade Services
suffered. Hence, a bank provides upfront financial protection in the form of LCs, as well as offers guidance and
support in the use of other forms of payment.
Bank of America Merrill Lynch works to provide value-added world-class business services. We provide a consultative
approach to trade services in which our clients draw from the solid base of experience and expertise of a dedicated
staff eager to propose new ideas. .
Understanding Your Payment OptionsHow will you pay for your shipment?Nations, companies and individuals have engaged in trade for centuries and, from the beginning, have searched for
the best means of securing payment. Today, an importer has four basic alternatives for providing payment to sellers of
imported goods. Each method addresses certain levels of risk for the buyer and the seller.
Open Account:� The seller ships the goods in advance of payment or according to the negotiated terms. In this
instance, the seller relies on the buyer’s good faith that the payment will be made after he has received the goods.
Traditionally, if open account or cash in advance are agreed upon as the payment method, documentation covering the
shipment of merchandise is handled outside of banking channels. The banking system at one time was only involved in
the remittance of funds.
Banks are now involved in the facilitation of open account payments, using varying degrees of conditional checking
of original purchase orders against invoices. Bank of America Merrill Lynch offers a Purchase Order-to-Pay service,
with three levels of data matching. Please see Chapter 4 of this guide for details. If payment is to be made using a
collection or LC, a bank normally adds its service and documentary expertise on behalf of either the buyer, the seller
or both. In all cases, the actual movement of funds is done via one of our traditional cash management products such
as direct debit or credit to an account, wire transfer or check.
Collection:� There are two types of Collections: clean and documentary.
•Clean:� A clean collection refers to the absence of supporting documentation. A check or a draft is presented for
payment under a clean collection.
– Check:� Payment by check is typical for domestic open account transactions, but less appropriate for
international transactions. In an international transaction, overseas sellers must give checks to their banks for
collection and conversion to their home currency, a process that can take three to six weeks. A more satisfactory
method therefore is the wire transfer; buyers instruct their banks to arrange for the seller’s bank account to be
credited directly.
– Draft:� A draft is an instrument much like an ordinary check in appearance which, in this circumstance, is used as
a formal demand for payment. It is also known as a bill of exchange.
•Documentary:� A documentary collection provides a buyer and seller with a measure of protection whereby a
bank intermediates to exchange payment for documents of title to the goods. The collecting bank releases the
documents, which normally allows the buyer to take delivery of the goods. The bank then either wires the buyer’s
payment to the remitting/seller’s bank for credit to the seller’s account or creates an acceptance (please refer
to Chapter 7 for an explanation of acceptances) covering the transaction. There are two forms of documentary
collections: regular and direct.
– Regular:� After making a shipment, sellers present the shipping documents to their banks, who in turn send them
to the buyers’ banks for payment or acceptance.
Bank of america merrill lynch SolutionS for importerS 4
Chapter 01
Introduction to Global Trade Services
– Direct:� The sellers/exporters deliver the documents with a collection letter to the foreign collecting banks
themselves and send copies of the collection letter to their banks for follow-up (tracing and payment
settlement). The collection letter or form is provided to the seller by the seller’s bank and bears the seller’s
bank letterhead and the collection reference number.
LC:� This is a trade finance instrument issued by a buyer’s bank in favor of a beneficiary/ seller, which substitutes
the bank’s credit-worthiness for that of the buyer. In a narrow sense, it is a specialized instrument used to guarantee
payment for a shipment of goods or services from one party to another. An LC is payable against conforming
documents.
Cash in Advance:� The buyer pays in advance of shipment of goods or according to the terms, such as cash on
delivery. As an importer, you most likely will not agree to this option, as you will be out the cash before receipt of the
goods.
What types of agreements are made between the buyer and the seller?The sales contract is an agreement between the buyer and the seller in which the various terms, conditions and
details of the transaction are specified. Given the complexities of international trade, it is important that the sales
contract state, in terms clear to all parties, the requirements involved in the transaction.
In the simplest form, the sales contract is an accepted order to buy or offer to sell that arises from correspondence
between the buyer and seller. The agreement may be made verbally or in writing. The buyer may initiate the
correspondence by inquiring as to the price and terms of sale for specific merchandise or by simply placing an order
for the merchandise when the price and terms have previously been established.
The sales contract has four main components:
•Description of the goods
•Price
•Method of payment
• Timing of delivery
Although contracts can be verbal, it is highly recommended that they be formalized in writing in all situations. The
sales contract should clearly specify the documents required for any international transaction. The LC must specify
the documents required for payment under the LC. The seller is responsible for the production and/or procurement of
all documents. Documents required under LCs will be more thoroughly discussed in Chapter 5.
A purchase order is a common vehicle that the buyer uses to place an order for merchandise or services when the
price and terms have previously been established. Unlike a sales contract, it should always be submitted by the
importer or buyer. A purchase order should itemize in precise detail the description of the goods, quantity ordered
with unit description and delivery instructions for each item.
If a purchase order is referred to within the merchandise description of an LC, this can help make the seller
responsible for providing merchandise according to the submitted purchase order. The seller can also be required
to state that merchandise is in accordance with the buyer’s purchase order when submitting documents, thereby
making the seller responsible for the fulfillment of the purchase order. A purchase order can also be used without
an LC for an open account payment. As you will see in Chapter 4 of this guide, Bank of America Merrill Lynch now
provides an electronic solution for importers who wish to utilize open account payments but want the assurance of
“conditions matching” against their purchase order prior to payment.
Bank of america merrill lynch SolutionS for importerS 5
Chapter 01
Introduction to Global Trade Services
How does Bank of America Merrill Lynch support its Global Trade Services clients? Bank of America Merrill Lynch is able to act on many fronts for our clients.
•We act as financial service consultants.
•We provide import and export financial services to our clients.
•We act on clients’ behalf both domestically and overseas via our global branch network.
•We provide various credit services to support clients’ import/export needs.
•We provide economic analyses and forecasts about various countries around the world.
•We listen to our clients’ needs for new technology that will keep them competitive in the world marketplace, and
then we put our experts to work on solutions that meet their needs.
Trade Solutions What international trade services are available with Bank of America Merrill Lynch? As a truly global organization, Bank of America Merrill Lynch is uniquely positioned with trade services and expertise to
serve clients’ needs in markets worldwide to help them seize international opportunities wherever they arise.
Our services range from trade services and lending to liquidity management, payment services, structured trade
finance and foreign exchange services. We deliver what clients’ organizations need to succeed in international
business by offering innovative, tailored solutions, a wealth of trade expertise, the latest in technology and a network
of offices around the world.
With more than 1,000 trade specialists in over 50 offices worldwide and an extensive international correspondent
bank network, we can provide the global reach and regional expertise to help you accomplish your trade goals.
Bank of America Merrill Lynch finances international trade through bankers’ acceptances as well as several types of
LCs. We also offer various open account, collections and reimbursement services.
Open account services As you’ll learn in Chapter 4 of this guide, Bank of America Merrill Lynch and other international banks have been
involved in open account services for years, but at Bank of America Merrill Lynch we’ve recently added an electronic
engine to the process on our TradePro® platform, providing initiation and reporting on open account payments as well.
Additionally, Bank of America Merrill Lynch specialists route international payments as quickly as possible to their
final destination, often by simply crediting one of the many accounts our correspondents keep with us. When you need
documentation sent with your payment, or your supplier prefers checks, our foreign draft service allows you to draw a
check on a local bank in multiple currencies. Our foreign exchange services provide comprehensive foreign currency
payment services, and the ability to purchase competitively-priced spot and forward contracts for payments on import
transactions. Please refer to Chapter 11 of this guide for more information on foreign exchange and international cash
management services offered by Bank of America Merrill Lynch.
Bankers’ acceptances A bankers’ acceptance is a negotiable instrument that is drawn on, and accepted by, a bank to finance a trade-related
transaction. It is often a relatively inexpensive way to finance trade transactions.
Bankers’ acceptances are versatile and can be used for several purposes: acceptances can cover both documentary
LCs (Documentary BAs) and open account transactions (Clean BAs). They can finance imports, exports, and domestic
transactions.
Acceptances offer a source of funds at competitive rates since banks are not required to provide reserves for financing
such transactions. Acceptances are very liquid—they can readily be sold in secondary markets.
Bank of america merrill lynch SolutionS for importerS 6
Chapter 01
Introduction to Global Trade Services
•Non-Discounted Bankers’ Acceptances:� Bank of America Merrill Lynch either creates and accepts or accepts
a time draft drawn on us that relates to a specific financial transaction in which our client is involved. We are
obligated to pay the specified amount on the maturity date of the draft. Our obligation for payment to any holder of
the draft at maturity date is unconditional, independent of the underlying financial transaction.
•Discounted Bankers’ Acceptances:� Bank of America Merrill Lynch creates or accepts, and discounts, a time draft
drawn on us that relates to a specific financial transaction in which our client is involved. The drawer is paid at the
time of acceptance of the draft, less fees and discount charges. The discount rate applied is based on the market
rate that investors in the secondary market are paying for drafts of various tenors and amounts; this rate fluctuates
daily. In recent years the cost of financing on an acceptance basis has generally been lower than prime-rate-based
lending.
LCsAn LC is an instrument issued by a bank by which the bank substitutes its obligation to pay the seller for the obligation
of the buyer, on specified terms. LCs have many variations.
•Standby LCs:� “Standby LC” is a term used for the type of LC that functions like a guarantee. Standby LCs usually
provide a type of monetary assurance to compensate a beneficiary in the event of noncompliance by the applicant
with the terms of a contract. They are often used instead of cash deposits or as performance or bid bonds in
international and domestic transactions. Like other LCs, standby LCs provide a bank’s name and credit support for
a specific transaction. In a standby LC, the beneficiary looks first to the account party for payment before seeking
payment from the bank. Standby LCs can cover either financial, performance or trade-related transactions.
•Financial standby LCs:� We issue a standby LC for our client or add our confirmation to a standby LC issued by
a correspondent bank. Financial obligations involve repayment of funds borrowed or advanced in the event the
applicant fails to do so. In effect, we substitute our own credit standing for that of our client (or our correspondent
bank) and provide additional assurance that payment will be made in the event of default.
•Performance standby LCs In this type of obligation, we provide assurances of compensatory payment to the
beneficiary in the event that the applicant does not perform the contractual agreement the applicant has entered
into with the beneficiary. We add our credit standing to that of our client (or our correspondent bank) and provide
additional assurance that payment will be made in the event of default under bid bonds or performance bonds.
•Commercial LCs:� Commercial LCs involve payment in exchange for compliant documents required under an
LC, relative to goods shipped or services performed. The beneficiary obtains payment from the issuing bank or
confirming bank (if any). Import and export LCs are types of commercial LCs.
• Import LCs:� We issue a new documentary LC for our client. By doing so, we substitute our own credit standing for
that of the buyer and provide additional assurance that payment will be made to the seller if terms and conditions
of the LC have been fulfilled.
•Export LCs:� Export LCs, when properly executed, may help protect an exporter’s (beneficiary’s) interests against
the risk of losing title to the goods until they are paid. Bank of America Merrill Lynch assists with the structuring of
LCs, arranges for their confirmation and identifies discrepancies in documents that may delay payment.
•Confirmed export LCs:� Another bank, usually one of our correspondents, issues its own LC and asks us to
authenticate it, add our confirmation to it and advise it to the beneficiary. When we confirm another bank’s LC, we
add our credit standing to that of the issuing bank and guarantee that payment will be made to the seller if terms
and conditions of the LC have been fulfilled.
•Unconfirmed Export LCs:� A bank, usually the applicant’s bank in the country of the applicant of the LC, issues its
own LC and asks us to authenticate it and advise it to the beneficiary without adding our own confirmation.
Bank of america merrill lynch SolutionS for importerS 7
Chapter 01
Introduction to Global Trade Services
Deferred Payments• Import LC deferred payments:� Deferred payments are created under import LCs that we issue for the applicant, our
client. We are obligated to make payment on the designated maturity date. As no draft, or negotiable instrument,
exists under a deferred payment LC, the beneficiary cannot obtain payment prior to the maturity date. There is no
draft to discount. See this guide’s section on page 88 for more information about drafts.
•Confirmed export deferred payments:� Payments under LCs issued by correspondent banks are postponed
(after presentation of documents) for periods of time as stipulated in the LC. If we add our confirmation to the
correspondent bank’s LC, we are obligated to make payment on the designated maturity date whether or not the
funds have been made available to us by the issuing bank. The advantage of a negotiable instrument in the form of
a draft does not exist and, therefore, the beneficiary cannot obtain payment prior to the maturing date, as there is
no draft to discount. See this guide’s section on page 88 for more information about drafts.
•Unconfirmed export deferred payments:� As in the case of unconfirmed LCs, we will pay only when and if funds have
been made available to us by the issuing bank. The advantage of a negotiable instrument in the form of a draft
does not exist and, therefore, the beneficiary cannot obtain payment prior to the maturing date, as there is no draft
to discount. See this guide’s chapter on page 88 for more information about drafts.
Reimbursements•Unconfirmed reimbursements:� An issuing bank authorizes Bank of America Merrill Lynch to debit its account and
to pay claims made by paying, accepting or negotiating banks. We will make such payments only if the issuing bank
has sufficient funds on deposit with us to cover the claim.
•Confirmed reimbursements:� An issuing bank asks Bank of America Merrill Lynch to confirm its obligations under an
LC it has issued and authorizes us to debit its account and to pay claims made by paying, accepting or negotiating
banks. By adding our confirmation, we add our bank’s creditworthiness to that of the issuing/authorizing bank and
are obligated to make payment whether or not the issuing/authorizing bank has sufficient funds on deposit with us
to cover the claim.
Air release Bank of America Merrill Lynch issues our indemnity on behalf of and for the account of our client in favor of an airline
for the purpose of authorizing the carrier to release a shipment of goods when the air waybill has been consigned
to the bank. In return for our issuing the indemnification on our client’s behalf, our client must provide us with an
indemnity in our favor. This arrangement pertains to import LCs and incoming collections.
Shipside bonds/steamship guarantees Bank of America Merrill Lynch issues our indemnity on behalf of and for the account of our client in favor of an ocean
carrier for the purpose of authorizing the carrier to release a shipment of goods without the normally required shipping
documents. In return for our issuing the indemnification on our client’s behalf, our client must provide us with an
indemnity in our favor. This arrangement also pertains to import LCs.
Bank of america merrill lynch SolutionS for importerS 8
Chapter 01
Introduction to Global Trade Services
Collections • Incoming clean domestic collections:� Bank of America Merrill Lynch receives a clean collection from a domestic
bank. We will serve as collecting bank and communicate with the drawee, usually our client, to facilitate payment
to the remitting bank.
• Incoming clean international collections:� Bank of America Merrill Lynch receives a clean collection from a foreign
bank. We will serve as collecting bank and communicate with drawee, usually our client, to facilitate payment to
the remitting bank.
•Outgoing clean domestic collections:� Bank of America Merrill Lynch opens/sends a request for payment to a
domestic collecting bank at the request of our client. When paid by the collecting bank, we will remit funds to the
drawer (our client).
•Outgoing clean international collections:� Bank of America Merrill Lynch opens/sends a request for payment to a
foreign collecting bank at the request of our client. When payment is received from collecting bank, we will remit
funds to the drawer (our client).
•Oncoming documentary collections:� Bank of America Merrill Lynch receives a documentary collection from
another bank. We will serve as the collecting bank and communicate with the drawee, usually our client, to
facilitate payment to the remitting bank.
•Outgoing documentary collections:� Bank of America Merrill Lynch opens/sends a request for payment of
documents to a collecting bank at the request of our client. When paid by the collecting bank we will remit funds
to the drawer (our client).
•Export bills collections:� Bank of America Merrill Lynch creates a collection instrument for tracking and receiving
funds due a correspondent bank in exchange for documents sent to a third bank. Delivery of documents may be
an integral part of the service.
Trade acceptances A trade acceptance is a time draft that is accepted for payment by a party other than a bank—usually the buyer. This
could apply to any of the types of collections, as defined above.
Bank of america merrill lynch SolutionS for importerS 9
Chapter 01
Introduction to Global Trade Services
RisksTrade involves buyers and sellers seeking to exchange goods or services despite their differences in language,
national custom, credit procedures and accounting practices. Merchants have always had, and continue to seek, ways
of minimizing the risk of non shipment and/or risk of nonpayment. Following is a chart comparing the payment terms.
Table 1.1:� Comparison of payment terms with relative risk*
Method of PaymentGoods Available to Buyer
Timing of Payment to Seller Risk to Buyer Risk to Seller
Sight LC Upon settlement of LC unless goods consigned direct to buyer
When documents have been presented and found to comply with LC terms (normally after shipment)
Has assurance of shipment but relies on seller to ship goods as described in the documents
Very little or none based on conditions in the LC and provided no discrepancies between documents and LC
Time (Usage) LC Upon the bank releasing documents of title, unless goods consigned direct to buyer
Upon maturity of payment terms, or upon discounting of a bankers’ acceptance
Actual payment (regardless of product quality) is due after possession of goods
Very little or none, based on conditions in the LC and provided no discrepancies between documents and LC
Sight Draft for Collection DP1
After payment unless goods consigned direct to buyer
Upon presentation of draft and documents to buyer
Has assurance of shipment but relies on seller to ship goods as described in the documents
Possible nonpayment by buyer
Time Draft for Collection DP2
Upon acceptance of time draft, unless goods consigned direct to buyer
Upon maturity of time draft trade acceptance
Buyer undertook obligation to pay when accepted time draft; relies upon seller to ship goods as described
Possible nonpayment by buyer at maturity of trade acceptance (buyer has possession of the goods)
Open Account Upon delivery Upon payment of invoice None Full reliance on buyer to pay invoice as agreed
* None of these payment methods protect against fraud. This chart is provided for information and illustration only. It does not purport to encompass all of the possible risks to a buyer or seller involved in any given trade transaction.
1 DP1 Also known as Documents Against Payment or Cash Against Documents (CAD).2 DP2 Also known as Documents Against Acceptance, Time Draft, and Trade Acceptance.
Bank of america merrill lynch SolutionS for importerS 10
Chapter 01
Introduction to Global Trade Services
What are some of the decision factors used in determining payment terms? When do the goods pass from the seller to the buyer and when does payment occur? Can you, as a buyer, trust the
seller to deliver promptly with the correct goods if you have already paid for the merchandise (cash in advance terms)?
Are you willing to pay promptly if goods are shipped first (open account terms)? The answer to these questions will
depend on how well the parties know each other. This knowledge can be gained through experience or research.
Alternatively, intermediaries can be used to mitigate the risks; this has been the traditional role of banks.
The choice of method of payment (means by which the buyer will pay the seller) takes into account several factors:
•Physical location of buyer and seller
•Extent of competition from other sellers
• Level of personal knowledge or prior experience between the buyer and seller
•Availability of other buyers
•Accounting, payment and regulatory restrictions between countries
•Reputation of buyer and seller
•Creditworthiness of buyer and seller
•Customary practices in the individual country or industry
•Dollar amount of transaction
•Urgency to receive payment
What are the risks associated with making the payment? The importation of goods from foreign markets involves greater risks for you as an importer than those associated with
domestic trade. While in domestic trade, you may be willing to pay “cash in advance” due to good credit information,
reliable bank checks, easy communication and an understandable legal system. You will often require greater
protection in international trade.
The documentary collection and the LC are two such alternatives to open account and cash-in-advance methods
of payment. Both of these alternative methods of payment protect the buyer and the seller from losses in varying
degrees and offer both the buyer and the seller varying degrees of convenience in making payments. In general, the
greater the protection for the buyer, the less convenient and the more costly the payment terms are for the seller.
One of the most important determinants of the payment method to be utilized in any particular transaction is the level
of risk in the transaction. You, as buyer, must always weigh the risks and the amount of protection desired against
being noncompetitive within your market. During the negotiation process, both sides must:
•Analyze the major risks they encounter in international trade transactions
•Review alternative payment methods, the levels of protection and the types of financing provided with each one
•Understand the various factors that must be considered in the formulation of a sales contract
•Understand international credit policy as related to the transaction
Bank of america merrill lynch SolutionS for importerS 11
Chapter 01
Introduction to Global Trade Services
What overriding risks are always factors to consider? •Commercial risk
As a buyer, you are primarily concerned with whether sellers can and will ship the goods. You need to determine
if sellers have the ability to produce or obtain the goods, as well as whether they will ship the products in a timely
fashion. Not only do you need to know if they will ship, you are also vitally interested in knowing if the goods will be
of the quality and quantity ordered and expected. To help mitigate commercial risk, you can investigate your sellers’
trade references from other buyers (whose names you have requested from the supplier) and/or through local
World Trade Centers or Chambers of Commerce.
•Political and economic risk
You should also familiarize yourself with information concerning the economic and political stability of the country
in which you’re doing business. This information should also include current and future trends of the country’s
economy, political situation and the possibility of the implementation of exchange controls. Bank of America
Merrill Lynch economists follow the economic and political situations in most countries very closely and can be
an excellent source for this type of information. Other sources are foreign country consulate offices and various
publications produced by Dun and Bradstreet International, the U.S. Department of Commerce International Trade
Administration, Moody’s, local Chambers of Commerce or World Trade Centers.
Economic and political risks you might want to be aware of are: cancellation of export licenses due to currency freezes,
hostile laws and court systems, civil war, boycotts and sanctions, confiscation of merchandise, currency devaluation,
liquidity problems and implementation of exchange controls.
Risks associated with various trade payments? Cash in advance is the riskiest to the buyer. Open Account is riskiest to the seller. You must weigh the pros and cons
of using the various payment methods against the risks. The chart below should help to visualize the risks.
Payment Method Risk
Open Account
Documentary Collection
Letter of Credit
Cash in Advance
Risk to Seller Risk to Buyer
RISkIEST
RISkIEST
Bank of america merrill lynch SolutionS for importerS 12
Chapter 01
Introduction to Global Trade Services
How do you determine the appropriate payment option?In addition to the very important payment and shipment risks, the following chart gives some guidelines on
determining which payment options may be appropriate for a particular trade transaction. Please note that the
key determinants are: relationship, type of goods (stock or custom), political and economic environments, and the
importance of timely cash flow and delivery.
Table 1.2:� Payment Options
Cash in Advance LC Documentary Collections Open Account
Relationship New New Established Established
Type of Goods Custom made Custom made Stock items Stock items
Political Unstable Unstable Stable Stable
Economic Unstable Unstable Stable Stable
Timing of Cash Flow and Delivery
Yes Yes No No
What are the advantages of LCs to the buyer (importer)? Buyers can benefit in the following ways:
•Buyers usually do not have to tie up working capital prior to actual shipment of merchandise.
• LCs allow for flexibility in documentary requirements.
•Buyers are provided additional assurance that their bank will pay the seller only when the seller’s documents are in
strict compliance with the terms and conditions of the LC.
• LCs offer the opportunity to receive extended payment terms from the seller, by arranging for an LC that is payable
at a future date.
• LCs provide the ability to delay payment until documents are received.
• This type of payment mechanism enhances the buyer’s ability to plan sales and distribution because latest
shipping date is known.
•Barring supplier fraud, payment is limited to what was ordered.
•Bank of America Merrill Lynch can issue LCs denominated in foreign currency, which enables the buyer to comply
with seller’s request for payment in foreign currency.
Bank of america merrill lynch SolutionS for importerS 13
Chapter 01
Introduction to Global Trade Services
What are the risks of LCs to the buyer? LCs deal only in documents, not in goods. The major risk may be that the merchandise may not be as it is represented
in the documentation.
What are the advantages of LCs to the seller (exporter)? Sellers can benefit in the following ways:
•Minimized credit risk by shifting risk from the buyer to the buyer’s bank
•Reduced commercial/political risk by shifting it from the buyer to the buyer’s bank
•Assurance of prompt payment by reducing the risk that payment for the goods might be delayed or otherwise
jeopardized by political or foreign exchange problems in the buyer’s country
• Improved ability to obtain bank financing in certain markets
What are the risks to the seller? The seller’s documentation must be in strict compliance with the terms and conditions of the LC to help ensure
payment.
What about the risk of fraud? Since the beginning of time, buyers with specific needs have been approached by sellers who claim to be able to fulfill
those needs, but have no intention of doing so.
As markets in certain countries tighten and economies in these countries suffer, fraudulent schemes will be
increasing. These schemes will proliferate particularly in countries with few or no exchange controls, weak legal
systems and an inability to use their resources in the global mainstream. Please refer to pages 30–32 of this guide
for information about Bank of America Merrill Lynch’s procedures and policies that attempt to prevent fraud, money
laundering and other illegal activities. .
Bank of america merrill lynch SolutionS for importerS
Chapter 02Working with Your Bank
Bank of america merrill lynch SolutionS for importerS 15
As an importer, you know that sourcing products globally can lower costs, broaden product lines and diversify sources
of supply. You also know the challenge of getting the right product to the right place at the right time. Different time
zones, languages and business practices can hinder communication. Lengthy shipping times and customs clearances
can complicate inventory management. And the payment terms demanded by overseas suppliers can tie up your credit
and slow down the flow of documents needed to clear merchandise through customs. You need specialized banking
services to help overcome these obstacles. You need a bank with seasoned experts in international trade and a family
of specialized banking services tailored to the unique needs of the importer.
You need Bank of America Merrill Lynch Import Services Bank of America Merrill Lynch Import Services offers you a comprehensive array of services; services that can help
you receive products quicker, reduce the amount of credit you have to tie up, and ease your administrative burdens.
Our network of correspondent banks is extensive, allowing us to work directly with your supplier’s banks. With this
worldwide network of correspondent banks, Bank of America Merrill Lynch can help you access almost any market.
Payment options to meet your needs Bank of America Merrill Lynch stands ready to assist you with a full range of payment options. Our international trade
specialists can assist you in selecting the option that best fits the needs of both you and your vendors. Whether you
are buying on open account, with cash against documents or on an LC basis, we have the resources and the expertise
you need. And we deliver our services in almost any currency you might choose. Our specialists are dedicated to
handling your transactions as efficiently and as smoothly as possible.
Accessible expertise Bank of America Merrill Lynch has more than 1,000 experienced international trade specialists dedicated solely to the
management and growth of our clients’ international business. Strategically located from coast to coast in the United
States and in various foreign locations, we travel extensively to keep in touch with clients. Our expertise in structuring
import transactions offers you the kind of knowledge and experience you need.
Chapter 02
Working With Your Bank
Bank of america merrill lynch SolutionS for importerS 16
Chapter 02
Working With Your Bank
Innovative services developed as needs change Bank of America Merrill Lynch has developed a forward-looking suite of electronic banking services, allowing importers
to initiate transactions and receive reports via the internet with the use of TradePro. By fully integrating electronic
applications into our global issuance system, we can issue your LCs faster and more accurately. Take advantage of the
trade module, Trade Pro, to:
• Increase processing efficiency and decrease processing errors
•Easily share trade data critical to business partners both within other areas of your organization and with outside
partners such as freight forwarders and customs brokers
•Have better and faster access to your global trade activity and information
•Enjoy round-the-clock access to your trade information no matter where you’re located.
As a premier provider of cash management services, Bank of America Merrill Lynch has developed innovative sweep
accounts and automatic investment services to keep your money working longer for you.
An extensive network Our correspondent bank network is able to handle almost any import transaction efficiently. Over the past thirty years
we have carefully developed and cultivated an extensive network of correspondents worldwide. Our network allows us
to deal directly with your vendors’ banks, saving you time and money. Our in-depth knowledge of overseas markets and
business practices can be invaluable to importers seeking to structure unusual transactions.
Services to meet the diverse needs of the importer Open account Lowering fees and streamlining financial supply chain processes are a top priority for most buyers. At the same time,
ensuring vendors have financing options similar to those associated with traditional LCs is an important consideration.
Bank of America Merrill Lynch is committed to developing solutions to assist buyers in optimizing and integrating
their supply chains. Our open account payment solutions help clients re-engineer their trading processes and unlock
substantial amounts of working capital for their company and their trading partners.
Bank of America Merrill Lynch has enhanced its web-based trade activity management system to handle purchase
order advising, tracking and reconciliation for LC and open account payments. Our goal is to integrate LCs,
documentary collections and open account trade payments seamlessly into each customer’s preferred electronic
delivery channel. A complete description of this service is provided in Chapter 4 of this guide.
Documentary collections Many clients find that suppliers who initially ask for cash in advance or an LC may be willing to sell on a documentary
collection basis. Commonly referred to as “cash against documents” or as “sight draft” terms, this payment
mechanism allows foreign vendors to instruct Bank of America Merrill Lynch to retain control of the shipping
documents until payment is made or their draft is accepted. By routing Documentary Collections through Bank of
America Merrill Lynch, vendors have reasonable assurance that a world-class bank is following their instructions. Our
clients benefit by not having to prepay for the product or tie up their credit.
LCs LCs continue to be one of the most common payment options used in international trade, especially for imports from
Asia and Latin America. Bank of America Merrill Lynch has international trade specialists to help you structure your
LCs and a correspondent bank network that can get the LC to your supplier as quickly as possible.
As one of the largest issuers of LCs in the world, Bank of America Merrill Lynch has invested in electronic application
systems that free our clients from retyping any of the standard clauses in their LCs. Using a standard web browser,
Bank of america merrill lynch SolutionS for importerS 17
Chapter 02
Working With Your Bank
you supply only the details specific to the particular transaction and send the application to us via the internet. Your
web-based electronic applications are fully integrated into our issuance system for truly superior response time
and accuracy. This same system gives you activity and status reports, available on your personal computer at your
convenience.
LCs are primarily oriented toward protecting the interests of beneficiaries. No LC can protect the buyer against fraud.
Protection in any import transaction is contingent upon the performance of the exporter, and there is no substitute
for knowing the reputation of your supplier. However, Bank of America Merrill Lynch’s international trade specialists
can help structure your credits to better protect your interests. When appropriate, performance bonds, inspection
certificates, insurance policies and more specific shipping schedules can be incorporated into your credits, giving you
additional control over the transaction. Our specialists can explain to you when a standby LC might be an appropriate
way to assure payment to a vendor. Whenever you need help in structuring your LCs, you can rely on Bank of America
Merrill Lynch.
Easy L/C® When you’re involved in global trade, the need for LCs isn’t limited by the size of your company. Smaller companies
often have modest credit needs and straightforward shipping arrangements, but they shouldn’t have to navigate the
same complex and time-consuming application, underwriting, and approval processes as larger companies seeking
LCs with more complicated requirements and higher dollar values.
If your import credit needs do not exceed $100,000.00 and you have an account with Bank of America Merrill Lynch,
Easy L/C offers a simplified application form and streamlined approval process, which reduces turnaround time and
can save you money with a low front-end fee.
The application is short and simple to complete. We can even send it to you in electronic format to get your application
off to the fastest start possible. Your LC is generally approved and issued within 24 hours.
Bank of America Merrill Lynch doesn’t require a secured deposit as collateral for your Easy L/C. It’s prepaid from the
cash in your company’s existing Bank of America Merrill Lynch account.
Cash secured LCs Cash secured LCs are secured by funds that you have in an appropriate Bank of America Merrill Lynch deposit account
for the balance and term of the LC. Cash secured transactions are subject to credit approval; collateral advances can
be made on balances on hand, subject to financial information verification.
Bankers’ acceptance financing Whether you buy on open account with documentary collections or through LCs, Bank of America Merrill Lynch can
finance your imports with bankers’ acceptances. These short-term, fixed-rate instruments can significantly lower your
financing costs. As part of LC transactions, bankers’ acceptances can give you extended terms, allowing your vendors
to maintain their cash flow by discounting the instrument at what is normally a very favorable rate. Your vendor can pay
some or all of the financing costs. Borrowing procedures and documentation are simple and straightforward.
Private labeling of LCs Bank of America Merrill Lynch provides private labeling of LCs to qualifying clients. Your company becomes the issuer
of LCs using an existing subsidiary suitable for the purpose or a new “Special Purpose Vehicle” company. Bank of
America Merrill Lynch provides the same level of operational support for these LCs as provided when we are the issuer
of the LCs.
Private labeling would allow you to significantly reduce your reliance on bank credit, lower LC charges, improve service
to your vendors and improve the efficiency of the process through the intelligent use of technology. Our solutions
are designed to give you the choice of how you want to structure the processing of private-labeled LCs, and how you
Bank of america merrill lynch SolutionS for importerS 18
Chapter 02
Working With Your Bank
would like to structure the financial side of these transactions as well. Additionally, because of our comprehensive and
aggressive vendor financing program in Asia, our local trade officers can meet with your vendors, help them prepare
for your private-labeled LCs, and discuss their financing needs if appropriate.
Soft restriction program Our soft restriction program is designed so that Bank of America Merrill Lynch is involved on both the import and
export side of an LC transaction, thus reducing processing time. When a new commercial LC is issued to a beneficiary
in Asia, the LC contains wording that restricts negotiation of the LC to one of our Asian banking centers. When
documents under these LCs are presented to our Asian banking center, we are able to eliminate the duplicate step of
document examination.
With this program we create both tangible and intangible value for all involved parties. Applicants will realize the
advantages of a streamlined import process due to a lowered discrepancy rate, reduced vendor noise because of
lower product cost, faster processing and better control over transactions. For vendors, local bank representatives
who are familiar with their accounts can assist in eliminating discrepancies. This will provide faster turn-around times,
resulting in increased working capital velocity, lower interest costs and lower transaction costs with more efficient
processing.
Purchase Order to Pay (PO to Pay)Purchase Order-to-Pay is a trade payables solution for clients sourcing goods in overseas markets, which links the
client’s supply chain partners into an end-to-end payment and settlement process for increased transparency and
visibility throughout the supply chain. The service replaces paper-based functions with electronic processes and
broadens settlement options by offering open account payments as well as traditional LCs.
Through PO to Pay, clients can electronically submit to Bank of America Merrill Lynch purchase order information that
is used to construct LC and open account payment instruments for delivery to sellers in paper form or via an electronic
channel, including CashPro Online Trade Pro and Electronic Data Interchange (EDI). The service includes a matching
engine, the Purchase Order Processing System (POPS), which reconciles purchase order data submitted by buyers with
invoice data submitted by sellers prior to payment.
Buyers can also upload a PO file with all of their suppliers’ PO details to automatically create their LCs and/or open
account transactions, based on supplier terms and business rules, which streamlines buyers’ processing steps in
their daily work flow.
Supply Chain Financing Buyers often mandate that their suppliers extend payment terms and move from LCs to private label LCs or open
account terms. This can place significant financial pressure on suppliers who rely on LCs to meet their working capital
needs. Buyers now recognize the need for alternatives that enable their suppliers to obtain financing as an inducement
for accepting extended terms. By partnering with suppliers to rollout a Supply Chain Finance program, buyers can more
efficiently manage working capital and reduce costs in the supply chain while strengthen supplier relationships. Bank
of America Merrill Lynch offers a comprehensive suite of supply chain financing programs that enable buyers to provide
their suppliers with access to credit.
Foreign Exchange Services Bank of America Merrill Lynch Foreign Exchange Services give you the option to pay your vendors in their own currency.
We provide a full range of foreign exchange services, from simply sending wires denominated in foreign currency to
helping corporate clients develop and execute sophisticated hedging strategies. In addition to competitively-priced
spot and forward contracts, options, and futures, our foreign exchange traders can offer information about market
trends that can help you plan your foreign exchange strategy. Our London and Singapore foreign exchange operations
provide a virtual around-the-clock capability.
Bank of america merrill lynch SolutionS for importerS 19
Chapter 02
Working With Your Bank
Cash and Treasury Management Services Bank of America Merrill Lynch Treasury Management Services help you manage your cash position and cash flow.
We build comprehensive, customized solutions to meet the unique needs of our clients, improve their financial
competitiveness and make their treasury functions more efficient.
Working together, we can help you streamline the way you make payments, collect your receipts and reconcile your
accounts worldwide. With our broad treasury management suite of services, we guide you through the steps to make
your treasury functions more efficient.
Small Business Services (Trade Client Services) There may have been a time when you didn’t think your company could import merchandise from overseas or sell your
goods abroad. Not any more. For companies like yours, great business opportunities lie beyond our country’s borders.
And isn’t opportunity exactly what you seek for your company?
Trade Client Services is made up of a team of trade finance professionals with many years of experience. They’re
waiting for your call and the opportunity to help you find working capital solutions for your organization. Trade Client
Services has been organized to cover all U.S. time zones, so you’ll easily and conveniently be able to speak with a
representative personally.
Let Bank of America Merrill Lynch introduce a few ways you can increase opportunities
Economic forecasting and industry specialists At http://corp.bankofamerica.com portal, click on “Investment Solutions” to find the latest economic and industry
analysis. Bank of America Merrill Lynch Securities economists, based in New York, Hong Kong and London, analyze
and forecast U.S. and international economic conditions and financial market trends and post their findings on this
site.
The coverage includes analysis of macroeconomic indicators, forecasts of interest and foreign exchange rates and
perspectives on government policies. This work, coupled with research on emerging markets, fixed income, foreign
exchange and global risk, supports a wide variety of Banc of America Securities’ capital markets and client-focused
activities.
In the end it’s all about the people—superior client satisfaction We recognize that you have many choices in banks and that, in the final analysis, service will drive whether you
continue to use Bank of America Merrill Lynch. It’s for that same reason that your customers continue to do business
with you. We strive to maintain a professional and skilled international banking staff in every office location.
Furthermore, we are extremely sensitive to the unique needs of each client. We pride ourselves on a high level of
personalized service built on a long-term relationship.
Bank of America Merrill Lynch has extensive involvement with large retail and consumer companies, and therefore
is familiar with the seasonal fluctuations that are prevalent in these industries. Our global trade offices are staffed
effectively to manage these peak cycles by proactively working with the client to know exactly when these fluctuations
will occur during the year. We understand that there are critical times in each client’s business cycle and are
committed to constantly providing consistent quality service.
A global team of trade associates is typically established to meet our client’s specific processing requirements. Bank
of America Merrill Lynch will assign a primary operations contact that is responsible for technical consultation and
ensuring compliance with each client’s service requirements.
In the past few years independent research firms have conducted client satisfaction interviews with Bank of America
Merrill Lynch import LC clients located throughout the United States. Performance measurement categories included
Bank of america merrill lynch SolutionS for importerS 20
Chapter 02
Working With Your Bank
timeliness, accuracy, capability, staff knowledge/servicing, technology and client loyalty. Nearly ninety-six percent of
our clients reported that they were either very satisfied (highest possible rating), satisfied, or somewhat satisfied with
Bank of America Merrill Lynch’s overall import LC service. Our Global Trade Services business is committed to moving
to and maintaining a Six Sigma level of client service, and numerous performance measurements are in place to that
end.
Depend on Bank of America Merrill Lynch Your business is filled with unique and diverse challenges, challenges that demand creative, flexible and
comprehensive solutions. To help you find these solutions, you need a bank who has extensive experience, overseas
expertise and a wealth of resources. You need Bank of America Merrill Lynch Import Services. We can provide you
with a complete range of payment options and a worldwide correspondent network. We’ll take the time to help you
determine how you can make your international business run as smoothly, efficiently and profitably as possible. We
will also be ready to help you reevaluate your options as your needs change. For further information, contact your local
Bank of America Merrill Lynch Global Trade & Supply Chain Solutions officer.
Bank of america merrill lynch SolutionS for importerS
Chapter 03Import LCs Defined
Bank of america merrill lynch SolutionS for importerS 22
Chapter 03
Import LCs Defined
An import LC is a conditional payment mechanism under which the issuing bank irrevocably promises to pay the seller
if presented documents comply with all of the LC terms and conditions. The issuing bank substitutes its credit for that
of the buyer.
All LCs have similar attributes and this section will restate some of those attributes. It is important not only to
understand the attributes, but also the underlying principles.
A commercial LC offers protection to both the buyer and seller and, for this reason, is often used as a means of
payment. An LC offers the buyer a high degree of assurance that goods and services will be delivered and reduces
trading risks. In the LC process, the bank is the intermediary between the seller (an exporter) and the buyer (an
importer). The issuing bank issues the LC on behalf of the importer, examining the documents received, to determine
conformity to the terms and conditions of the LC. If the documents are correct, the bank makes payment, either
immediately or at a specified future date.
When the bank issues the LC, it substitutes its credit for that of the importer. In doing so, the bank promises to pay
the exporter upon presentation of documents in good order. The bank deals only with the documents called for in
the LC, not with the actual goods involved. For example, if an LC specifies that the exporter ship a container of steel
and the quality of the steel does not meet the buyer’s expectations, the exporter will nevertheless be paid as long as
documents are presented in conformity with the terms and conditions of the LC.
Typically the exporter’s bank acts as the advising, examining and paying bank. It may also confirm and negotiate LCs
on its client’s behalf.
Prior to any LC transaction, the buyer and seller should negotiate and agree to the terms and conditions to be
specified.
Bank of America Merrill Lynch can help structure your import LC and suggest terms that are favorable and achievable
to both you and your suppliers. This facilitates LC compliance, which helps ensure that you receive your commercial
shipment according to the terms agreed upon without delay.
Bank of america merrill lynch SolutionS for importerS 23
Chapter 03
Import LCs Defined
LC Flow Chart
02 03 04 05
issuing / Buyer’s Bank Seller’s Bank Seller Buyer
01
Buyer
STEP ONEBuyer Applies for LC
STEP FIVEGoods Produced and Shipped
STEP TWOBuyer’s Bank Issues LC and...
STEP THREETransmits LC to Seller’s Bank
STEP FOURAdvises LC to Seller
Buyer
06
Seller
STEP SIXLC Presented to Seller’s Bank with Required Documentation
07 08
Seller’s Bank
STEP SEVENSeller’s Bank Examines Documents and Sends Documents to Issuing Bank
STEP EIGHTIssuing Bank Examines Documentation
09
issuing / Buyer’s Bank
STEP NINEIssuing Bank Debits Buyer’s Account and Releases LC Documents Making Funds Available for Payment to Seller
BuyerSeller
10
STEP TENBuyer Exchanges Documents for Goods
Bank of america merrill lynch SolutionS for importerS 24
Chapter 03
Import LCs Defined
01 The buyer fills out an LC application that satisfies the terms of the purchase agreement plus the requirements
of customs law, shipment and document coordination.
02 The issuing bank, usually the buyer’s bank, rechecks the application to determine that it is complete and
workable.
03 The issuing bank transmits the credit to a correspondent bank by telex, SWIFT (Society for Worldwide Interbank
Financial Telecommunication, a telecommunication network of member banks) or (rarely) airmail and asks them
to advise and/or confirm the instrument.
04 The correspondent bank receives the letter of credit, checks for authenticity, records the transaction and
transmits the instrument to the seller/beneficiary, adding their confirmation if requested. Upon receipt of the
letter of credit, the seller should carefully review it to determine whether its performance requirements can be
complied with and whether it is acceptable from a credit perspective.
02 03 04
issuing / Buyer’s Bank Seller’s Bank Seller
01
Buyer
STEP ONEBuyer Applies for LC
STEP TWOBuyer’s Bank Issues LC and...
STEP THREETransmits LC to Seller’s Bank
STEP FOURAdvises LC to Seller
LC Flow Chart—Steps 1 Through 4
Bank of america merrill lynch SolutionS for importerS 25
Chapter 03
Import LCs Defined
05 Upon determination that the LC is acceptable, the seller should ship the goods precisely consistent with its
terms and conditions.
06 The seller must prepare documents exactly as required and present them to the proper paying bank. The proper
paying bank may be any bank specified in the credit to accept, pay or negotiate. This may be the advising bank,
confirming bank, issuing bank or (on a freely negotiable credit) any bank that is willing to negotiate.
07 When the paying bank receives the documents, it will examine them to determine if they are in order pursuant
to the credit’s terms and conditions. If in order, the bank may pay, accept, or negotiate as required by the LC.
The negotiating bank will transmit the documents to the issuing bank and request reimbursement. Under an LC
payable at sight, the issuing bank may effect reimbursement to the seller’s bank by remitting funds directly to
the seller’s bank, authorizing the seller’s bank to debit the issuing bank’s account, or by authorizing the seller’s
bank to claim from a third bank where the issuing bank maintains an account.
issuing / Buyer’s Bank
05
Seller
STEP FIVEGoods Produced and Shipped
06
STEP SIXDocuments Presented to Seller’s Bank
07
Seller’s Bank
STEP SEVENSeller’s Bank Examines Documents and Sends Documents to Issuing Bank
Seller
Letter of Credit Flow Chart Steps 5 Through 7
Bank of america merrill lynch SolutionS for importerS 26
Chapter 03
Import LCs Defined
08 Upon receipt of the documents, the issuing bank will examine them to determine that they are in order as
specified and then reimburse the negotiating bank. For time drafts, reimbursement is made at maturity of the
bankers’ acceptance.
09 The issuing bank debits the buyer’s account and releases the documents. For a time draft, the buyer’s
account will be debited at maturity. The seller’s bank pays the exporter after being reimbursed by the buyer’s
bank.
10 The buyer exchanges the shipping documents for the goods.
issuing / Buyer’s Bank
08
Buyer
STEP EIGHTIssuing Bank Examines Documents and Reimburses Bank
09
STEP NINEIssuing Bank Debits Buyer’s Account and Releases LC Documents, Seller Receives Payment
10
STEP SEVENSeller’s Bank Examines Documents and Sends Documents to Issuing Bank
Seller’s Bankissuing /
Buyer’s Bank Seller
Letter of Credit Flow Chart Steps 8 Through 10
Bank of america merrill lynch SolutionS for importerS 27
Chapter 03
Import LCs Defined
Frequently Asked QuestionsWhat is an LC?An LC is a financial instrument issued, generally by a bank, to an individual or corporation by which the bank
substitutes its own creditworthiness for that of the individual or corporation. LCs facilitate importing and exporting
by assuring the seller/exporter’s payment for goods sold against compliant documents. Without such assurances of
payment, foreign trade would be severely curtailed.
Why should I use LCs when importing?Companies purchasing materials, supplies and services from domestic suppliers generally have established trade
credit and can buy on open account terms. In international trade, it is more difficult to establish trade credit,
especially with new relationships. Generally, the foreign seller will require either cash in advance or a commercial LC.
The LC provides assurance to the seller that payment will be received, and it may help the seller obtain financing for
the production and shipment of the goods being purchased. In addition to improving your cash flow, the LC gives you
some protection because payment will not be made without presentation of all required documents. Those documents
must also comply with the terms of the LC. However, the LC does not eliminate the need for you to check out the
foreign seller’s ability to produce, as well as his integrity and business reputation.
Other than my banker, who else should I be using as a resource?In addition to your Bank of America Merrill Lynch Merrill Lynch Trade specialist, you can obtain assistance from a great
number of sources— both public and private. The type of business in which you are engaged and the international
expertise of your existing staff will determine who you should use. Some of the more commonly used resources for
obtaining importing expertise include:
Government Private
Foreign consulates and commercial attachés Trade banking specialists
U.S. diplomatic personnel International lawyers
U.S. Customs personnel Customs brokers
A good customs broker is frequently the key to successful importing and should be contacted before finalizing any
contracts
Bank of america merrill lynch SolutionS for importerS 28
Chapter 03
Import LCs Defined
What agreements are involved in an import LC transaction?01. Sales contract. Agreement between the buyer (account party or applicant) and the seller (beneficiary), which
gives rise to the use of an LC.
02. Purchase order. The buyer’s order to buy, usually describing merchandise to the unit level of detail. A purchase
order is normally submitted directly to the seller by the buyer, either electronically or hard copy.
03. Application for credit. Agreement between the buyer (applicant) and the issuing bank which spells out their
mutual obligations, including that of the applicant to reimburse the issuing bank when payments are made to the
beneficiary in accordance with the terms of an LC. For assistance in filling out an application for an LC, refer to
page 42 of this guide.
04. LC. Agreement between the issuing bank and the seller (beneficiary) that specifies conditions that must be met
before payments will be made.
What is the difference between an advised and a confirmed LC?The LC transaction usually involves two banks, the buyer’s bank issuing the LC and a bank in the seller’s country that
advises the LC to the beneficiary. The advising bank may also assume the role of confirming bank. Whether advising
and/or confirming, the seller’s bank assumes certain responsibilities.
Advising:� An advising bank acts as the agent of the issuing bank. The function of the advising bank is to take
reasonable care to verify the authenticity of LCs it receives and then accurately transmit the LCs to its beneficiaries.
When advising an LC, the bank assumes no liability. On receipt of the documents for examination and payment, the
advising bank will pay the seller only if it received good funds and has received reimbursement from the issuing bank,
even if it was specifically nominated as the paying bank in the LC.
Confirmation:� By confirming an LC, the advising bank or another bank assumes the same responsibilities as the
issuing bank, including the obligation to pay against presented documents (if they are in order and all of the LC terms
are met). In effect, the beneficiary has the individual promise of two banks—the issuing bank and the confirming
bank—to pay against conforming documents. Confirmation of an LCis an extension of credit and requires credit
approval of the issuing bank by the confirming bank. When a bank confirms an LC, it takes the credit risk of the issuing
bank and must have in place a credit limit for that issuing bank.
How is an LC confirmed?When negotiating the terms of sale, the seller may require an LCthat requests the advising bank to add its
confirmation. The buyer includes this request when submitting the application for LC issuance to his or her bank. In
most instances, the issued credit states: “Please advise beneficiary adding your confirmation” or words to similar
effect. Note: this is a request, not a requirement. The advising bank for various reasons may decline to add its
confirmation and simply advise the LC without confirmation.
What documents are usually required under an LC?The documents for an international sale can vary significantly from transaction to transaction depending on the
destination and the product being imported. See Chapter 5 for a detailed discussion of LC documents.
Bank of america merrill lynch SolutionS for importerS 29
Chapter 03
Import LCs Defined
Parties and Roles in Commercial LC TransactionsWhat are the parties and roles in an import LC?01. Account Party/Applicant:� The buyer of goods or services who requests the LC to be opened under its liability by
the issuing bank.
02. Beneficiary:� The seller of goods or services to whom the LC is addressed and who is entitled to its benefits.
03. Issuing Bank:� The primary financial institution that initiates and writes the LC, extending its guarantee and
liability to pay if the terms and conditions are fulfilled.
04. Advising Bank:� The bank, usually in the beneficiary’s country, whose primary job is to pass on the LC to the
beneficiary. The advising bank is normally a correspondent bank of the issuing bank. That means that the two
parties have exchanged authentication procedures and may have also established accounts with each other. An
important part of passing on an LCto a beneficiary is verifying the authenticity of the LC to it. When the advising
bank authenticates the credit, it is saying that the LC is a genuine instrument from the named issuing bank.
It is not commenting on the creditworthiness of the bank or its country. This procedure gives the seller some
protection against fraudulent instruments. That is why it is common practice to have LCs advised to a seller
through a correspondent bank. LCs may be received by the advising bank by mail, telex, cable or SWIFT. (
05. Drawee Bank or Paying Bank:� This is the bank named in the credit as duly authorized to make payment. Drafts
are drawn and/or documents presented to this bank as a general rule. However, special instructions might
modify this procedure. In the U.S., this is generally the issuing bank (that is, the buyer’s bank).
06. Examining Bank:� Both the issuing bank and the seller’s bank must examine all documents stipulated in the
credit with reasonable care to ascertain whether or not they appear, on their face, to be in compliance with the
terms and conditions of the credit.
07. Confirming Bank:� A confirming bank is a financial institution requested by the issuing bank to add its guarantee
of payment or acceptance to the credit instrument. It is necessary for this bank to establish a credit line or
facility for the issuing bank in order to agree with this request. The bank requested to add its confirmation is
usually but not necessarily the advising or drawee bank. A seller should request the buyer to authorize the
issuing bank to request confirmation. Import LCs issued by Bank of America Merrill Lynch do not normally
request confirmation from another bank, due to their strong credit rating.
08. Reimbursing Bank:� At times, the issuing bank names a bank where the issuing bank keeps funds in the currency
of the LC to pay on its behalf, drawee or negotiating banks to whom payment is due. This bank, named in the
LC, known as a reimbursing bank, is usually named under the special instructions portion of the LC. See I.C.C.
Publication No. 600, Article 13.
09. Negotiating Bank:� Negotiation is the process whereby a bank examines the documents and actually pays funds
to the beneficiary. This is not very common because most banks are not willing to advance funds prior to receipt
of the goods. The beneficiary is paid immediately upon examination of documents conforming to the LC or after
approval by the issuing bank is determined by the payment terms stipulated in the LC. The negotiating bank is
either nominated by the beneficiary under a freely negotiable LC or designated as a restricted negotiating bank
by the issuing bank. The concept of a negotiating bank allows more flexibility into the payment mechanism and
enables beneficiaries to present documents for payment to their local bank.
Bank of america merrill lynch SolutionS for importerS 30
Chapter 03
Import LCs Defined
Mitigating the Risk of Fraud in the Trade ArenaAt Bank of America Merrill Lynch we constantly strive to protect our clients from the risk of fraudulent trade finance
transactions. In our Trade Operations units around the globe, many evaluation processes take place each day in an
attempt to recognize and prevent fraud. Here are some of the precautions we take:
•We transmit and receive authenticated LCs, collections and related messages via SWIFT.
•While the Uniform Customs and Practice for Documentary Credits (UCP) 600 tells us that “Banks assume no
liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any
documents(s) . . .” (UCP, 2007 Revision, International Chamber of Commerce, or ICC), the close and careful
examination of documents provides additional assurances that they are reflective of the requirements in the LC and
thus serves to reduce the likelihood of payment against fraudulent documents.
•All of our associates that handle trade transactions are required to participate in Anti-Money Laundering (AML)
training, enabling them to understand the red flags in a transaction that may point to fraud as it relates to
money laundering. This training includes “Know Your Customer” evaluation metrics and stresses reporting of any
suspicious transaction.
•All of our associates that handle trade transactions attend compliance training courses, further refining their skills
in recognizing and properly reporting of suspicious transactions.
•Our associates stay current on fraud issues in our business through trade publications, conferences, internal
broadcasts and participation in professional trade organizations.
•Our web-based trade activity management system, TradePro, can also help reduce the incidence of trade fraud by
providing complete security and one point of entry into the Bank of America Merrill Lynch back office.
Bank of america merrill lynch SolutionS for importerS 31
Chapter 03
Import LCs Defined
AML Policies and Office of Foreign Assets Control (OFAC) Compliance at Bank of America Merrill LynchAnti-Money Laundering (AML)Crime has a destructive and devastating effect on the communities in which we operate. Safeguarding the global
financial system is critically important for the economic and national security of the jurisdictions in which Bank of
America Merrill Lynch operates. Accordingly, it is the policy of Bank of America Merrill Lynch to take all reasonable
and appropriate steps to prevent persons engaged in money laundering, fraud or other financial crime, including the
financing of terrorists or terrorist operations (hereinafter collectively referred to as “money laundering”) from utilizing
Bank of America Merrill Lynch products and services.
With a view to ensuring that the financial system is not employed as a channel for criminal funds, associates at Bank
of America Merrill Lynch make reasonable efforts to determine the true identity of all parties involved in Bank of
America Merrill Lynch transactions. Bank of America Merrill Lynch conducts its trade business in conformity with high
ethical standards in the countries in which it does business and strictly adheres to all laws and regulations pertaining
to financial institutions. While it is accepted that Bank of America Merrill Lynch may not always be able to determine
whether a transaction originates from, or is a part of, a criminal activity, Bank of America Merrill Lynch follows these
general principles:
01. Bank of America Merrill Lynch takes reasonable steps to determine the true identity of all customers and
beneficial users of Bank of America Merrill Lynch products and services.
02. Bank of America Merrill Lynch will not knowingly accept funds from, make loans to or do any type of business
with customers whose money the bank believes is derived from criminal activity.
03. Bank of America Merrill Lynch will not ignore indications that a customer’s money originated from criminal or
other money laundering activities. When Bank of America Merrill Lynch becomes aware of facts which lead
to a reasonable suspicion that funds held by it are from criminal or other money laundering activity or that
transactions entered into are themselves criminal in purpose, appropriate measures, consistent with the law, will
be taken. These include denial of assistance to the client, severing relations with the client, closing or freezing
accounts, and when appropriate, filing of a suspicious activity report.
04. Bank of America Merrill Lynch will avoid providing support or assistance to clients seeking to deceive law
enforcement agencies through the provision of false, altered, incomplete or missing information.
05. Bank of America Merrill Lynch will cooperate fully with law enforcement and regulatory agencies to the extent that
it can do so under all applicable foreign and domestic laws.
06. Bank of America Merrill Lynch will report all identified instances of suspicious activity to the extent that it can do
so under all applicable foreign and domestic laws.
Anti-boycott policyBank of America Merrill Lynch Corporation, its domestic affiliates and its offshore branches, offices, subsidiaries
and controlled affiliates are “U.S. persons.” They transact business with residents and nationals of boycotting and
boycotted countries as well as with other persons and corporations that do business with such countries and their
nationals. Therefore, Bank of America Merrill Lynch often receives requests to comply with unsanctioned foreign
boycotts.
Such requests most frequently occur in LC transactions. Bank of America Merrill Lynch handles several thousand LCs
and collections each year, which involve persons and commerce of boycotting and boycotted countries.
Bank of america merrill lynch SolutionS for importerS 32
Chapter 03
Import LCs Defined
Bank of America Merrill Lynch is committed to full compliance with all laws applicable to its business, including anti-
boycott laws of the United States. Accordingly, bank units must not enter into any agreement or implement any LC
containing an impermissible boycott condition or take any other action prohibited by the United States. Additionally,
bank units must not implement any LC or process any other document if it uses the term “blacklist” or “boycott” or if
its implementation or processing would constitute boycott participation under United States tax laws.
Bank of America Merrill Lynch general anti-discrimination policy prohibits all bank units from discriminating against any
person based on race, religion, sex or national origin. Bank units must not engage in any transaction containing such a
condition. Bank of America Merrill Lynch does not engage in any discriminatory business practices in connection with
the Arab League’s boycott of Israel.
OFAC complianceOFAC administers and enforces economic and trade sanctions based onU.S. foreign policy and national security
goals against targeted foreign countries, terrorists, international narcotics traffickers and those engaged in activities
related to proliferation of weapons of mass destruction. OFAC acts under Presidential wartime and national emergency
powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign
assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates,
are multilateral in scope and involve close cooperation with allied countries. OFAC has promulgated regulations to help
administer its program. All U.S. persons and entities, including banks, federal branches and agencies, international
banking facilities, and overseas branches, offices and subsidiaries of U.S. banks must comply with the laws and OFAC-
issued regulations. In general, these regulations:
•Require blocking of accounts and other assets of specified countries, entities and persons
•Prohibit unlicensed trade and financial transactions with specified countries, entities and persons
Bank of America Merrill Lynch maintains an effective OFAC compliance program, including written policies and
procedures for checking transactions for possible OFAC violations, designating associates responsible for day-to-day
compliance, establishing and maintaining strong lines of communication between departments of the bank, associate
training, and an annual in-depth audit of OFAC compliance. LCs, wire transfers and non-client transactions such as
funds transfers are compared with OFAC lists before being conducted.
Bank of america merrill lynch SolutionS for importerS 33
Chapter 03
Import LCs Defined
20 Most Important Characteristics of an Import LC01. Irrevocable:� This term means that the issuing bank cannot cancel or amend an LC without the consent of the
beneficiary.
02. Expiry Date and Issue Date:� As agreed upon between the buyer and the seller. Commercial import LCs generally
expire in the country of the beneficiary.
03. Issuing Bank/Advising Bank:� Needs to be listed.
04. Importer/Exporter:� Make sure that the full name of your seller and the seller’s address, as well as the full name
and address of your own company, are correctly stated on the LC application and the LC itself.
05. Value/Currency:� The amount of your LC should conform to the amount of your sales contract. Make sure that the
currency of the amount is accurately indicated on your LC application.
06. Description of Goods/Services:� We recommend that you employ a very simple merchandise description when
applying for an LC. Excessive details may cause discrepancies and delays; if the nature of your sale requires a
detailed description of merchandise, it belongs in the sales contract or purchase order agreement between you
and your seller. The sales contract number or purchase order agreement can then be quoted in the merchandise
description of the LC.
07. Required Documents:� See Chapter 5, “A Closer Look at LC Documents.”
08. Payment Terms:� Also known as “Tenor.” Make sure that payment terms are accurately indicated on your LC
application, and correctly quoted in the LC. The payment term “At Sight” indicates that the bank will pay “within
a reasonable time” after documents have been presented by the beneficiary and found to be in order. If an LC
indicates “90-Days Sight,” with discount charges for beneficiary’s account, you agree to 90-day terms, and you
will be debited 90 days after the presentation of the draft and complying documents. If the discount charges
are for the buyer’s account, payment to the beneficiary will be effected “At Sight” and the buyer will pay discount
charges at the point of negotiation and the face value of the draft at maturity. See Chapter 7 for a complete
discussion of usance terms.
09. Incoterms:� Shipment terms. See Incoterms, Chapter 9.
10. Port to Port (Dispatch to Destination):� Make sure that your LC application correctly states the port of shipment
and the port of destination, as indicated in your sales contract.
11. Uniform Customs and Practices, Publication No. 600:� Your LC should state that it is subject to the UCP
Publication No. 600 of the ICC.
12. Who Pays Fees?:� Unless otherwise stipulated in the LC, all banking charges are for the account of the applicant.
If charges are for the beneficiary’s account, as specified on the LC, they are normally deducted from the face
amount of the draft at the time of payment.
13. Latest Shipment Date:� The latest shipment date should be the same as that agreed to in your sales agreement.
If you do not stipulate a latest shipment date in your LC application, it is understood as the same date as the
expiry date.
14. Presentation Date or Stipulation:� The presentation date is usually a stipulation such as “Documents must be
presented for negotiation within 15 days after the on board date of the ocean bill of lading, and within the validity
of the LC.” A 21-day presentation stipulation is understood, in the absence of any statement to this effect (see
Article 14(c), UCP 600).
Bank of america merrill lynch SolutionS for importerS 34
Chapter 03
Import LCs Defined
15. Partial Shipments Allowed/Not Allowed:� If your LC application does not indicate that partial shipments are
prohibited, it is understood that partial shipment is allowed. Make sure that this information agrees with your
original sales contract with the seller.
16. Transshipment Allowed/Not Allowed:� If your LC application does not indicate that transshipments are
prohibited, it is understood that transshipment is allowed. Make sure that this information agrees with your
original sales contract with the seller. Transshipment means that the merchandise is loaded on a carrier that
only goes to a certain point, and at that point the merchandise is unloaded and reloaded onto another carrier.
17. Reimbursement Instructions:� Determines when payment will be received by the exporter. Four major types of
reimbursement instructions are: a) issuing bank authorizes advising bank to debit their account; b) issuing bank
instructs advising bank to claim reimbursement from a third bank (reimbursing bank); c) issuing bank requires
advising bank to send them a cable notifying them that documents have been received and found to be in
compliance with LC terms, after which issuing bank remits funds to advising bank; and d) issuing bank requires
advising bank to send documents to them for payment (slowest method of payment).
18. Availability:� Your LC is either freely negotiable or straight. A freely negotiable LC will indicate that it is “available
with any bank by sight payment, by deferred payment, by acceptance or by negotiation.” A negotiating bank may
play various roles pursuant to the latitude extended by the LC, but it normally is allowed to take the documents
in charge and pay the beneficiary against funds received from the issuing bank. A straight, or restricted, LC
will indicate that it is “available with (named bank) by sight payment, by deferred payment, by acceptance or by
negotiation.” The beneficiary must present documents at the counters of the named bank.
19. Confirming Bank:� For all intents and purposes, beneficiaries normally present their documents to the confirming
bank and regard it as the primary source of payment. A confirming bank is obligated to pay against compliant
documents, regardless of whether or not funds are received from any reimbursement source.
20. Reimbursing Bank:� The reimbursing bank is usually named under the Special Instructions portion of an LC, or in
field :78: of a SWIFT 700 message.
Understand and Control Your Import LCsWhat can an importer do to make sure that the LC process works for him?As an importer, you should strive to exercise control over this process. That’s why it’s so important to understand
the process and to establish a written contract or sales agreement with your seller before you apply to your bank (the
issuing bank) for an LC. Your contract, sales agreement or purchase order should contain all the conditions that are
necessary to be included in the LC.
When your bank issues a new LC on your behalf, it will normally provide you with a copy of the LC. Always read the
LC thoroughly. If any parts of your LC are not clear to you or do not seem to agree with your LC application and/
or sales contract and/or purchase order, contact your local Bank of America Merrill Lynch Global Trade Operations
representative.
Also make sure that you understand any additional wording that Bank of America Merrill Lynch has added to the
LC as we issue it.We are giving additional instructions directly to the advising bank in most cases, but you should
understand the meaning of these instructions.
Normally your seller should not ship merchandise until your LC has been issued by your bank. You may, however, ask
your bank to issue a preliminary advice of the LC to your beneficiary. This process will provide you and your seller with
an LC number for tracking purposes, and will give your seller the reassurance needed before shipping merchandise.
Bank of america merrill lynch SolutionS for importerS 35
Chapter 03
Import LCs Defined
Opening a Commercial LCYour bank looks at an import LC line in much the same manner as any loan request. Careful evaluation is made of your
ability to reimburse Bank of America Merrill Lynch when drafts drawn under the LC are presented or when time drafts
(acceptances) mature. Furthermore, a review of the importer’s overall credit strength is required when it is anticipated
that loans will have to be made to finance the payment of the draft. As with any type of commercial loan, the bank
obtains appropriate borrowing authorization, resolutions, guarantees, etc. from the client.
To get started, discuss your trade finance business with your Bank of America Merrill Lynch Global Trade & Supply
Chain Solutions representative and determine the product that best suits your credit needs. Our bankers also
understand that your financial needs change as your business grows—from basic to fully integrated services. Tell us
about your changing needs and let us help you prepare for your financial future.
You will then complete an application and submit it to your banker. The application should be typed or neatly printed,
signed and accompanied by any required documents. Please note that we reserve the right to change the Application
and Agreement for Commercial LC form when we deem appropriate.
Bank fees related to issuing and negotiation of import LCs are related to the cost, risk and time involved. As with all
major banks, charges are also levied for incidental activities that arise under import LCs.
LCs are irrevocable and cannot be canceled prior to the expiration date without the written consent of the beneficiary.
After issuance, cancellation or other changes may only be effected by an amendment submitted to Bank of America
Merrill Lynch and with the agreement of the beneficiary.
A copy of a Bank of America Merrill Lynch Commercial LC Application is provided here, along with an explanation of
each of the fields on the application.
Bank of america merrill lynch SolutionS for importerS 36
Chapter 03
Import LCs Defined
00-35-0523NSBW 01-2012 Page 1
For Bank of America Use Only L/C No.
Application and Agreement for Commercial Letter of Credit
TO: Bank of America, N.A. (“Bank of America”)
A. Application
1. Applicant Name & Address (guarantor for Letter of Credit) requests Bank of America to issue an irrevocable commercial letter of credit (the “Letter of Credit”) as follows: Full text teletransmission Courier
2. Advising Bank Name and Address: (Not Required, LC will be advised through Bank of America local office where applicable))
3. For Account of Party/Named Applicant on the Letter of Credit (Name and address, if different from Applicant as indicated in Box 1):
3a. Is this party legally related to 1. Applicant through ownership? Yes No
If yes, please indicate relationship:
Parent Subsidiary Affiliate Owner If No, provide the following: a. Tax id number/country equivalent: b. If an individual, Date of Birth: c. Brief explanation of why applicant is applying for a Letter of Credit for an non-related entity
4. In favor of (Beneficiary Name and Address):
5. Expiration Date. Documents to be presented to the Negotiating or Paying Bank on or before: 6. Amount: ( ) Put in figures and words. For example: ($10,000) Ten thousand and 00/00 Currency (if left blank, U.S. dollars) Tolerance
7. Covering : % of invoice value. (Full invoice value unless otherwise specified.)
8. Available by drafts: Sight Days Sight Days Date (being the date of the transport document). Drafts to be drawn on Bank of America or Bank of America’s correspondent, at Bank of America’s option. Bank of America may at its option waive any draft requirement. 9. Partial Shipment:
Permitted Not Permitted 10. Transshipment
Permitted Not Permitted 11. Transferable Letter of Credit?
Yes No ( If Yes, Advising bank will be the authorized bank to Transfer) 12. Latest Shipment Date
Place of Taking in Charge/ Dispatch From/ Place of Receipt
Port of Loading/ Airport of Departure
Port of Discharge/ Airport of Destination
Place of Final Destination/ For Transportation To/ Place of Delivery
13. Merchandise to be described in invoice as (omit unnecessary details;Price Basis to be specified in #14 below).
14. Shipping Terms/Price Basis (check one): FCA FOB CFR CIF CIP: Other
Named Place (e.g. FCA Oakland): as per (check one) Incoterms 2000 or Incoterms 2010
Bank of america merrill lynch SolutionS for importerS 37
Chapter 03
Import LCs Defined
00-35-0523NSBW 01-2012 Page 2
15. Documents Required (Check applicable boxes below)
Commercial invoice in
original(s) and copies.
Packing List in original(s) and copies.
Certificate of Origin in original(s) and copies. Original Insurance Policy or Certificate covering
All Risks. Other Risks (Specify)
OR Insurance to be effected by Applicant (No Insurance document will be required in the LC)
Other documents:
Transport documents: Multi-modal Transport Document Marine Bill of Lading Presented in: Full Set 2/3 Set 1/3 Set ____ # of Copy(ies)
OR Air Waybill Truck Bill of Lading Other ___________________________
For Multimodal Transport Document or Marine Bill of Lading:
Consigned to the order of
Consigned to the order of Shipper, blank endorsed
Consigned to Applicant (non-negotiable)
For All Other Transport Documents:
Consigned to Applicant
Consigned to
Marked Notify: (Applicant’s name inserted if left blank)
Marked freight: collect prepaid
16. Special Instructions to be included in the Letter of Credit: (Unless otherwise stated) All bank charges (other than those of Bank of America) are for the account of the Beneficiary. Discount charges, if any, are for the account of the Beneficiary. All documents are to be sent by the negotiating/paying bank to Bank of America in one cover by courier.
Other instructions:
17. Special Instructions to Bank of America:
18. Documents must be presented to the negotiating or paying bank no later than: days after date of transport document (on board validation applicable for ocean shipment) but within the validity of the Letter of Credit. (Will be 21 days if left blank.)
Bank of america merrill lynch SolutionS for importerS 38
Chapter 03
Import LCs Defined
00-35-0523NSBW 01-2012 Page 3
B. Agreement. THIS COMMERCIAL LETTER OF CREDIT AGREEMENT (this “Agreement”) is issued by the
undersigned applicant (the “Applicant”) in favor of the Bank, N. A. (together with its affiliates, the “Bank”).
The Applicant hereby requests that the Bank issue the Letter of Credit (as defined below) for the account of the Applicant, pursuant to the application for Letter of Credit in form and content acceptable to the Bank (“Application”, the Application and Agreement are sometimes hereinafter collectively referred to as the “Application and Agreement”). The term “Letter of Credit” shall mean the letter of credit issued by the Bank for the account of the Applicant (including if the letter of credit is issued jointly for the account of the Applicant and any other Person, as defined below), in each case as amended or otherwise modified from time to time. “Person” means any natural person, corporation, partnership, trust, limited liability company, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity. The Letter of Credit issued by the Bank pursuant to this Application and Agreement from the Applicant (either individually or together with any other Person) shall be a Letter of Credit hereunder even if another Person is named as the “Applicant” or “Account Party” in such letter of credit. The Applicant agrees that, except as provided below, the Letter of Credit shall be subject to the terms and provisions of this Agreement, and the Applicant further agrees with and for the benefit of the Bank as follows:
1. Letter Of Credit Procedures. (a) Subject to the terms and conditions of this Agreement, the Bank may, in its sole
and complete discretion, issue the Letter of Credit for the account of the Applicant; provided that the terms and provisions of each Letter of Credit and the Application therefor shall be satisfactory to the Bank in its discretion.
(b) Not later than three Banking Days (as defined in UCP 600, which is defined herein below) prior to the date of the proposed issuance of a Letter of Credit (or such later date as the Bank shall agree), the Applicant shall deliver the Application for the Letter of Credit to the Bank. The Application may be sent by facsimile, by United States mail, by overnight courier, by electronic transmission using the system provided by the Bank, by personal delivery or by any other means acceptable to the Bank.
(c) The Applicant authorizes the Bank to set forth the terms of the Application in the Letter of Credit corresponding to such Application (and in any amendment thereto) in such language as the Bank deems appropriate, with such variations from such terms as the Bank may in its discretion determine to be necessary (which determination shall be conclusive) and not materially inconsistent with such Application. The Bank may, but shall not be obligated to, request the Applicant to review the form of a Letter of Credit prior to issuance thereof, in which case the Applicant shall be deemed to have approved the form of the Letter of Credit. Notwithstanding, the Applicant agrees that the Letter of Credit shall be conclusively presumed to be in proper form unless the Applicant notifies the Bank in writing of any inconsistency in the Letter of Credit within three Banking Days of its issuance. Upon receipt of timely notice of any inconsistency in the Letter of Credit, the Bank will endeavor to obtain the consent of the Beneficiary and any confirming bank for an appropriate modification to the Letter of Credit; provided that the Bank shall have no liability or responsibility for its failure to obtain such consent.
(d) The Applicant accepts the risk that a Letter of Credit will be interpreted or applied other than as intended by the Applicant to the extent the Letter of Credit (i) permits presentation at a place other than the place of issuance, (ii) permits application of laws or practice rules with which the Applicant or the Bank is unfamiliar, (iii) includes ambiguous, inconsistent or impossible requirements, (iv) requires termination or reduction against a presentation made by the Applicant rather than the Beneficiary or (v) fails to incorporate or modifies appropriate letter of credit practices rules.
(e) The delivery of the Application shall automatically constitute a representation and warranty by the Applicant to the Bank to the effect that on the requested date of issuance or amendment of the Letter of Credit, (i) the representations and warranties of the Applicant set forth in Section 16 shall be true and correct as of such requested date as though made on the date thereof and (ii) no Deposit Event, as defined in Section 4 below, shall have then occurred and be continuing or will result from such issuance.
2. Applicant Payments. (a) The Applicant hereby agrees to reimburse the Bank forthwith upon demand in
an amount equal to any payment or disbursement made by the Bank under the Letter of Credit issued or any time draft accepted pursuant thereto, together with interest on the amount so paid or disbursed by the Bank from and including the date of payment or disbursement to but not including the date the Bank is reimbursed by the Applicant at the interest rate described in Section 2(g). The obligation of the Applicant to reimburse the Bank under this Section 2 for payments and disbursements made by the Bank under the Letter of Credit issued or any time draft accepted pursuant thereto shall be absolute and unconditional under any and all circumstances, including, without limitation, (i) any failure of any draft, order, instrument, demand or other document drawn or presented, or to be drawn or presented, under the Letter of Credit (“Item” or collectively referred to as “Items”) to strictly comply with the terms of the Letter of Credit; (ii) the legality, validity, regularity or enforceability of the Letter of Credit or of any Item presented thereunder; (iii) any defense based on the identity of the transferee of the Letter of Credit or the sufficiency of the transfer if the Letter of Credit is transferable; (iv) the existence of any claim, set-off, defense or other right that the Applicant may have at any time against any Beneficiary or transferee of the Letter of Credit, the Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or any unrelated transaction; (v) any Item presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (vi) honor of a demand for payment presented electronically even if the Letter of Credit requires that demand be in the form of a draft; (vii) waiver by the Bank of any requirement that exists for the Bank’s protection and not the protection of the Applicant or any waiver by the Bank which does not in fact materially prejudice the Applicant; (viii) any payment made by the Bank in respect of an otherwise complying Item presented after the date specified as the expiration date of, or the date by which documents must be received under, the Letter of Credit if presentation after such date is authorized by the UCC or the UCP 600, as applicable; or (ix) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.
In the event that the Applicant shall provide written notice to the Bank within five (5) Banking Days of a payment by the Bank, that Applicant disagrees with the Bank’s findings and it is determined in a final non-appealable order by a court of competent jurisdiction that any wrongful payment or disbursement made by the Bank under the Letter of Credit was a result of any act or omission constituting gross negligence or willful misconduct on the part of the Bank, the Bank shall refund reimbursement payment paid hereunder by applicant to the Bank without interest or cost.
(b) On the fee payment date, Applicant shall pay the Bank a Letter of Credit fee and pay on demand any fees for amendments to, payments under, extensions of or cancellation of the Letter of Credit and other services. The fee payment date shall be the date as Applicant and the Bank may agree, or in the absence of such agreement, the fee payment date shall be the date on which the Bank issues the Letter of Credit.
(c) Applicant shall pay the Bank, on demand, acceptance commissions, in the amounts Applicant and the Bank may agree or, in the absence of such agreement, at the rate customarily charged by the Bank at the time such fee is payable, based upon Applicant’s creditworthiness, as determined by the Bank in its sole discretion. The applicable acceptance commission shall be calculated and payable on the drawing amount of each Letter of Credit as of each fee payment date, and shall be for the period commencing on the acceptance date and ending on the maturity date, as the case may be, inclusive of the acceptance date. The acceptance commission will be computed on the basis of a 360-day year and the actual days elapsed, or as otherwise agreed by the Bank and the Applicant. For any early payment the Bank shall not be required to refund any portion of any acceptance commission or discount paid or payable.
(d) All payments and deposits of any kind by Applicant under this Application and Agreement, including prepayments, shall be made at the banking center or office the Bank may designate from time to time. The Bank shall have no obligation to pay Applicant interest on any such payment, prepayment or deposit made by Applicant under this Application and Agreement.
(e) (i) All payments and deposits by Applicant under this Application and Agreement shall be in the currency in which the Letter of Credit is payable, except that the Bank may, at its option, require payments and deposits by Applicant under this Application and Agreement to be made in U.S. Dollars if the Letter of Credit is payable in a currency other than U.S. Dollars, (ii) the amount of each payment and each deposit by Applicant under this Application and Agreement in U.S. Dollars for a Letter of Credit payable in a currency other than U.S. Dollars shall be determined by converting the relevant amount to U.S. Dollars at the Conversion Rate in effect (A) with respect to each payment under Section 2(a) of this Agreement, on the date the payment is made by the Bank under or in respect of the Letter of Credit; and (B) with respect to each payment not falling under the preceding clause (A) and each deposit, on the date of the Bank’s demand for such payment or deposit, (iii) If a U.S. Dollar deposit by Applicant under this Application and Agreement for a Letter of Credit payable in a foreign currency becomes less than the U.S. Dollar equivalent of the undrawn amount of the Letter of Credit because of any variation in rates of exchange, Applicant shall deposit with the Bank, on demand, additional amounts in U.S. Dollars so that the total amount deposited by Applicant under this Application and Agreement is not less than the U.S. Dollar equivalent of the undrawn amount of the Letter of Credit, determined by using the Conversion Rate on the date of the Bank’s latest demand, (iv) “Conversion Rate” means the rate quoted by the Bank for the purchase from the Bank of the relevant currency other than U.S. Dollars with U.S. Dollars.
(f) Applicant shall reimburse or compensate the Bank, on demand, for all costs incurred, losses suffered and payments made by the Bank which are applied or allocated by the Bank to the Letter of Credit (as determined by the Bank) by reason of any and all present or future reserve, capital, deposit, assessment or similar requirements against (or against any class of or change in or in the amount of) assets or liabilities of, or commitments or extensions of credit by, the Bank.
(g) Applicant shall pay interest, on demand, on any amount not paid when due under this Application and Agreement from the due date until payment in full at a rate per annum equal to the rate of interest publicly announced from time to time by the Bank as its prime rate (“Prime Rate”), plus three percentage points (not to exceed the maximum rate permitted by applicable law) or as otherwise agreed by the Bank. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some credits. The Bank may price credit at, above or below the Prime Rate. Any change in the Bank’s Prime Rate shall take effect at the opening of business on the day specified in the Bank’s public announcement of a change in the Bank’s Prime Rate. Interest will be computed on the basis of a 360-day year and actual days elapsed.
3. Place of Issuance. The Letter of Credit may be issued by any office of the Bank within or outside the United States.
4. Deposit Events. Upon the occurrence of any of the following events (each a “Deposit Event”), Applicant shall deposit with the Bank, on demand (except that such demand shall not be required in the event of an occurrence described in (b) below) and as cash security for Applicant’s obligations to the Bank under this Application and Agreement, an amount equal to the undrawn amount of the Letter of Credit:
(a) Applicant defaults under any provision of this Application and Agreement; (b) Any bankruptcy or similar proceeding is commenced with respect to Applicant; (c) Any default occurs under any other agreement involving the borrowing of
money or the extension of credit under which Applicant may be obligated as borrower, installment purchaser or guarantor, if such default consists of the failure to pay any indebtedness when due or if such default permits or causes the acceleration of any indebtedness or the termination of any commitment to lend or to extend credit;
(d) Applicant or any of its affiliates defaults on any other obligation to the Bank; (e) In the opinion of the Bank, any material adverse change occurs in Applicant’s
business, operations, financial condition or ability to perform its obligations under this Application and Agreement;
(f) Any guarantee of Applicant’s obligations under this Application and Agreement terminates, is revoked or its validity is contested by the guarantor, or any of the events set
Bank of america merrill lynch SolutionS for importerS 39
Chapter 03
Import LCs Defined
00-35-0523NSBW 01-2012 Page 4
forth in (b) through (e) above occur with respect to the guarantor rather than the Applicant; or
(g) Any court order, injunction or other legal process is issued restraining or seeking to restrain drawing or payment under the Letter of Credit.
5. Charge to Accounts. If the Bank is unable to debit the account, if any, specified on the Application, Applicant authorizes the Bank to charge any of Applicant’s accounts with the Bank, or any affiliate of the Bank, for all amounts then due and payable to the Bank under this Application and Agreement.
6. Documentation. (a) Unless specified to the contrary in the Application, or any amendment to the
Letter of Credit, Applicant agrees that the Bank and its correspondents may receive and accept (i) as “bills of lading” any documents issued or purportedly issued by or on behalf of any carrier which acknowledges receipt of property for transportation, irrespective of the specific provisions of such documents, (ii) either insurance policies or insurance certificates as documents of insurance, (iii) the description of property contained in any invoice as sufficient and controlling against other descriptions contained in any bills of lading, insurance or other documents accepted, as long as such descriptions are not in conflict with one another, (iv) any documents containing stamped, written, or typewritten provisions, whether or not signed and initialed, as if the same were placed with authority on the documents at the time of issuance by the carrier, other issuer, or one of their agents, (v) any Items or documents otherwise in order, issued or purportedly issued by an agent, executor, trustee in bankruptcy, receiver or other representative of the party authorized under the Letter of Credit to issue such Items or other documents, as complying with the terms of the Letter of Credit and (vi) documents which comply with the UCP 600 as defined in Section 10 of this Agreement or which comply with the laws, regulations, customs or usages of the place of shipment or negotiation/payment/acceptance, or both. The provisions of clause (v) above shall in no way be deemed to preclude the Beneficiary of the Letter of Credit from issuing and presenting Items or documents under the terms of the Letter of Credit.
(b) In the event that some of the documents required under the Letter of Credit are forwarded directly to Applicant or any other party designated by Applicant, or the Bank releases or consents to the release of some or all of the property shipped under the Letter of Credit prior to the presentation of the relative Item, Applicant agrees to pay the Bank on demand the amount of any claim made against the Bank by reason thereof and authorizes the Bank to honor such Item when it is presented regardless of whether or not such Item or any document that may accompany it complies with the terms of the Letter of Credit. In case of the Bank’s issuance of a steamship indemnity for the benefit of Applicant, the Bank is authorized to retain one original bill of lading for delivery to the shipping company to secure the release of the Bank’s indemnity.
(c) Subject to the provisions of this Section 6, in the event that any Item presented to the Bank appears on its face to be non-compliant with the terms and conditions of the Letter of Credit, the Bank may send notice thereof to Applicant. In that event, Applicant will promptly review such notice and will notify the Bank within seven Banking Days of its receipt of such notice if it has any claim of non-compliance. If Applicant does not respond to the Bank within such seven Banking Day period, the Bank reserves the right to return the documents to the presenter at anytime in its discretion or if requested by the presenter. Upon demand of the presenter at any time the Bank shall promptly return the documents.
7. Collateral. (a) As security for the performance of all obligations of every kind (including, but not
limited to, the obligation to make payments pursuant to Section 2 hereof) owed by Applicant to the Bank under the Letter of Credit, this Application and Agreement, or otherwise, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, howsoever created, arising or evidenced (the “Liabilities”), Applicant hereby assigns, pledges and grants to the Bank a lien upon and a security interest for the Bank’s benefit in, and recognizes and admits the Bank’s unqualified right to: (i) the possession and disposal of any and all Items, all shipping documents, warehouse receipts, policies or certificates of insurance, and other documents accompanying or relative to any Items, and all Property (as defined below) covered, shipped, or stored under any Items or documents whether or not any Items, documents, or Property shall be released to Applicant, (ii) all claims which the Applicant may have against anyone else in connection with any of the foregoing including, without limitation, any guarantees, indemnities, agreements or other undertakings, policies of insurance or assurances in connection therewith, (iii) all other Property (A) which, now or hereafter, is in the Bank’s possession, control, or in transit to, or the pledge of which is at any time registered to, the Bank or the Bank’s agent or bailee for any reason or purpose or (B) in which, now or hereafter, the Bank may have a security interest, securing any of the Liabilities, (iv) all balances, credits, deposits, accounts or moneys, held by the Bank, now or hereafter, which Applicant owns or in which Applicant may have an interest, and (v) all dividends, distributions and other rights in or with respect to, and substitutions for and products and proceeds of, any of the foregoing being referred to collectively as the “Collateral”. In addition, Applicant agrees: (i) that Applicant shall keep all Collateral that is customarily insured against loss, damage, theft and other risks, insured in amounts and by companies satisfactory to the Bank, and either assign the policies and certificates of insurance to the Bank or make the loss or adjustment payable to the Bank, and hold as the Bank’s agent in trust for the Bank any proceeds received by Applicant under such policies and promptly deliver the same to the Bank, (ii) that, if the Bank at any time deems such insurance inadequate for any reason, the Bank may procure such insurance as the Bank deems necessary, at Applicant’s expense, and (iii) to furnish to the Bank such certificates or other evidence with respect to the foregoing as the Bank may request. “Property” includes any rights or interests in goods, merchandise, documents, securities, funds, chooses-in-action and any and all other forms of property, whether tangible or intangible, real, personal or mixed, and proceeds thereof, which are owned by Applicant.
(b) Applicant agrees to keep the Collateral free and clear of all other interests and claims and, at any time and from time to time, upon the Bank’s request, (i) to deliver to the Bank any of the Collateral that may then be in or may hereafter come into its possession or control, (ii) to execute and deliver to the Bank such further security agreements, financing statements and other documents (and to pay the cost of filing or
recording the same in all public offices deemed necessary by the Bank), and to do such other acts or things required to perfect and maintain a valid security interest in the Collateral to secure the payment of the Liabilities (and any reproductions of this Agreement or of any such other security agreement or financing statement shall be sufficient for filing as a financing statement), (iii) to furnish to the Bank information concerning its financial condition, the Collateral, and any obligors on the Collateral as the Bank may reasonably request, and (iv) to deliver and assign to the Bank additional Collateral (including, but not limited to, cash Collateral) of a value and condition satisfactory to the Bank in the Bank’s sole judgment as additional security for the Liabilities if the Bank feels insecure for any reason. Applicant hereby irrevocably authorizes the Bank at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto without the signature of the Borrower that indicates the Collateral.
(c) The Bank shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if the Bank takes such action as Applicant shall request in writing, but the Bank’s failure to comply with any such request shall not be a failure to exercise reasonable care. If Applicant does not make a request in writing, the Bank’s failure to preserve or protect any rights to the Collateral shall not be a failure to exercise reasonable care in the custody and preservation of the Collateral.
(d) The Bank may, whether before or after the occurrence of any Deposit Event referred to in Section 4 hereof, at the Bank’s sole discretion and without notice to Applicant, take any or all of the following actions: (i) transfer all or any part of the Collateral into the Bank’s name or the name of the Bank’s nominee, with or without disclosing that such Collateral is subject to the security interest under this Agreement, (ii) notify any obligors of any of the Collateral to make payment to the Bank of any amounts due or to become due, (iii) enforce collection of any of the Collateral by suit or otherwise, or surrender, release or exchange all or any part of the Collateral, (iv) take control of any proceeds (including insurance proceeds) of any of the Collateral, and (v) extend or renew any obligation of any obligor to the Collateral, or grant releases, compromises or indulgences for any obligation of any obligor to the Collateral.
The security interest granted by this Section shall continue until such time as all Liabilities have been paid in full and discharged.
8. Risks. Applicant agrees that any action or omission by the Bank under or in connection with the Letter of Credit or any Items, documents or Property shall, unless in breach of good faith, be binding on Applicant and shall not put the Bank under any resulting liability to Applicant; and Applicant will indemnify the Bank and hold the Bank harmless from and against each and every claim, demand, liability, loss, cost or expense (including, but not limited to, reasonable attorneys’ fees and allocated costs of in-house counsel, and legal costs) to which the Bank may be subjected or which the Bank may incur by reason of any such action or omission, or by reason of any action taken pursuant to this Application and Agreement, unless in breach of good faith. In no event shall the Bank be liable for incidental, consequential or special damages.
9. Exculpation. In addition to the exculpatory provisions contained in the UCP 600, the Bank or the Bank’s correspondents shall not be responsible for and Applicant’s obligation to reimburse the Bank shall not be affected by:
(a) the time, place, manner, or order in which shipment is made, or partial or incomplete shipment or insurance of any property or any risk connected with insurance, delay in arrival or failure to arrive of any property or any relative documents, delay in giving or failure to give notice of arrival of goods or any other notice;
(b) compliance with any laws, customs or regulations in effect in countries of negotiation or payment of the Letter of Credit;
(c) failure of any Item to refer adequately to the Letter of Credit, or failure of documents to accompany any Item at negotiation/ payment/acceptance, or failure of any person to note the amount of any Item on the reverse of the Letter of Credit or to surrender or to take up the Letter of Credit or to forward required documents with Items, each of which provisions, if contained in the Letter of Credit itself, it is agreed may be waived by the Bank;
(d) any irregularity in connection with shipment, including any default, oversight or fraud by the shipper and/or any others in connection with the Property or documents or the shipment, non-shipment or transmittal thereof;
(e) any refusal by the Bank honor Items or the Bank is prevented from processing Items because of an applicable law, regulation or ruling of any governmental agency whether valid or invalid, or now or hereafter in effect;
(f) acts or the inability to act of the Bank’s agents or correspondents including, but not limited to, their inability to process Items because of any law, decree, regulation, ruling, or interpretation of any governmental agency, or
(g) the identity of any transferee of the Letter of Credit or the sufficiency of the transfer if the Letter of Credit is transferable.
10. Limitations on the Bank’s Liability. (a) The Bank shall not be responsible to Applicant for, and the Bank’s rights and
remedies against Applicant shall not be impaired by (i) action or inaction of the Bank required or permitted under any law, order, or practice that is required or permitted to be applied to the Letter of Credit or this Agreement (including the law or any order of a jurisdiction where the Bank or the Beneficiary is located and the practice stated in the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ICC”) Publication No. 600 (“UCP 600”), or the current version, and the decisions, opinions, practice statements, and official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade - International Financial Services Association (BAFT-IFSA), and the Institute of International Banking Law & Practice.) whether or not the Letter of Credit chooses such law or practice, (ii) honor without regard to any non-documentary condition(s) in the Letter of Credit, (iii) honor or other recognition of a presentation or other demand that includes forged or fraudulent documents or that is otherwise affected by the fraudulent, bad faith, or illegal conduct of the Beneficiary or other person (excluding employees of the Bank and any processing agent engaged by the Bank), whether or not Applicant is innocent and obtains no benefit, (iv) dishonor of any presentation that does not strictly comply or that is fraudulent, forged, or otherwise not entitled to honor, (v) dishonor which is authorized by Applicant, which occurs during the continuance of an Event of Default (defined below), or for which
Bank of america merrill lynch SolutionS for importerS 40
Chapter 03
Import LCs Defined
00-35-0523NSBW 01-2012 Page 5
Applicant is unwilling or unable to reimburse the Bank, (vi) non-notification to Applicant of the Bank’s receipt of a presentation or claim for reimbursement under each Letter of Credit or of the Bank’s disposition thereof and, (vii) if the Bank in its sole discretion approaches Applicant for a waiver of discrepancies, dishonors regardless of Applicant’s waiver of discrepancies or request for honor, or (viii) retention of Letter of Credit proceeds based on a valid exercise of Bank of America’s set off rights or on an apparently applicable attachment order, blocking regulation, or third-party claim notified to the Bank.
(b) Except as may be expressly provided in this Agreement, the Bank shall not be liable to the Applicant in contract, tort or otherwise and under no circumstances shall the Bank be liable to the Applicant or any other person for any special, indirect, consequential, exemplary, or punitive damages.
11. The Bank’s Discretion. (a) The Bank may for Applicant’s account at any time provide in the Letter of Credit
or otherwise agree to do or do any one or more of the following (i) send the Letter of Credit or conduct any communication to or from the Beneficiary via the Society for Worldwide Interbank Financial Telecommunication ("SWIFT") message or overnight courier, or any other commercially reasonable means of communicating with a bank beneficiary, (ii) assert or waive or, with any necessary consent from the Beneficiary or other person, amend any provision in the Letter of Credit or applicable practice that primarily concerns issuer operations (including (A) identification of the Letter of Credit in any presentation, (B) marking of the Letter of Credit to reflect a transfer, payment, or other action, (C) specification of banking days and hours, manner, and place for the Bank’s receiving a presentation, effecting honor, and giving notice of dishonor under the Letter of Credit, (D) duration of the period(s) for examination, approaching Applicant for a waiver, or sending a notice of refusal, (E) disposition of the Beneficiary’s documents after dishonor or while approaching Applicant for a waiver, and (F) replacement of a lost Letter of Credit or recognition of a successor Beneficiary), (iii) select any branch or office of the Bank or any affiliate of the Bank or another Bank to act as advising, transferring, confirming, and/or nominated bank or person under the law and practice of the place where it acts (if the Letter of Credit permits advice, transfer, confirmation, and/or nomination) or to act as letter of credit processing agent for the Bank in the Bank’s issuance of the Letter of Credit or processing of demands or in any other action that the Bank is required or permitted to take under the Letter of Credit, (iv) honor any presentation that substantially complies with the terms and conditions of the Letter of Credit, whether or not the Letter of Credit requires strict or literal compliance; and (v) provide for or submit to arbitration, mediation, or the like for the resolution of any dispute between the Bank and Beneficiary.
(b) Unless specifically committed to do so in a writing signed by the Bank, the Bank need not consent to any Letter of Credit amendment.
(c) If the Beneficiary or another person claims that the Bank has wrongfully repudiated or dishonored, then the Bank shall have the right to defend or settle the claim, with or without joining Applicant in any proceeding or negotiation and without regard to whether the claimant asserts that the Bank is precluded from relying on a valid defense, and Applicant shall have the obligation to mitigate damages and, if the Bank pays or settles, to reimburse, indemnify, account for any benefits, as provided above, and to cooperate with the Bank as subrogee.
(d) The Bank’s agreement to use, or its use of, its discretion in one or more instances shall not waive its right, with or without notice to Applicant, to use its discretion differently in other similar instances and shall not establish a course of conduct on which Applicant may rely in any other instances under the Letter of Credit.
12. Applicant’s Responsibility for Letter of Credit Text and Practice. Applicant is responsible for preparing or approving the text of the Letter of Credit as submitted to and as issued by the Bank and as received by the Beneficiary. The Bank’s recommendation or drafting of text or the Bank’s use or non use or refusal to use text submitted by Applicant shall not affect Applicant’s ultimate responsibility for the final text. Applicant is responsible for the Bank’s failure to apply, or to observe standard practice as applied to, Letter of Credit terms or conditions that (i) are erroneous, ambiguous, inconsistent, insufficient, ineffective, or illegal, (ii) require the Bank to respond to a demand in fewer than 3 banking days, or (iii) require Applicant to sign, issue, or present a document.
13. Indemnities. (a) Applicant will indemnify and hold the Bank (such term to include for purposes of
this Section 13 affiliates of the Bank and its affiliates’ officers, directors, employees and agents) harmless from and against (i) all loss, claim, expense or damage arising out of the issuance by the Bank, or any other action taken by any such indemnified party in connection the Letter of Credit including any loss or damage arising in whole or in part from the negligence of the party seeking indemnification, but excluding any loss or damage resulting from the gross negligence or willful misconduct of the party seeking indemnification, and (ii) all costs and expenses (including reasonable attorneys’ fees and allocated costs of in-house counsel and legal expenses) of all claims or legal proceedings arising out of the issuance and all actions arising from or relating to issuance by the Bank of the Letter of Credit or incident to the collection of amounts owed by Applicant hereunder or the enforcement of the rights of the Bank hereunder, including, without limitation, legal proceedings related to any court order, injunction, or other process or decree restraining or seeking to restrain the Bank from paying any amount under the Letter of Credit. Additionally, Applicant will indemnify and hold the Bank harmless from and against all claims, losses, damages, suits, costs or expenses (including reasonable attorneys’ fees and allocated costs of in-house counsel, and legal expenses) arising out of (i) the Bank’s acceptance of telecommunication instructions in connection with the Letter of Credit, including but not limited to, telephonic instructions in connection with any waiver of discrepancies, or (ii) Applicant’s failure to timely procure licenses or comply with applicable laws, regulations or rules, or any other conduct or failure of Applicant relating to or affecting the Letter of Credit.
(b) If any award, judgment or order is given or made for the payment of any amount due under this Agreement and such award, judgment or order is expressed in a currency other than the currency required under this Agreement, Applicant shall indemnify the Bank against and hold the Bank harmless from all loss and damage incurred by the Bank as a result of any variation in rates of exchange between the date of such award, judgment or order and the date of payment (or, in the case of partial payments, the date of each partial payment thereof) in the required currency.
(c) Without limiting the foregoing, the above indemnities cover all claims and liabilities for which the indemnified party is not responsible to the Applicant under this Agreement, or, if not covered in this Agreement, under applicable law or practice, and the above indemnities cover all claims and liabilities, whether they arise or are settled formally or informally, in which (i) the Beneficiary seeks to enforce the Letter of Credit or any pre-advice of its issuance or amendment, (ii) a third party seeks to enforce the rights of an applicant, Beneficiary, nominated bank, assignee of letter of credit proceeds, or holder of a document, (iii) Applicant seeks to enjoin honor or to attach proceeds from honor or to obtain similar relief against the Bank or (iv) a government agency seeks to investigate or regulate specifically this Agreement, the Letter of Credit, or any document or property received under this Application and Agreement or the Letter of Credit.
(d) Each of these indemnities shall constitute an obligation separate and independent from the other obligations contained in this Application and Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Bank from time to time, and shall continue in full force and effect notwithstanding any award, judgment or order for a liquidated sum in respect of an amount due under this Agreement.
14. Governing Law and Rules. (a)This agreement will be governed by and interpreted in accordance with (i) U.S.
federal law and, (ii) the laws of the state of New York. Unless otherwise specified in the terms of the Letter of Credit, the Letter of Credit will be subject to and governed by and interpreted in accordance with the most current version of the UCP 600 in effect on the date the Letter of Credit is issued. In any event, each choice of law shall be without reference to the chosen jurisdiction’s provisions regarding conflicts of laws.
(b) To the extent permissible under applicable law, the Applicant hereby waives any rights it may have to a trial by jury of any dispute arising under or relating to this Application and Agreement or the Letter of Credit, and agrees that any such dispute shall be tried before a judge sitting without a jury.
15. Applicant Status. The word “Applicant” in this Application and Agreement refers to each signer (other than the Bank) of this Application and Agreement. If this Application and Agreement is signed by more than one Applicant, their obligations under this Application and Agreement shall be joint and several. If there is more than one Applicant, the Letter of Credit will be issued in the name of the Account Party listed on the Application, or if no such party is listed, the first Applicant named on the Application (the “Designated Party”). Applicant further agrees that the Designated Party shall have the exclusive right to issue all instructions relating to the Letter of Credit including (without limitation) instructions as to the disposition of documents and any unutilized funds, waiver of discrepancies, and to agree with the Bank upon any amendments, modifications, extensions, renewals, or increases in the Letter of Credit or the further financing or refinancing of any transaction effected thereunder, irrespective of whether the same may now or hereafter affect its rights or those of its legal representatives, heirs, successors or assigns. The Designated Party shall have specimen signatures on file with the Bank and the Bank may give any notices to the Designated Party without notice to any other person listed as an Applicant on the Application.
16. Representations and Warranties. (a) Applicant represents and warrants to the Bank that it has the authority to enter
into this Application and Agreement and that such agreement will not violate or conflict with any of the provisions of its constituent documents or any other agreement or undertaking to which it is a party or to which it is bound.
(b) Applicant represents and warrants to the Bank that Applicant has obtained all licenses and other governmental approvals required for the import, export, shipping, storage of, financing of or payment for goods and the documents described in the Letter of Credit. Applicant also represents and warrants to the Bank that it has paid all applicable levies, duties or other taxes imposed in connection with the Letter of Credit (other than net income taxes payable by the Bank). Without limiting the generality of the foregoing, Applicant further expressly represents and warrants to the Bank that the transactions underlying the Letter of Credit are not prohibited under the Foreign Assets Control Regulations of the United States Treasury Department and any importation covered by the Letter of Credit conforms in every respect with all existing applicable U.S. and state laws.
17. Miscellaneous. (a) No delay, extension of time, renewal, compromise or other indulgence which
may occur or be granted by the Bank shall impair the rights and powers of the Bank hereunder. The Bank shall not be deemed to have waived any of its rights hereunder, unless the Bank shall have signed such waiver in writing.
(b) Any notice from the Bank to Applicant shall be deemed given when mailed, postage paid, or when delivered to a courier, fee paid by shipper, addressed to Applicant at the address furnished by Applicant to the Bank pursuant to this Application and Agreement, or when confirmed by electronic confirmation to the Bank. as having been delivered via facsimile or other teletransmission. Any notice from Applicant to the Bank shall be sent to the address of the Bank specified by the Bank to Applicant and shall be effective upon receipt by the Bank.
(c) Each provision of this Application and Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Application and Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Application and Agreement.
(d) Any and all payments made to the Bank hereunder shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding income or franchise taxes imposed by the United States and any political subdivisions thereof (such nonexcluded taxes being herein called “Taxes”). If Applicant shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 17(d)), the Bank shall receive an amount equal to the sum the Bank would have received had no such deductions been made, (ii) Applicant shall make such deductions, and (iii) Applicant shall pay the full amount deducted to the relevant authority in accordance with applicable law.
Bank of america merrill lynch SolutionS for importerS 41
Chapter 03
Import LCs Defined
00-35-0523NSBW 01-2012 Page 6
Applicant will indemnify the Bank for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 17(d)) paid by the Bank and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date the Bank makes written demand therefor. Within 30 days after the date of any payment of Taxes, Applicant will furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof.
(e) This Application and Agreement shall be binding upon Applicant, its successors and assigns, and shall inure to the benefit of the Bank, its successors, transferees and assigns; provided that any assignment by Applicant of any of its rights or obligations under this Application and Agreement without the prior written consent of the Bank shall be void.
(f) If the Applicant requests the Bank to increase the amount of the Letter of Credit, extend or renew the Letter of Credit, otherwise modify the terms of the Letter of Credit, or finance or refinance any transaction effected under the Letter of Credit, Applicant agrees that this Agreement shall continue to bind it with respect to any action taken by the Bank or any of the Bank’s correspondents in accordance with such increase, extension, renewal or other modification and as to any transaction so financed or refinanced.
(g) Applicant shall pay the Bank for reasonable attorneys’ fees and allocated costs of in-house counsel, and legal costs paid or incurred by the Bank in connection with this Agreement or the related Letter of Credit (including, without limitation, the defense by the Bank of any proceeding initiated by the Applicant to enjoin or restrain any drawing, payment or negotiation of the Letter of Credit by the Bank, even if the Applicant is awarded such relief, provided only that the Bank has acted in good faith in defending such action).
(h) In the event of any change or modification, with the consent of Applicant, which consent may be given by any means of submission acceptable to the Bank, including, without limitation, computer, facsimile or telex, relative to the Letter of Credit or any instrument called for hereunder, including any waiver made or in good faith believed by the Bank to have been made by Applicant of any term hereof or the noncompliance of any such instruments with the terms of the Letter of Credit, this Application and Agreement shall be binding upon Applicant with regard to the Letter of Credit as so changed or modified, and to any action taken by the Bank or any of its correspondents relative thereto. No term or provision of this Application and Agreement can be changed orally, but only in a writing and signed by Applicant and the Bank. This Agreement may be amended, supplemented or modified from time to time by a rider, amendment or supplement executed by Applicant and accepted by the Bank.
(i) The Bank assumes no liability or responsibility for the consequences arising out of delay and/or loss in transit of any message, letter or documentation, or for delay, mutilation or other error arising in the transmission of any teletransmission.
(j) If Applicant includes in the Application any language describing events or conditions that would not be possible for the Bank to verify solely from the documents required to be presented under the Letter of Credit, Applicant acknowledges and agrees that the Bank has no obligation to verify compliance with such requirements. NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Application and Agreement is executed by Applicant on .
If this box is marked, Applicant authorizes Bank of America to effect payment of any sums due under this Application and Agreement by means of debiting Applicant’s account with Bank of America set forth below. This authorization does not effect the obligation of Applicant to pay such sums when due, if there are insufficient funds in such account to make such payment when due, or if Bank of America fails to debit the account, and this authorization does not effect any setoff rights of Bank of America at law or in equity. Applicant’s account number with Bank of America is .
APPLICANT Name of Company or Individual
By, Authorized by (signature)
Title
Telephone ( ) Fax ( )
Bank of america merrill lynch SolutionS for importerS 42
Chapter 03
Import LCs Defined
Understanding the commercial LC applicationCommercial Letter of Credit Application01. Applicant:� Enter your legal name exactly as it appears on your preapproved line of credit or application for credit.
02. Full text teletransmission /Courier:� Bank of America Merrill Lynch will send the issued LC to an advising bank
in the country of the beneficiary using the method that you choose. When “full text teletransmission” is chosen,
Bank of America Merrill Lynch normally sends the LC via SWIFT to the advising bank for forwarding to the
beneficiary. LCs can also be sent by a brief teletransmission advice, followed by full details by airmail or courier.
This same advising bank must be used when making an amendment to the LC.
03. Advising Bank:� Enter the name of the bank the beneficiary wishes to use to advise the LC. If no specific bank
has been requested, leave this blank. Bank of America Merrill Lynch will send the LC to a branch of Bank of
America Merrill Lynch or a correspondent bank in the beneficiary’s country to deliver the LC to the beneficiary.
The only responsibility of the advising bank is to take reasonable care to check the apparent authenticity of the
LC that it advises, thoroughly test key arrangements, and then mail or deliver it to the beneficiary. In addition,
advising banks might be nominated or requested to negotiate credits but have no obligation to do so.
04. For Account Of:� this box if you want the LC to be issued on behalf of an entity other than the applicant.
Otherwise, leave blank.
05. In Favor Of:� Enter the name and address of the beneficiary. The beneficiary is the party from which you are
buying the merchandise. This is the party entitled to be drawn under the LC and the party that will receive
payment upon presentation of documents that comply with the terms of the LC.
06. Expiration Date:� Enter the date the LC is to expire. Be sure to allow plenty of time for the beneficiary to make the
shipment and present the documents required by the LC. The expiration date cannot be later than the date your
available credit expires. LCs typically expire at the offices of an advising or negotiating bank in the beneficiary’s
country. To allow time for any drawing to reach us, collateral is generally held for 30 days after the expiration
date. If the LC expires at our counters, the collateral is generally held for ten working days. This allows for
documents that may still be in transit to reach us.
07. Amount:� Enter the amount of the LC in figures followed by the amount in words. Enter the name of the currency.
If blank, the currency will be assumed as USD. However, your beneficiary may require the LC to be paid in a
major foreign currency such as the EUR, JPY or GPS. If the LC is issued in a foreign currency, you undertake the
exchange rate fluctuation risk, and additional credit approval will be required.
08. Covering:� LCs are usually issued for 100% of the amount of the invoice. They can be issued for less than the full
amount of the invoice if, for example, you have made an advance payment to the beneficiary.
09. Available By Drafts At (Tenor):� The draft is the document that represents the demand for payment that the
beneficiary makes on the bank. Most LCs call for drafts at “Sight,” where the beneficiary is paid at the time
documents are received and found to be in compliance with the terms of the LC. If, on the other hand, the
beneficiary and bank have agreed to give you payment terms, the LC will call for drafts payable at some future
time. For example, drafts payable at “90-Days Sight” or payable at “45 days after Bill of Lading date.”
10. Partial shipment:� Check the appropriate box to indicate whether or not you will allow payment on partial
shipments.
Bank of america merrill lynch SolutionS for importerS 43
Chapter 03
Import LCs Defined
11. Transshipment:� Check the box to indicate whether or not you will allow transshipment. Transshipment means
that the merchandise is loaded on a carrier that only goes to a certain point and at that point the merchandise
is unloaded and reloaded on another carrier. Transshipment should always be permitted on air shipments and
combined transport method shipments. It may be prohibited on shipments where direct shipping service between
the supplier and you is always available.
12. Transferable LC:� Check the box to indicate whether or not you will allow this LC to be transferred by the
beneficiary. A transferable LC allows the beneficiary of an LC to make available (transfer) all or part of the
proceeds of the LC to a separate party. The parties to whom the LC is transferred acquire the same rights and
responsibilities under the LC as the original beneficiary. Transferable LCs are typically used when both parties
require the protection of the LC and the first beneficiary of the LC is an agent or intermediary procuring goods
from another supplier whose identity he does not want to disclose to the buyer.
13. Shipment From:� To: For shipments where a multi modal document is called for, complete at least fields A and/
or D, fields B and C are optional and should be used as applicable to give clear information about the expected
movement of the goods. For shipments where an ocean or charter party bill of lading OR an air waybill is called
for, complete fields B and C only. For shipments where road, rail or inland waterway documents are called for,
complete fields A and D only.
14. Merchandise to be Described in Invoice as:� Enter a brief description of the merchandise. If your description is
too detailed, we may ask you to shorten the description before we issue the LC. A detailed description of the
merchandise belongs in the contract between buyer and seller or in purchase order, not in the LC.
15. Shipping terms/price basis:� Also known as Incoterms, the shipping terms you select should be discussed and
agreed to with your supplier in advance of completing the application. The price basis determines which services
and related costs, usually freight and insurance, are included in the price, in addition to the cost of the goods
themselves. International trade terms used in connection with specific prices should be understood thoroughly
by both the buyer and seller (see Incoterms).
16. Documents required:� This area contains a number of commonly requested LC documents to demonstrate
shipment of the merchandise you’ve contracted to buy. The documents you will need from the beneficiary depend
upon the contract between you and the beneficiary, the country from which the goods will be shipped, the price
basis and, in some cases, the merchandise itself. Your customs house broker can give you guidance regarding
the documentation you will need from the beneficiary. Refer to Chapter 5 for more information on documents
typically required under an LC.
Commercial Invoice:� This is always required. Specify how many originals and how many copies you’ll need.
Packing List:� Typically required, it describes the contents that were packed into the containers you’ll be
receiving. Specify how many originals and how many copies you’ll need.
Certificate of Origin:� Typically required, it certifies where your merchandise originated. Specify how many
originals and how many copies you’ll need.
Negotiable Marine/Air Insurance Policy:� Check this box if your shipping term includes insurance. Stipulate
who is to effect the insurance coverage. Also check the boxes to indicate which risks should be covered by the
insurance policy.
Transport Documents:� Indicate type of transport document and number of originals required based on the
expected mode of shipment.
Bank of america merrill lynch SolutionS for importerS 44
Chapter 03
Import LCs Defined
Consigned To/the Order of:� Indicate to whom the merchandise will be consigned, the order of and how the
consignment must be endorsed. This is the party that will be able to take possession of the goods.
Marked Notify:� Specify a party to be notified when the goods arrive for dispatch to the consignee. Marked
Freight: Check the box to indicate whether freight is to be covered on a “collect” or “prepaid” basis.
Other Documents:� List any additional documents you expect the exporter to produce. These could include
Inspection Certificates and Phytosanitary Certificates, among others. If the shipment is to be made by air, you
may wish to require a signed statement from the beneficiary that one set of documents has accompanied the
shipment. This will enable you to pick up the merchandise as soon as it arrives. This should be included in
Special Instructions.
17. Special Instructions to be Included in the LC:� When there are additional terms or conditions that are not
covered by these documents, you can indicate them here. Bank of America Merrill Lynch automatically indicates
that any banking charges other than ours are to be charged to the beneficiary, unless you indicate otherwise.
We may inquire about the purpose of special instructions requested by you, to better ensure that they can be
complied with.
18. Special instructions for Bank of America Merrill Lynch:� Use this area to tell us who we should call with any
questions about your application and who to contact if there are discrepancies in the documents presented.
19. Documents must be presented to the negotiating or payment bank no later than:� This is the amount of time
the seller has to obtain, complete and present all documents required under the LC for payment. If this space
is left blank, the shipper may take up to 21 days to present documents, not to exceed the expiry date of the LC.
Steamship companies normally require an original bill of lading to release merchandise. If you allow the shipper
too many days to present documents, the ship may arrive at the destination port in advance of the documents.
The merchandise will then be placed in storage by the steamship company and will accrue demurrage charges.
The number of days entered here added to the latest shipment date in box No. 12 should arrive at the expiration
date in box No. 5.
Agreement
Following the demonstration copy of the Commercial LC Application, you’ll find an example of the Agreement
from the reverse side of the application. This represents the Agreement between you and Bank of America
Merrill Lynch for the issuance of your LC. Please read it carefully, and complete and sign in accordance with the
instructions on the Agreement itself.
Bank of america merrill lynch SolutionS for importerS 45
Chapter 03
Import LCs Defined
A Discussion of UCP 600All commercial LCs should be issued subject to a set of rules established by the ICC, and known officially as “The
Uniform Customs and Practice for Documentary Credits.” The current version is referred to as UCP 600 and went into
effect July 1, 2007. The following discussion is intended to only summarize the 39 articles that comprise UCP 600
and is not intended to be advice. Partial quotes and comments are given in this chapter and should not be interpreted
as a full summary. For a complete understanding and review of UCP 600, as well as the URC 522 (“Uniform Rules for
Collections”), please refer to the ICC publications, available for purchase on ICC’s website at www.iccbooksusa.com.
Art. 01. Application of UCP
UCP 600, applies to all LCs that specifically state that they are issued subject to its terms. You may want to
great care to avoid accepting commercial credits that are not issued subject to UCP 600. Please note that
standby LCs can be issued subject to UCP 600, they are generally issued subject to another set of rules
issued by the International Chamber of Commerce, ISP 98.
Art. 02. Definitions
This article gives 14 definitions relative to this publication.
Art. 03. Interpretations
This article gives 12 interpretations to use within the framework of the rules.
Art. 04. Credits vs. Contracts
“A credit by its nature is a separate transaction from the sales or other contract on which it may be based.”
• This article makes a distinct difference between the credit itself and any underlying contract to which
the transaction is connected. Banks are not concerned with any underlying contracts, and an applicant
cannot prevent a bank from paying on a credit simply because the applicant asserts that the underlying
contract has been broken or not fulfilled.
• There may be various contractual relationships which exist between banks or between the applicant and
the issuing bank. Beneficiaries may not avail themselves of such relationships (see Art. 5).
Art. 05. Documents vs. Goods/Services/Performance
This article clarifies that banks deal only with documents, and not with goods, services or other
performances relative to those documents.
For example: A credit calls for shipment of “5 blade ceiling fans,” and the applicant (buyer) learns that the
beneficiary shipped “4 blade ceiling fans.” The applicant cannot instruct the bank to deny payment. So long
as the documents being submitted describe the goods as “5 blade ceiling fans,” the bank is obligated to pay
(assuming all other terms and conditions were complied with). Likewise, if a standby credit contains a clause
that requires the beneficiary to submit a statement certifying that “The applicant is in default under their
contract No. 1234 dated May 15, 2006,” then the applicant is precluded from instructing the bank to deny
payment simply on the basis that the applicant claims not to be in default.
Art. 06. Availability, Expiry Date and Place for Presentation
“A credit must state the bank with which it is available or whether it is available with any bank.” This article
gives specific guidance on the various availability structures, expiry conditions and place for presentation of
documents. Properly structured, a credit will effectively tie these items to one another.
Art. 07. Bank Undertaking
A credit is an obligation of the issuing bank to honor, provided that a complying presentation is made. The
article outlines the various scenarios which will engage the issuing bank’s obligation depending on the
availability of the credit.
Bank of america merrill lynch SolutionS for importerS 46
Chapter 03
Import LCs Defined
Art. 08. Confirming Bank Undertaking
By adding its confirmation to a credit, a bank is obligated to honor provided that a complying presentation
is made. The article outlines the various scenarios which will engage the confirming bank’s obligation
depending on the availability of the credit.
Art. 09. Advising
A credit may be advised to a beneficiary through another bank without engagement on the part of that
bank. This bank may act in the role of either an advising bank or as a confirming bank. The advising bank’s
responsibility is limited to taking reasonable care to ensure the authenticity of the credit and the accuracy
of the credit as it is passed to the beneficiary. If it is unable to verify authenticity, it must notify the issuing
bank right away. Should the advising bank choose to advise an unauthenticated credit, they must so
indicate this on their cover letter to the beneficiary. This responsibility on the part of an advising bank is
very important. Unfortunately, there have been numerous documented cases of bogus letters of credit being
issued, and then advised or confirmed by yet another bogus bank in the beneficiary’s country. This is just
one good reason to arrange for letters of credit to be advised/confirmed by the beneficiary’s bank whenever
possible.
Art. 10. Amendments
A credit cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank
(if any), and the beneficiary. The only minor exception is covered under transferable credits, Article . An
issuing bank is bound by any amendments as soon as it has issued them. A confirming bank is likewise
bound from the moment that it extends its confirmation to any amendment. However, a confirming bank may
decline to extend its confirmation to an amendment, and, if it does so, it must inform the issuing bank and
the beneficiary without delay. An amendment does not become effective until the beneficiary accepts the
amendment. Acceptance may be in writing. If the beneficiary does not accept the amendment in writing but
subsequently presents documents that conform to the credit and the not yet accepted amendment, then the
amendment is deemed accepted at that time. If the beneficiary wishes to reject the amendment, rejection
should be done in writing prior to presenting documents. If there is more than one change covered in the
same amendment advice, the beneficiary must accept or reject all changes in that particular amendment.
Art. 11. Teletransmitted and Pre-Advised Credits
Credits sent by an issuing bank to an advising bank via a teletransmission are considered the operative
instrument and no confirmation is expected to follow.
Art. 12. Nomination
“An authorization to honor or negotiate does not impose any obligation on that nominated bank.” This article
describes the options of a bank who has been nominated to honor or negotiate. It is also the article that
authorizes a nominated bank that has accepted a draft or incurred a deferred payment undertaking to prepay
or purchase that undertaking from the beneficiary. Lastly, this article makes it clear that the act of receiving,
examining and forwarding documents does not constitute honor or negotiation.
Bank of america merrill lynch SolutionS for importerS 47
Chapter 03
Import LCs Defined
Art. 13. Bank-to-Bank Reimbursement Arrangements
This article only applies to those credits which arrange for bank-to-bank reimbursement where the letter
of credit does NOT indicate that the reimbursement is subject to URR 525 (ICC Rules for Bank-to-Bank
Reimbursements).
• When an issuing bank opens a letter of credit that is available with a bank other than itself, the issuing
bank will frequently indicate the name of a reimbursing bank. The issuing bank maintains an account with
the reimbursing bank and authorizes them to honor reimbursement claim(s) from the nominated bank that
has acted in accordance with its nomination under the credit. This article simply states that the issuing
bank must provide authorization instructions to the reimbursing bank in a timely manner. The bank that
requests reimbursement is called the claiming bank.
• A claiming bank shall not be required to supply a certificate of compliance with the terms and conditions
to the reimbursing bank.
• If the reimbursing bank fails to pay the claiming bank, then the issuing bank is still obligated to pay the
claiming bank provided that all terms and conditions of the credit have been complied with.
• The issuing bank shall be responsible to the claiming bank for any loss of interest if reimbursement is
not provided by the reimbursing bank on first demand, or as otherwise specified in the credit or mutually
agreed, as the case may be.
• The reimbursing bank’s charges are to be paid by the issuing bank unless specified for the account of
the beneficiary. If so specified, the reimbursing bank’s charges will be deducted from the payment to the
claiming bank. In the event that the credit is not drawn under the reimbursing bank, charges remain for
the account of the issuing bank.
Art. 14. Standard for Examination of Documents
This article gives exporters a clear idea of how banks will perform the examination of their documents and
sets a strong foundation for how to prepare complying documents. It deals with the following topics:
• Banks must determine compliance on the basis of documents.
• Each bank that has a specific duty in the LC (issuing bank, confirming bank, nominated bank that is acting
on its nomination) has a maximum of five banking days following the day of presentation to examine the
documents and determine compliance.
• A presentation must be made no later than 21 days after the goods have been shipped, but in no case
later than the expiry date of the credit.
• Example: An LC is issued with an expiry date of Saturday, August 25, 2007, but does not stipulate a latest
shipping date. Documents could be presented as late as Monday, August 27, 2007; however, the latest
shipping date could be no later than Saturday, August 25, 2007.
Note: Sometimes documents are presented on or before the expiry date or latest day for presentation,
and are subsequently found to contain discrepancies. On occasion, the beneficiary must re-present
corrected documents. If the corrected documents are submitted after the expiry date or latest day for
presentation then a new discrepancy will exist of “LC expired” or “late presentation.” For this reason it is
highly advisable to present documents at least seven days prior to the expiry date of the credit.
• The data content in any required document in the presentation must not conflict with data
• The description of goods in documents other than the commercial invoice may be in general terms.
• Except for the transport document, commercial invoice and insurance document (if any), unless the
credit stipulates otherwise, banks will accept documents as presented if the content appears to fulfill the
function of the required document.
• Documents presented that are not required by the credit will be disregarded and likely will be returned to
the presenter.
Bank of america merrill lynch SolutionS for importerS 48
Chapter 03
Import LCs Defined
• If a credit speaks to a condition and does not indicate which document would contain information to show
compliance, that condition will be disregarded.
• Information such as beneficiary and applicant addresses and contact details and the named shipper or
consignor on any document may vary from that shown in the credit.
Art. 15. Complying Presentation
This article describes the actions around negotiation, honor and forwarding of documents required of a bank
when a presentation is found to be in compliance.
Art. 16. Discrepant Documents, Waiver and Notice
This article describes the actions permitted or required of a bank when a presentation does not comply.
• The bank may refuse to negotiate or honor.
• The issuing bank may approach the applicant for waiver of discrepancies.
• The bank deciding to refuse must give a single notice to the presenter, by expeditious means, by the
close of the 5th banking day after presentation that includes:
A statement of refusal
A listing of each discrepancy
A notice of how the documents will be handled
• If the bank fails in any of these responsibilities they shall be precluded from claiming that the documents
do not comply.
Art. 17. Original Document and Copies
This article explains the issues around original vs. copy documents:
• At least one(1) original of each document called for in a credit must be presented.
• Guidelines are described regarding how to determine if a document is an original for the purposes of
these rules.
Art. 18. Commercial Invoice
This article describes the basic features of a compliant commercial invoice. It is important to note that
the requirement for merchandise description has a higher threshold for compliance than that for other
documents—“must correspond with that appearing in the credit.”
Art. 19. Transport Document Covering at Least Two Different Modes of Transport
This article describes the required characteristics for the transport document we often call the multimodal or
combined transport document. Here you will find information on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
• Terms of carriage
• Transshipment information
Art. 20. Bill of Lading
This article describes the basic required characteristics for the transport document often referred to as a
Marine or Ocean Bill of Lading (B/L) and that indicates a port-to-port shipment. Here you will find information
on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
• Terms of carriage
• Transshipment information
Bank of america merrill lynch SolutionS for importerS 49
Chapter 03
Import LCs Defined
Art. 21. Non-Negotiable Sea Waybill
This article describes the basic required characteristics of the document often referred to by its shorter
name—sea waybill. This document must not be confused with the non-negotiable copy of a bill of lading or
multimodal transport document nor with a bill of lading or multimodal transport document that has been
issued in straight or non-negotiable form. In the article you will find information on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
• Terms of carriage
• Transshipment information
Art. 22. Charter Party Bill of Lading
This article describes the basic required characteristics of this private agreement transport document—the
bill of lading that is subject to a charter party contract. In the article you will find information on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
Art. 23. Transport Document
This article describes the basic required characteristics of the document often referred to as an air waybill
(AWB). In the article you will find information on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
• Terms of carriage
• Transshipment information
Art. 24. Road, Rail or Inland Waterway Transport Document
This article describes several transport documents where, for the purposes of letters of credit, the basic
required characteristics are similar. You might see the documents referred to as (including but not limited to):
• Truck/ Road—Bill of Lading or Waybill
• Rail Bill of Lading or Waybill
• Barge Waybill
In this article you will find information on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
• Transshipment information
Art. 25. Courier Receipt, Post Receipt or Certificate of Posting
This article describes the basic required characteristics for transport documents that indicate shipment of
goods by courier or postal services. In this article you will find information on:
• Signature requirements
• Shipment or dispatch information
• Logistic information
Bank of america merrill lynch SolutionS for importerS 50
Chapter 03
Import LCs Defined
Art. 26. “On Deck,” “Shipper’s Load and Count,” “Said by Shipper to Contain” and Charges Additional to Freight
This article describes certain wording that typically is found on transport documents and details how banks
will deal with this circumstance.
Art. 27. Clean Transport Document
This article provides a rule that says that bank will accept only clean transport documents and what
constitutes a transport document that is not clean. The word “clean” need not appear on the document.
Art. 28. Insurance Document and Coverage
Insurance documents come into play when the shipment requires the seller to provide proof that the
goods have been insured as they move from seller to buyer. This article gives an overview of what
basic requirements must be met when an insurance document is required and conditions for certain
characteristics.
• Insurance document types
• Signature requirements
• Dates of coverage
• Logistics covered
• Value of coverage
• Risks covered
• Exclusions and deductibles
Art. 29. Extension of Expiry; Last Date or Day for Presentation
Control of the critical dates in a credit is one of responsibilities of the beneficiary that will help ensure they
retain the protection of the credit. This article gives the beneficiary the right tomake their presentation on the
banking day following the latest day for presentation, whether that is tied to a shipping date or is actually the
expiry date of the credit.
Art. 30. Tolerance in Credit Amount, Quantity and Unit Prices
This article provides for tools within the credit that create allowances often necessary with regard to the
details of amount, quantity and unit prices, while also providing for protection of unit prices where necessary.
This is a very useful article in helping credits adapt to the needs of the buyer and seller when exact values
are undetermined until goods are actually shipped.
Allowances in Credit Amount, Quantity and Unit Price
• Sometimes an LC will refer to the amount or the quantity as “about,” or “approximately.” When this
happens, the amount or quantity may be up to 10%more or less than the amount or quantity (including
unit prices) stated in the credit.
• Banks will accept documents which show that the quantity of goods being shipped has a variance of
5%more or less than that stipulated in the credit unless it would cause the amount of the drawing to
exceed the available balance under the credit, or the credit states the quantity in terms of a stipulated
number of packing units.
Example:� LC calls for 5,000 gallons of orange juice valued at $100,000.Unless specifically prohibited in the
credit, banks will accept documents showing the amount of product within a range of 4,750 gallons up to
5,250 gallons. Note: The amount being drawn could be reduced to $95,000 (for 4,750 gallons), but could not
exceed $100,000 even though between 5,000 and 5,250 gallons were shipped.
Example:� LC calls for 5,000 cartons of orange juice. Banks will reject documents which indicate a shipment
of either less than or more than 5,000 cartons. (Exception: Banks will accept documents for less than 5,000
cartons if the credit allows for partial shipments). UNLESS a credit stipulates otherwise, or unless Article 30
Bank of america merrill lynch SolutionS for importerS 51
Chapter 03
Import LCs Defined
(a) or (b) applies, banks will accept documents with an amount up to 5% less than the amount of the credit.
However, if the credit calls for a specific quantity or unit price, then the full quantity must be shipped and the
unit price must not be reduced.
Example:� LC calls for a shipment of 5,000 cartons of orange juice totaling $100,000. Partial shipments are
prohibited. Banks will accept documents totaling between $95,000 and $100,000 provided that the invoices
still indicate that 5,000 cartons have been shipped.
Art. 31. Partial Drawings or Shipments
While the standard credit makes no restrictions around partial shipments and/or partial drawings, credits
can and often do restrict partial shipments and/or drawings. This article helps all parties concerned
understand what constitutes a partial shipment in order to control partial shipment restrictions.
Art. 32. Installment Drawings or Shipments
Some credits contain conditions for required installment drawings and/or shipments. This article tells us that
if any such installments are not drawn or shipped according to the time requirements in the credit, the credit
CEASES to be available for that and any further drawings.
Art. 33. Hours of Presentation
Banks have no obligation to be available to take in presentations outside of normal business hours (see
Article 2 for definition of banking days).
Art. 34. Disclaimer on Effectiveness of Documents
This article establishes that, while banks deal in documents only with regard to the transaction covered by
the LC, they do not have any responsibility to go outside of those documents to establish their genuineness
or accuracy or descriptions therein, etc.
Art. 35. Disclaimer on Transmission and Translation
This article establishes that banks are not responsible for consequences of loss in transit or mutilation of
documents arising out of transmission or delivery.
Art. 36. Force Majeure
This article relieves banks of responsibility for consequences arising during force majeure events.
Art. 37. Disclaimer for Acts of an Instructed Party
This article covers a few separate issues related to the use of another bank’s services to complete the work
needed to process the LC.
• Banks often will utilize the services of another bank to effect instructions given by the applicant. This is
done so at the applicant’s risk.
• Neither the issuing bank nor the advising bank assumes responsibility should instructions it transmits to
another bank not be fulfilled, even if the bank was at their choice.
• A bank performing services at the request of an instructing bank is entitled to claim their charges from
the instructing bank; if the credit states that the charges are for account of the beneficiary and these
charges cannot be collected from them, the instructing bank remains liable for these charges.
Art. 38. Transferable Credits
A credit may be issued allowing for transfer by the issuing bank or by a bank nominated in the credit. This
article describes the governing rules for the transfer process.
• A bank is not obligated to transfer even though the LC states it is transferable
• Transferable credit is defined
• Transferring bank is defined
• Charges for transfer must be paid by the beneficiary
Bank of america merrill lynch SolutionS for importerS 52
Chapter 03
Import LCs Defined
• Transfer in whole or in part
• How to handle amendments
• More than one second beneficiary
• Terms that may be changes as the transfer is made
• Substitution of invoice and draft by the first beneficiary; failure to substitute when demanded
• Second beneficiary presentation of documents must be made to the transferring bank
Art. 39. Assignment of Proceeds
The beneficiary may instruct that the proceeds (some or all) of a credit be paid to another party. Local law
governs such transactions.
This paraphrased version of the UCP 600 is intended to summarize and clarify its articles only, and is not to be
construed as the entire document. Partial quotes are made in this section. Bank of America assumes no liability for any
misunderstanding arising from the use of this condensed version. For a complete reading of UCP 600, URC 522, ISP98
and ISBP, please refer to the ICC publications available for purchase on ICC’s Web site at www.iccbooksusa.com.
Bank of america merrill lynch SolutionS for importerS 53
Chapter 03
Import LCs Defined
A Discussion of the eUCP(Reference to UCP 500 can be carried over to UCP 600)
As an importer, you are probably aware that digital developments are shrinking the world and creating new
opportunities for your success in the global marketplace. New technologies can help increase cash flow, strengthen
supply chain relationships and streamline your trade activity.
With a basic understanding of these new guidelines for electronic document presentment (eUCP), you can start to
consider how digital developments will affect the future of your organization.
The ICC’s rules governing documentary credits now include an electronic supplement that caters to the growing
number of documents that are presented electronically. The eUCP came into force on March 31, 2002, and was
updated in July 2007 to bring it current with the UCP 600. It is now titled eUCP 1.1. The eUCP, several pages in
length, covers items such as the relationship of the eUCP to UCP 600, electronic formats for electronic documents,
amendments, place of presentation and notice of dishonor and preclusion.
These new articles supplement the UCP 600 rules and in no way replace them; they are to be used in conjunction
with the UCP 600. The eUCP provisions shall prevail to the extent that they would produce a result different from the
application of the UCP 600.
Parties wishing to use the eUCP will specifically have to incorporate it into the credit. However, a credit subject to the
eUCP is also subject to the UCP without express incorporation of the UCP.
The eUCP contains a number of definitions of terms that have totally different meanings in the electronic and paper-
based contexts. Terms such as “appears on its face,” “place for presentation,” and “sign”— all common features of
the UCP—are redefined to take an electronic environment into account. The full-text publication of the eUCP can be
ordered from the ICC at http://www.iccbooksusa.com.
At Bank of America Merrill Lynch we constantly evaluate new technology and consider future relationships. Our
e-Solutions are scalable, interoperable and are designed with the client in mind. Because we are not locked in to a
single solution and a single vendor, we can provide sound recommendations to help you manage increased volumes
and complexity and expand your global trade opportunities.
General statements from the eUCP Working Group ICC Banking Commission—March 2002“The Working Group concluded that its task is to create a supplement to the UCP that will deal with the issues of
electronic presentation. The official name for the work is ‘UCP Supplement for Electronic Presentation.’ It uses the
acronym ‘eUCP.’ The eUCP provides definitions to allow current UCP terminology to accommodate the presentation
of the equivalent of paper documents electronically and to provide necessary rules to allow the UCP and the eUCP to
work together. The eUCP has been written to allow for presentation completely electronically or to allow for a mixture
of paper documents and electronic presentation. While practice in this area is evolving, the Working Group believes
that providing exclusively for electronic presentation is not entirely realistic, nor will it promote the transition to total
electronic presentation.
The Working Group has not seen the need to address any issues relating to the issuance or advice of credits
electronically, since current market practice and theUCP have long allowed for credits to be issued and advised
electronically.
It is important for the reader of the eUCP to understand that many of the articles of the UCP are not affected by
the presentation of the electronic equivalent of paper documents and do not require any changes to accommodate
electronic presentation.
When read together, the UCP and the eUCP will provide the necessary rules to allow for electronic presentation and
Bank of america merrill lynch SolutionS for importerS 54
Chapter 03
Import LCs Defined
are broad enough to allow for developing practice in this area. Where specific words or phrases used in the UCP are
defined in the eUCP, these definitions, unless otherwise stated, apply wherever the terms appear in the UCP. The
Working Group, in drafting the eUCP, has reviewed and considered definitions used in other ICC documents as well
as rules and regulations promulgated by governmental and international bodies. These definitions have been used or
partially used to the extent possible. Because the business is evolving, it is necessary in many cases to modify these
definitions or to create new definitions specifically to address the unique requirements related to the presentation of
the electronic equivalents of paper documents under the UCP.
The eUCP is specific to UCP 500 and, if necessary, may need to be revised as technologies develop, perhaps prior
to the next revision of the UCP. For that purpose, the eUCP is issued in version numbers that will allow for a revision
and subsequent version if the need arises. The eUCP has been specifically drafted to be independent of specific
technologies and developing electronic commerce systems. That is, it does not address specific technologies or
systems necessary to facilitate electronic presentation.
These technologies are evolving and it is left to the specific parties to agree on the technology or systems to be used
to provide for presentation of electronic records in compliance with the requirements of the eUCP.
The eUCP has been created to anticipate the needs of the market for the presentation of electronic documents. The
market, as it is developing, has created a higher standard in anticipation of increased processing efficiencies when
the electronic equivalents of paper documents are presented. In anticipation of this demand and to meet the market
expectation, several changes to the standards established by the UCP have been deemed necessary when an entirely
electronic presentation occurs. These changes are consistent with current practice and the expectations of the
marketplace. In order to avoid confusion between the articles of the UCP and the eUCP, the articles of the eUCP are
numbered with an ‘e’ preceding each article number.”
Bank of america merrill lynch SolutionS for importerS 55
Chapter 03
Import LCs Defined
S.W.I.F.T. Samples and Comments on Specific FieldsThis sample is for illustration purposes only.
The LC is presented in SWIFT format, which is commonly used by major international banks to transmit LCs and other
messages. SWIFT messages are authenticated, between banks, by the exchange of an electronic key.
SAMPLE OF AN LC ISSUED BY BANk OF AMERICA MERRILL LYNCH
SENDER: BANK OF AMERICA
TRADE OPERATIONS CENTER
1000 WEST TEMPLE STREET
LOS ANGELES, CALIFORNIA 90012
RECEIVER: BANQUE AVISANT
PARIS, FRANCE
SWIFT AUTHENTICATED MESSAGE
ISSUE OF DOCUMENTARY CREDIT (TYPE: 700)
:27: SEQUENCE OF TOTAL:
1/1
:40A: FORM OF DOCUMENTARY CREDIT:
IRREVOCABLE
:20: DOCUMENTARY CREDIT NUMBER:
123456
:31C: DATE OF ISSUE:
071024
:40E: APPLICABLE RULES:
UCPLV
:31D: DATE AND PLACE OF EXPIRY:
071130 LOS ANGELES, CA
:50: APPLICANT:
RANDALL COMPUTER, INC.
321 OAK STREET
LOS ANGELES, CALIFORNIA 90000
:59: BENEFICIARY:
PRODUITS ELECTRONIQUES S.A.
15 RUE GEORGES DUMAS PARIS 75009, FRANCE
:32B: CURRENCY CODE, AMOUNT:
USD 134,000.00
:41A: AVAILABLE WITH … BY … :
BANK OF AMERICA
TRADE OPERATIONS CENTER
1000 WEST TEMPLE STREET—7TH FLOOR
LOS ANGELES, CALIFORNIA 90012
BY ACCEPTANCE
Bank of america merrill lynch SolutionS for importerS 56
Chapter 03
Import LCs Defined
:42C: DRAFTS AT … :
90 DAYS SIGHT
FOR 100 PCT INVOICE VALUE
:42A: DRAWEE:
BANK OF AMERICA
LOS ANGELES, CALIFORNIA
:43P: PARTIAL SHIPMENTS:
PERMITTED
:43T: TRANSSHIPMENT:
PERMITTED
:44A: PLACE OF TAKING IN CHARGE/DISPATCH FROM/PLACE OF RECEIPT :
PARIS, FRANCE
:44E: PORT OF LOADING/AIRPORT OF DEPARTURE:
LE HAVRE, FRANCE
:44F: PORT OF DISCHARGE/AIRPORT OF DESTINATION:
LOS ANGELES, CALIFORNIA
:44B: PLACE OF FINAL DESTINATION/FOR TRANSPORTATION TO/PLACE OF DELIVERY:
FRESNO, CALIFORNIA
:44C: LATEST DATE OF SHIPMENT:
071120
:45A: DESCRIPTION OF GOODS AND/OR SERVICES:
COMPUTER EQUIPMENT ACCORDING TO P.O. NO. 87654
FCA PARIS, FRANCE
:46A: DOCUMENTS REQUIRED:
SIGNED COMMERCIAL INVOICE IN ORIGINAL AND TWO COPIES.
PACKING LIST IN ORIGINAL AND TWO COPIES.
FULL SET OF CLEAN MULTIMODAL TRANSPORT DOCUMENTS CONSIGNED TO THE ORDER OF SHIPPER,
BLANK ENDORSED, MARKED FREIGHT COLLECT AND NOTIFY BUYER.
:71B: CHARGES:
BANKING CHARGES ARE FOR ACCOUNT OF APPLICANT, EXCEPT FOR DOCUMENTARY DISCREPANCY
CHARGES, IF ANY, WHICH ARE FOR ACCOUNT OF BENEFICIARY.
:48: PERIOD FOR PRESENTATION:
DOCUMENTS MUST BE PRESENTED FOR PAYMENT, ACCEPTANCE / NEGOTIATION WITHIN 10 DAYS
AFTER THE DATE OF SHIPMENT, BUT WITHIN THE VALIDITY OF THIS CREDIT.
:49: CONFIRMATION INSTRUCTIONS:
WITHOUT
:78: INSTRUCTIONS TO THE PAYING/ACCEPTING/NEGOTIATING BANK:
1) ALL DOCUMENTS MUST BE FORWARDED IN ONE MAILING, VIA COURIER OR EXPRESS MAIL
SERVICE, TO BANK OF AMERICA, TRADE OPERATIONS CENTER, 1000 WEST TEMPLE STREET,
LOS ANGELES, CALIFORNIA 90012.
Bank of america merrill lynch SolutionS for importerS 57
Chapter 03
Import LCs Defined
:72: SENDER TO RECEIVER INFORMATION:
PLEASE NOTIFY TO BENEFICIARY UNDER ADVICE TO US
ATTN: XYZ SMITH
PHONE: (012) 200—3000
FAX: (012) 200—4000
REGARDS
The preceding LC example is provided for information and illustration only, and does not convey any engagement or
responsibility on the part of Bank of America Merrill Lynch. The names of the institutions used, except for the name
of Bank of America Merrill Lynch, and the transaction represented herein are fictitious. Any similarity with actual
institutions and transactions is unintentional and coincidental.
Comments on Specific Fields in Preceding SampleSENDER:� ISSUING BANk
This is the bank that issues the LC at the request of their client, the buyer (applicant), in favor of the seller
(beneficiary). In the LC sample attached, the issuing bank is Bank of America Merrill Lynch.
RECEIVER:� ADVISING BANkThis is the bank that receives the LC from the issuing bank. In the LC sample attached, “Banque Avisant” is the
bank that would receive the LC and, consequently, the advising bank. LCs are normally sent by the issuing bank
to the beneficiary through an advising bank.
The advising bank has the means to verify the authenticity of the LC before forwarding it to the beneficiary.
However, the advising bank is not responsible for payment. The responsibility for payment rests with the issuing
bank.
40A:� FORM OF DOCUMENTARY CREDITThis field should read IRREVOCABLE. It means that the issuing bank cannot cancel the LC prior to its expiration
date (31D). Although an LC can be issued as “Revocable,” it is rarely issued as such since most beneficiaries
would not accept a revocable LC.
40E:� APPLICABLE RULESThis field describes the governing body of law to which the LC is subject with the use of codes. “UCPLV”, as
shown in the example, indicates “UCP LATEST VERSION”.
31D:� DATE AND PLACE OF EXPIRYDATE—The expiry date should allow the beneficiary enough time to make the shipment, and present the required
documents (46A) to the bank where the LC is available (41A), before the LC expires.
PLACE—The place where the LC expires should be the same as the location of the bank where the LC is
available (41A). If the LC states that it is available “With Any Bank,” the expiry place would be the country of the
beneficiary. Both the place where the LC expires and the place where the LC is available to the beneficiary should
be where the beneficiary is located, or where it would be reasonably convenient for the beneficiary to present
documents. In the sample attached, the LC expires in Los Angeles, California.
Bank of america merrill lynch SolutionS for importerS 58
Chapter 03
Import LCs Defined
50:� APPLICANTThis is the party, usually the buyer, on whose behalf the LC is issued. In the sample attached, the applicant is
Randall Computer, Inc.
On an LC issued on your behalf, check to determine that your name and address are correct. Any difference
between the information in the LC and the information in presented documents may be considered a discrepancy.
59:� BENEFICIARYThis is the party, usually the seller, in whose favor the LC is issued. In the sample attached, the beneficiary is
Produits Electroniques S.A.
32B:� CURRENCY CODE, AMOUNTThe amount specified in the LC should be sufficient to cover the cost of the merchandise, plus any other
expenses to be incurred by the seller. The expenses may include freight, insurance, and other charges. In the LC
sample attached, the shipment is to bemade FCA Paris, France (44A). The costs to the seller extend only to the
point of “taking in charge” of the merchandise. With an FCA shipment, the buyer assumes the costs of freight
and insurance to destination. Besides specifying the amount of the LC, this field will also specify the currency in
which the LC is payable. In the sample attached, the LC has been issued in USD. If the LC amount is stated in a
foreign currency, you bear the risk of exchange rate fluctuations.
41A:� AVAILABLE WITH . . . BY . . .This field identifies the bank with which the credit is available (the place for presentation) and an indication of
how the credit is available.
WITH—The LC should name a specific bank where the presentation of the document under the letter of credit
must be made (46A). Alternatively, the LC may state that it is available “With Any Bank,” thus allowing the
beneficiary to present documents at any bank of their choice. For practical purposes, however, if the LC states
that it is available “With Any Bank,” the beneficiary would want to present documents at a bank that is involved
in the LC transaction, such as the advising bank. If the LC is restricted to the issuing bank, or names a bank
outside of the beneficiary’s area as the bank where the LC is available, payment may be delayed. In the sample
attached, the LC is available to the beneficiary with Bank of America, Los Angeles, California.
BY—All LCs must clearly indicate whether they are available by sight payment, by deferred payment, by
acceptance, or by negotiation. In the sample attached, the LC is available by acceptance because it requires
the beneficiary to present a time draft, payable at 90-days sight (42C). After the beneficiary presents the draft
and required documents to Bank of America, and Bank of America has determined that the draft and documents
are in compliance with the terms of the LC, Bank of America would accept to pay the beneficiary 90 days later.
Hence, the LC is available by acceptance.
42C:� DRAFTS AT . . .A draft is the document that represents the demand for payment that the beneficiary makes under the LC. A
draft may be payable at sight, meaning at the time when it is presented for payment, or it may be payable at
some future time after being presented for payment. In the sample attached, the LC requires drafts payable at
90 days sight. The time when payment is to be made to the beneficiary is usually determined between buyer and
seller. If the seller gives payment terms to the buyer, or if the buyer requires bank financing of the merchandise,
the LC would require the beneficiary to present a time draft. For further information on drafts, please refer to the
section “Banker’s Acceptances” in the accompanying material.
Bank of america merrill lynch SolutionS for importerS 59
Chapter 03
Import LCs Defined
NOTE: The issuing bank may not always require presentation of a draft. If payment under the LC is to be made at
some future time, and no draft is required, the LC is referred to as a “Deferred Payment Letter of Credit.” Under
this type of LC, since no draft is required, the beneficiary does not have the option of having a draft discounted,
that is, of obtaining payment prior to maturity at an advantageous interest rate.
42A:� DRAWEEThis is the bank on whom the beneficiary is instructed to draw the drafts. An LC may require the beneficiary to
draw drafts on the issuing bank, on the advising or confirming bank, or on the reimbursing bank (53A). In the
sample attached, the LC requires drafts to be drawn on Bank of America Merrill Lynch, Los Angeles, California,
the issuing bank.
43P:� PARTIAL SHIPMENTSPartial shipments may or may not be permitted, or may be permitted within a stated schedule. The beneficiary
should make sure that he can meet the shipping requirements.
43T:� TRANSSHIPMENTThis term means that the merchandise is loaded and reloaded from one carrier to another during the course of
carriage. When a shipment is made by air or by combined transport, transshipment should be permitted. In the
LC sample attached, transshipment is permitted.
:�44A:� PLACE OF TAkING IN CHARGE/DISPATCH FROM/PLACE OF RECEIPT :�This field is commonly used when a multimodal bill of lading is required. It describes the inland point of taking in
charge, dispatch from or initial place of receipt of the merchandise, for onward travel.
:�44E:� PORT OF LOADING/AIRPORT OF DEPARTURE:�This field describes the port of loading or airport of departure of the merchandise shipment.
:�44F:� PORT OF DISCHARGE/AIRPORT OF DESTINATION:�This field describes the port of discharge or airport of destination of the merchandise shipment.
:�44B:� PLACE OF FINAL DESTINATION/FOR TRANSPORTATION TO/PLACE OF DELIVERY:�This field is commonly used when a multimodal bill of lading is required. It describes the inland place of
final destination or place of delivery of the merchandise. General comments about fields 44A, 44E, 44F and
44B: depending on the type of transport document required under a letter of credit and the shipment terms
(Incoterms), either all or some of these fields may be included in the S.W.I.F.T. 700 message.
44C:� LATEST DATE OF SHIPMENTDates are very important in the LC. The latest date of shipment specified in this field should allow enough time
for the beneficiary to be able to meet the shipment deadline.
45A:� DESCRIPTION OF GOODS AND/OR SERVICESThe merchandise description in the LC must be brief. Specific details can be included in the purchase order
or sales contract, but have no place in the LC. If an LC contains excessive details in the description of the
merchandise, or in the terms of the LC, the advising bank may decline to advise it. Also, complex details in the
LC can result in documentary discrepancies. Since the issuing bank could not pay against discrepant documents,
the buyer would have the option to refuse payment. Documents presented under an LC containing excessive
details may be sent to the issuing bank as presented without review by the bank where the documents are
presented. The price basis is usually stated in this field and should be correct. Whether the shipment is to be
made FOB port of departure or CIF port of destination, or under any other basis, the price basis stated in the LC
should be according to the trade terms specified in the International Chamber of Commerce Publication No. 560,
Bank of america merrill lynch SolutionS for importerS 60
Chapter 03
Import LCs Defined
“Incoterms 2000.” Also, the price basis should be reflected in the documentary requirements. In the LC sample
attached, the price basis has been stated as “FCA Paris, France.” Accordingly, under Field 46A, the transport
document is to be marked “Freight Collect” and no insurance document is required.
Use of an incorrect price basis, not in conformity with “Incoterms 2000,”may result in misunderstandings
between buyer and seller and a possible delay in payment. For a complete set of the international rules covering
trade terms, please refer to the International Chamber of Commerce Publication No. 560, “Incoterms 2000.” A
copy can be ordered via the internet at www.iccbooksusa.com.
46A:� DOCUMENTS REQUIREDThe documents required for payment should be kept to a minimum. When presented, the documents must be in
strict compliance with the LC terms.
48:� PERIOD FOR PRESENTATIONThe number of days allowed for presentation of documents after the shipment is made should allow enough
time for the beneficiary to receive shipping documents from the carrier or the freight forwarder, and present all
documents to the bank where the LC is available, within the validity of the LC. The number of days allowed for
presentation of documents should be the difference in the number of days between the latest date of shipment
(44C) and the expiry date (31D). In the LC sample attached, the latest date for shipment is November 20 and
the expiry date is November 30. Consequently, the number of days allowed for presentation of documents is
10 days. If a letter of credit does not contain a reference to the number of days allowed for presentation of
documents, the number of days allowed for presentation defaults to 21 days, per UCP 600, Article 14C.
49:� CONFIRMATION INSTRUCTIONSThis field indicates whether or not the issuing bank is requesting the advising bank to confirm the LC. The
advising bank would only consider confirming an LC at the request of the issuing bank. The beneficiary may
ormay not require confirmation of an LC. It would depend on the strength of the issuing bank, the country where
the issuing bank is located, and the amount of the transaction. If the seller requires confirmation of the LC,
the buyer, in turn, will have to inform the issuing bank, so that the issuing bank will request the advising bank
to confirm the LC. If the advising bank agrees to confirm it, the LC would carry the engagement of the advising
bank, in addition to the engagement of the issuing bank. When the LC is sent to the beneficiary, the advising
bank would notify them if it has confirmed the LC.
78:� INSTRUCTIONS TO THE PAYING/ACCEPTING/NEGOTIATING BANkThis field is commonly used for the issuing bank to provide instructions concerning the mailing of documents.
When used to indicate pre-notification of a reimbursement claim, or that pre-debit notification to the issuance
bank is required, the number and type (i.e. banking or calendar) of days within which the issuing bank has to be
notified should also be indicated.
Bank of america merrill lynch SolutionS for importerS
Chapter 04Purchase Order-to-Pay Service
Bank of america merrill lynch SolutionS for importerS 62
Chapter 04
Purchase Order-to-Pay Service
For the past 10 to 15 years, importers have invested large sums of money to improve the efficiency of their physical
supply chains, moving goods across borders with increased speed and lower costs to meet the demands of an
increasingly competitive marketplace. In many instances, the benefits of an efficient physical supply chain have fallen
short of expectations because of the failure to link the movement of goods with the movement of money, or with the
financial supply chain.
Bank of America Merrill Lynch is committed to developing solutions to assist you in optimizing and integrating your
supply chains. Our Purchase Order-to-Pay Service can help reengineer your trading processes and unlock substantial
amounts of working capital for you.
PO to Pay is a trade payables solution for clients sourcing goods in overseas markets, which links the client’s supply
chain partners into an end-to-end payment and settlement process for increased transparency and visibility throughout
the supply chain. The service replaces paper-based functions with electronic processes and broadens settlement
options by offering open account payments as well as traditional LCs.
Through PO to Pay, clients can electronically submit to Bank of America Merrill Lynch purchase order information that
is used to construct LC and open account payment instruments for delivery to sellers in paper form or via an electronic
channel, including Trade Pro and EDI. The service includes a matching engine, the Purchase Order Processing System
(POPS), which reconciles purchase order data submitted by buyers with invoice data submitted by sellers prior to
payment.
Buyers can also upload a PO file with all of their suppliers’ PO details to automatically create their LCs and/or open
account transactions, based on supplier terms and business rules, which streamlines buyers’ processing steps in
their daily work flow.
Bank of america merrill lynch SolutionS for importerS 63
Chapter 04
Purchase Order-to-Pay Service
Benefits of Purchase Order-to-Pay (PO to Pay)Our PO to Pay service offers you several benefits:
•Simplified payment process:� Importers no longer have to manage reconciliation of purchase orders to invoice,
packing lists and other shipping documents manually. PO to Pay eliminates these time-consuming tasks by
automating your cross-border trade payment process using business-matching rules. It can also handle multiple
payment terms and can be integrated with major purchase order and ERP systems that you use today.
•More certainty and assurance of payment:� For exporters, the major disadvantage of moving to open account
terms is that you lose the payment guarantee offered by LCs. With the PO to Pay payment assurance option,
subject to credit line availability, your exporters are provided additional assurance that as long as compliant
documents are presented to Bank of America Merrill Lynch.
•Flexible financing Another concern of exporters who are considering the move to open account is the availability
of financing in the absence of an LC. Upon request, your exporters have the ability to receive pre- and post-
shipment financing against qualified open account transactions, subject to credit availability.
•Enhanced security and control:� Security is a major concern when transmitting financial data electronically.
To help you maintain the integrity of your documents, all web-based services offered by Bank of America
Merrill Lynch have rigorous security standards, including browsers with 128-bit encryption, server-side digital
certificates, fire walls and user access controls.
How PO to Pay works The importer transmits or uploads a file of purchase orders to Bank of America Merrill Lynch. Files can be accepted
in a variety of formats and can be sent through various electronic channels (internet or VAN). In the transmitted file,
the payment type for each transaction is flagged as either “letter of credit” or “open account.” Purchase orders are
housed in an electronic database at Bank of America Merrill Lynch, establishing the conditions a vendor must meet
to receive payment.
If the transaction is flagged for settlement by LC, the purchase order detail is used to issue a traditional LC to the
beneficiary. Both LC and open account transactions are available electronically to all trading partners who have been
granted access to TradePro, our web-based trade management system.
Data matching and payment feature:� As goods are manufactured and shipped, vendors present documents to Bank
of America Merrill Lynch for payment. Presentations may be in paper or electronic form or a combination of both. Key
data elements in the seller’s documents are matched with purchase order data, using an automated mapping engine
for electronic presentations or document checkers for paper presentations. If conditions match, payment is made
immediately for an LC or open account with the “auto-pay” feature. Payment for all other open account payment
types is made immediately after the importer has given approval. If the matching process fails, discrepancy details
are transmitted to the importer for resolution. Once payment is triggered, details can be sent electronically to both
the importer and vendor.
Bank of america merrill lynch SolutionS for importerS 64
Chapter 04
Purchase Order-to-Pay Service
Open account payment typesThe PO to Pay platform supports three open account payment types:
•Buyer Approved, No Conditions Matching:� The purchase orders contain instructions to present documents to
Bank of America Merrill Lynch. When presented, we convert paper documents into a previously agreed-upon
electronic format that can be processed automatically by the importer or viewed online via TradePro. The importer
matches details to underlying purchase orders and can either approve or reject the transaction for payment.
Buyers do not have to submit purchase orders to Bank of America Merrill Lynch.
•Buyer Approved, with Conditions Matching:� The purchase orders are sent to both the seller and Bank of America
Merrill Lynch or only to Bank of America Merrill Lynch with instructions to advise the open account instrument with
purchase order details to the vendor. As export documents are received, Bank of America Merrill Lynch matches
shipment data with purchase order data in accordance with parameters established by the importer. Both
compliant and non¬compliant presentations are transmitted to the importer for approval to pay.
•Bank Approved, with Conditions Matching (Auto-Pay):� This option is similar to the “buyer approved” option,
except Bank of America Merrill Lynch automatically pays against transactions where data matches within agreed
tolerance limits and based on the availability of funds (straight-through processing). If a match is not established,
discrepancy details are transmitted to the importer to be resolved with the seller prior to payment.
No matter what option the buyer chooses, Bank of America Merrill Lynch provides the status of their payments and
comprehensive management reports.
It pays to have PO to PayWith Bank of America Merrill Lynch PO to Pay, you improve communication and data exchange with your trading
partners and move one step closer to a seamless process that may more fully synchronize the movement of goods
with the exchange of trading documents, financial data and funds.
Call your Global Trade & Supply Chain Solutions representative today to obtain more information about the
advantages of our PO-to-Pay Service.
Bank of america merrill lynch SolutionS for importerS
Chapter 05A Closer Look at Letter of Credit Documents
Bank of america merrill lynch SolutionS for importerS 66
Chapter 05
A Closer Look at Letter of Credit Documents
What are some of the typical documents required in an LC?Some of the more commonly required documents include:
Commercial invoice (see Exhibit A) The invoice is a record of the transactions between seller and buyer. It is a request for payment. It is also important
to any third party who has an interest in or right to determine the value of a shipment, such as the bank that is asked
to discount a draft or the underwriter who is requested to insure the goods. While in some countries the commercial
invoice is sufficient for customs purposes, generally a consular invoice or a certificate of origin must be produced for
appraisement and entry of goods. When countries accept the commercial invoice as a basis for customs appraisal,
they may insist that the description of the goods on the commercial invoice fit the corresponding category or
description of their active customs tariff. A number of countries make the sending of the commercial invoice obligatory
and require an oath to be signed at the foot of the paper stating that the values shown are entirely in accordance with
the facts.
The commercial invoice generally gives terms, price, and all details necessary for the proper description of the
merchandise as well as the gross amounts and net amounts due. The invoice should be numbered, show the date
when it is prepared and the address of the shipper. The price information may include the net unit or total price, and
all charges connected with the shipment, including such commissions as may have been agreed upon. In the case of a
draft, the interest of the draft could be added, being computed in advance on the basis of the terms of the draft (sight,
30 days, 60 days, and so forth), plus the time it will take for the draft to reach the destination. Other components
of the invoice could include: marks and numbers, quantities, number of packages, weights and measurements, tare
(when necessary), packed and unpacked, the date of shipment, fax number, and telephone numbers of the seller and/
or buyer, per unit, gross costs, etc.
Bank commissions and all other charges should also be added to the commercial invoice if the buyer has to pay for
them. In cases where the buyer pays for freight, insurance or any other items, these should be added, just the same
as consular fees, cartage, lighterage, telecommunication fees, customs fees and any fees for certificates (such as of
health or analysis), provided that the sale makes the buyer liable for any or all of them.
Certificate of origin (See Exhibit B) A certificate of origin certifies that goods were mined, manufactured or assembled within a certain country. A number
of countries have apportioned space on the consular invoice to show the country of origin of each item on the invoice,
obviating the necessity for a separate certificate. The reasons for requiring such a certificate vary. It is demanded and
needed by governments or countries whose tariff laws favor certain countries, or which have made agreements with
certain countries, to determine such favored tariff rates. These favorable tariff laws necessitate (for goods brought in
from favored countries) a certificate of the actual origin of the articles imported and of the fact that they come from
the country or countries enjoying such special tariff privileges or favors.
Bank of america merrill lynch SolutionS for importerS 67
Chapter 05
A Closer Look at Letter of Credit Documents
The certificate, known as the certificate of origin, therefore enables the importing country to determine, through its
customs officers and administration, which shipments or goods shall benefit by such preferences. It contains generally
the same information as the consular invoice. This certificate is then presented by the importer to customs officials
to show the origin of the goods so that special preferential tariff rates, discounts from regular tariff rates, or other
deductions granted in agreements existing between the countries of buyer and seller, or favors, can be taken into
consideration.
Consular invoice These invoices may be required by various countries for customs or for statistical or other reasons. They must contain
full details and description of the shipment, to be used as evidence of the shipper’s owner’s declaration of the value
of the shipment. They are certified by the consul of the country to which the shipment is destined, and generally
include a sworn statement not only as to the truth of the declarations made, but also as to the nonexistence of any
other invoice for the same shipment. The consular invoice must show all details of the goods themselves, as well as
all discounts, rebates, or the like. The consular certificate or invoice facilitates customs work at destination as well as
collection of taxes, and also serves for statistical purposes.
The number of copies of the consular invoice which must be presented when a visa is requested will vary considerably
with the country and the set-up of its consular and customs offices. The consul always keeps certain copies, partly
for his or her own files and partly to be forwarded to the customs officers in the place of destination. The number
that are retained depend upon the country. The copies which the consul returns to the shipper are for the exporter to
forward to the importer for presentation to customs when the exporter declares the goods. They should arrive as close
to the arrival time of the goods as possible (preferably not later than the shipment). Delay in receipt of documents is
frequently penalized heavily by the customs department of the importing country.
Generally the consular invoice is a copy of the commercial invoice in the language of the importing country, supplied
in two to ten copies, which gives full details of the merchandise shipped (see above). The invoice must show also, in
addition to information about the materials or merchandise, the name and nationality of the vessel that carries the
cargo, the port of shipment, and the port or point of destination.
Inspection certificate An inspection certificate testifies to the inspection of exported or imported goods. If it is needed, this documentary
requirement should be clearly stated in quotation and sales contracts. In regard to many staple commodities sold
against LCs, on grade designation entirely, such as raw cotton, the buyer provides for inspection or warehouse
certification of the goods before shipment to avoid loss due to deviation from standard grade. Inspection before
shipment is also provided in many sales contracts on expensive machinery or equipment. An inspection from an
independent third party may be requested under an LC.
Bank of america merrill lynch SolutionS for importerS 68
Chapter 05
A Closer Look at Letter of Credit Documents
Insurance policy or certificate (see Exhibit C) An insurance policy or certificate should be required for presentment under an LC if the arrangement between buyer
and seller indicates that the seller should purchase the insurance. Cargo Insurance serves to protect the shipment of
merchandise against loss or damage during transit.
Whether or not the buyer or seller is required to purchase insurance for shipped merchandise depends upon the
type of transaction specified in the contract or purchase order. For example, if the seller is contracted to deliver
merchandise to the buyer FOB, then the buyer/importer is responsible for insuring the goods against risks while
in transit. See Chapter 9 of this guide for an in-depth explanation of all shipping terms (Incoterms) and insurance
responsibility under each term. Carrier and shipping firms are not required to provide insurance for cargo they are
instructed to deliver.
Seeking insurance for merchandise is a straightforward process that many merchant insurance firms and freight
forwarders will provide. Regular importers frequently use an open cargo policy that provides coverage from warehouse
to warehouse, depending upon the terms. This provides automatic coverage for the merchandise throughout the
shipping process.
These policies usually provide all risk, in addition to warehouse to warehouse, coverage, as well as similar coverage
for airfreight and parcel post shipments. Policies for one-time shipments are also available. These are often used by
infrequent importers, who arrange these policies with their freight forwarders. With few exceptions (bulk agricultural
products and hazardous materials), it is usually preferable for importers to use only warehouse to warehouse or door
to door insurance policies for whatever risks are being covered. This provides additional assurance that all transit
points are covered.
Insurance costs vary according to the extent of coverage, the risks specified, and any additional coverage requested
by the purchaser. Typical coverage for a policy is 110 percent of the CIF value. This is a common level of coverage,
since it is the default level of coverage according to UCP 600.
Packing/weight list (see Exhibit D and E) The list which shows, item by item, the contents of cases or containers with each item listed separately, and its weight
and description set forth so as to permit checks by customs on arrival, as well as by the recipient of the goods. It must
be accurate and must satisfy both buyer and customs.
Bill of lading (see Exhibits F and G) The bill of lading is the receipt for the goods received by or loaded on a carrier and the contract between the shipper
and the carrier. The contract stipulates where the goods are to be delivered, the freight charges to be paid, when and
by whom. This receipt for the merchandise, therefore, whether issued by a steamship company or by other carrier
(railway, air carrier, and so forth), represents a definite agreement between shipper and carrier. The conditions of
the bills of lading are not uniform and depend upon the nature of the carrier, the conditions and usages at port of
shipment or destination, and other individual factors and requirements. The bill of lading may also convey title to the
goods to which it refers and can be used to transfer such ownership of the goods with certain exceptions.
For all these reasons, the carrier or its agent generally will refuse to deliver the goods covered by a negotiable bill
of lading without the bill being produced, duly signed or endorsed. Customs considers the holder of a duly signed or
endorsed bill of lading to be the owner of all merchandise on such bill of lading issued by a common carrier. The bill
itself is regarded as constituting the best evidence of the right to make entry. Some countries require legalization
of the bill of lading by their consul at the place or port of shipment to give official proof of the accuracy of the bill as
regards to the origin, quantity, and mode of shipment of the merchandise.
Bank of america merrill lynch SolutionS for importerS 69
Chapter 05
A Closer Look at Letter of Credit Documents
Ocean bill of lading An ocean bill of lading is a receipt for the goods delivered to or on board a vessel, specifying the conditions and terms
of carriage, the character of the goods shipped, and their weights, measurements, and destinations, as well as the
person to whom the goods are consigned or who is to be notified of their arrival. The bill of lading does not convey title
to the goods until it is properly endorsed. It is created by the shipper and must be based on the dock receipt that the
steamship line issues on receiving the cargo at the pier, the dock receipt being exchanged for the bill of lading.
Usually, three bills of lading are signed, although the various shippers may ask for more unsigned (and therefore not
negotiable) copies for different purposes and uses in their offices. For shipments going to certain countries, it is
necessary to present the bill of lading for customs along with the other documents; otherwise, it will not be usable at
the destination.
Ocean bills of lading are issued as straight bills of lading and order bills of lading. The former is a non-negotiable
document by which the transportation company acknowledges receipt of cargo and contracts to move it. It is not
always necessary to surrender the original copy for delivery of cargo. The order bill of lading is a negotiable document
acknowledging receipt of cargo and contracting to move it. Surrender of the original properly endorsed B/L is required
on delivery of the cargo. The ocean bills f lading are of two classes, “received for shipment” and “shipped” or “on
board.” The former is issued for a named steamer in which space has been previously reserved and goods are in
the possession of the steamship company; the latter is issued only after the goods have been loaded on the vessel.
Banks often require “on board” bills of lading when issuing an LC.
The ocean bill of lading is not only the final receipt from the carrier, but is a contract between the carrier and shipper.
It may be used as a negotiable document. Drafts or bills of exchange to which are attached the shipper’s invoice,
ocean bill of lading, and insurance policy constitute methods commonly used in making foreign-trade financial
settlement. The freight charges generally must be paid before the steamship company surrenders the cargo.
Straight bill of lading A straight bill of lading is a bill of lading made out to a named consignee. It is not negotiable and is therefore issued
for shipments to a specified person.
Bill of lading to Order This is a bill of lading made out to the order of, and endorsed by, the shipper either in blank or to a named consignee.
The purpose of this type of bill of lading is to protect the shipper against buyers obtaining possession of the goods
before they have paid or accepted the relative draft. A steamship company will not deliver goods covered by a “to
order” bill until ownership is proven by presenting the original endorsed bill. However, problems exist in connection
with “to order” bills of lading for Latin American countries, where delivery of incoming cargo is the function of the
customs authorities and is not entrusted to steamship lines or their agents. The laws of a few Latin American
countries prohibit “to order” bills of lading, and in some other Latin American countries, these bills are not accorded
the same protection as in Europe and the United States.
Important Note: In shipping parlance, a distinction is made between a bill of lading made out to the order of the
shipper and a bill made out to the order of the buyer. The latter bill does not give shippers as much protection as a bill
drawn to their own order. As a rule, when a bill of lading is to the order of a buyer, the buyer can get the goods from a
steamship line without presenting the bill of lading by posting a bond.
Negotiable bill of lading When an order bill of lading is endorsed in blank, it becomes negotiable and the carrier will deliver the goods to
whoever presents the endorsed bill of lading. While all original bills of lading (full set) are negotiable, one is sufficient
to obtain goods. On the other hand, if bills are drawn to order of the consignee, the consignee’s endorsement makes
it negotiable. If they are drawn to order of the shipper, the shipper must endorse it before it can be transferred and,
Bank of america merrill lynch SolutionS for importerS 70
Chapter 05
A Closer Look at Letter of Credit Documents
therefore, before the goods it represents can be conveyed to a third party. The endorsement itself can be made to a
specific third person or firm, a bank, or in blank; while one endorsed copy is sufficient, the full set of originals should
be endorsed. In addition to the original endorsed bills of lading, remaining copies generally are kept by the shipper and
carrier for their records.
Original bill of lading This is the original bill of lading, which is negotiable, provided that it is a “to order” bill. Generally three such
“originals” are issued, known as a “full set,” with the carrier marking the total number of the originals on each
original issued. When negotiating the originals, the bank will require the full set, although one of them, properly
endorsed, is sufficient to obtain the goods. If delivery is made against one of the bills of lading, the others are thereby
automatically rendered void (see “Bill of Lading” on 65).
Full set bill of lading When more than one negotiable bill of lading is issued, the number of such total issued is marked on each individual
document, and the banks generally insist on receiving the total number of bills issued, or the “full set.” Extra copies
generally are kept by the steamship company and shipper (see Bill of Lading on 65).
Foul bill of lading vs. clean A bill of lading is called foul when, contrary to the clean bill of lading, it shows by marginal notes, rider or otherwise
that all or part of the shipment to which it refers is in bad condition or damaged.
Multi-modal transport document This is a bill of lading covering shipment on one and the same (straight or to order) bill of lading from point of
shipment to port or point of destination, involving transportation by more than one carrier. It is also the term used for
a bill of lading issued by a steamer from port of shipment to either an out port or to a point inland in the country of
destination, including any transshipment or land carriage necessary to make such delivery.
Air waybill An Air Waybill is similar to an ocean bill of lading, except that it is restricted to shipment by airfreight. A major
difference between the two is that the air waybill is always non-negotiable. It is the contract between the shipper and
the airfreight carrier, limited to the conditions stated on the air waybill such as the destination and recipient. An air
waybill is normally issued in one original, with several copies.
Bank of america merrill lynch SolutionS for importerS 71
Chapter 05
A Closer Look at Letter of Credit Documents
Exhibit A Sample Copy Only
BENEFICIARY:
DEMO BENEFICIARY CO.DEMO STREETDEMO CITYHONG KONG, HONG KONG
COMMERCIAL INVOICE
Date: 10 Jan 2007 Invoice No:B/L No:Vessel:Shipped from: JAKARTA, INDONESIAShipped To: SAN DIEGO, USA
Additional Information (for this shipment only)
Letter of Credit No: M1241204NS00178Issued By: IMPORTER’S ISSUING BANK NAME
SOLD TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203
MERCHANDISE DESCRIPTION:
LADIES BLOUSES AS PER PO. NO. 12345
ITEM: QUANTITY: PRICE:
Invoice Total: 10,000.00 (USD)
Authorized Signature:
Name:
Title:
Certification Statement If Required:
LADIES BLOUSES AS PER PO. NO. 12345
Bank of america merrill lynch SolutionS for importerS 72
Chapter 05
A Closer Look at Letter of Credit Documents
CERTIFICATE OF ORIGIN
EXPORTER:DEMO BENEFICIARY CO.DEMO STREETDEMO CITYHONG KONG, HONG KONG
DATE: 10 Jan 2007
OTHER REFERENCES:LC NO: M1241204NS00178SALES ORDER:INVOICE NO:B/L NO:
SOLD TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203
COUNTRY OF ORIGIN OF GOODS:
CONSIGNEE:MIZUHO BANK
THE UNDERSIGNED HEREBY DECLARE THAT THE ABOVE DETAILS AND STATEMENTS ARE CORRECT
NOTIFY:AIRPORTS AUTHORITY INDONESIA
JAKARTA, KASAFDARJUNG
AIRPORT, JAKARTA
REMARKS:WE CERTIFY THAT THE ORIGIN OF THEGOODS IS THE COUNTRY OF INDONESIA.
:ERUTANGISDEZIROHTUA:ETADDNAECALP
COVERING:LADIES BLOUSES AS PER PO.NO. 12345
ITEM NO: :YTINAUQ:NIGIRO:NOITPIRCSED
AIRPORTS AUTHORITY INDONESIAJAKARTA, KASAFDARJUNGAIRPORT, JAKARTA
WE CERTIFY THAT THE ORIGIN OF THEGOODS IS THE COUNTRY OF INDONESIA
LADIES BLOUSES AS PER PO. NO. 12345
Exhibit B Sample Copy Only
Bank of america merrill lynch SolutionS for importerS 73
Chapter 05
A Closer Look at Letter of Credit Documents
Exhibit C Sample Copy Only
ARCH INSURANCE COMPANYA Missouri CorporationHome Office: 3100 Broadway, Suite 511, Kansas City, MO 64111Administrative Office: One Liberty Plaza, 53rd Floor, New York, NY 10006 Tel: 800-817-3252
ASSURED
UTLIMATE CONSIGNEE and INSURED DESTINATION
NOTIFY PARTY (not applicable to insurance certificate)
PIER OR AIRPORT
EXPORTING CARRIER
AIR/SEA PORT OF EXCHANGE
B/L DATE INSURED VALUE$
AMOUNT IN WORDS
DOLLARS
FOR TRANSHIPMENT TO
ONWARD INLAND ROUTING
PARTICULARS FURNISHED BY SHIPPER
MARKS AND NUMBERS NO. OF PKGS DESCRIPTION OF PACKAGES AND GOODS & SPECIAL INS CONDITIONS GROSS WEIGHT MEASUREMENTS
PORT OF LOADING
POLICY NO.
EXPORT REFERENCES
FORWARDED AGENT / REFERENCES
POINT AND COUNTRY OF ORIGIN
DOMESTIC ROUTING/EXPORT INSTRUCTIONS (not applicable to insurance certificate)
CERTIFICATE OF INSURANCE NO.
Certificate of InsuranceORIGINAL THIS CERTIFICATE
REQUIRES ENDORESEMENT INTHE EVENT OF ASSIGNMENT
71-OCP 1597700
CA U.S.A
LOS ANGELES, CA U.S. PORT
PRESIDENT TRUMAN 164
NAHA, OKINAWA, JAPAN
124 1420.00L6428.29K
1x40HC SLAC:PKGSDESCRIPTION OF GOODS AND/SERVICESCONSTRUCTION MATERIALS AND EQUIPMENTCIF NAHA, OKINAWA, JAPAN
L/C:
110 PERCENT OF THE INVOICE VALUE INCLUDING INSTITUTECARGO CLAUSES (ALL RISKS).INSURANCE CLAIMS TO BE PAYABLE IN JAPAN IN CURRENCYOF DRAFTS.
LOS ANGELES, CA U.S. PORT
71-1710
Broker: Global Solutions Insurance Services, Inc. Redondo Beach, CA 90278
CONDITIONS OF INSURANCE ON REVERSE SIDE
2170.000F61.454M
Bank of america merrill lynch SolutionS for importerS 74
Chapter 05
A Closer Look at Letter of Credit Documents
Exhibit D Sample Copy Only
BENEFICIARY:
DEMO BENEFICIARY CO.DEMO STREETDEMO CITYHONG KONG, HONG KONG
WEIGHT LIST
Date: 10 Jan 2007 Invoice No:S.O. No:
NOTIFY:AIRPORTS AUHTORITY INDONESIAJAKARTA, KASAFDARJUNGAIRPORT, JAKARTA
Letter of Credit No: M1241204NS00178
Drawn Under: IMPORTER’S ISSUING BANK NAME
SOLD TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203
SHIP TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203
MERCHANDISE DESCRIPTION:
LADIES BLOUSES AS PER PO. NO. 12345
ITEM: NET WEIGHT: GROSS WEIGHT:
We certify this document is true and correct.
Authorized Signature:
10 JAN 2007
LADIES BLOUSES AS PER P.O. NO. 12345
Bank of america merrill lynch SolutionS for importerS 75
Chapter 05
A Closer Look at Letter of Credit Documents
Exhibit E Sample Copy Only
BENEFICIARY:
DEMO BENEFICIARY CO.DEMO STREETDEMO CITYHONG KONG, HONG KONG
PACKING LIST
Date: 10 Jan 2007B/L No:Vessel:Shipped From: JAKARTA, INDONESIAShipped To: SAN DIEGO, USA
Invoice No:
Letter of Credit No: M1241204NS00178
Issued By: IMPORTER’S ISSUING BANK NAME
SOLD TO:BUYERS INTERNATIONAL315 PTATANGO MANGOBULILIMAHKTABOROON, CA 11203
MERCHANDISE DESCRIPTION:
LADIES BLOUSES AS PER PO. NO. 12345
ITEMS: NET WEIGHT:QUANTITY: :THGIEWSSORG:SEGAKCAP
COMMENTS:
PACKING LIST COMMENTS HERE
LADIES BLOUSES AS PER P.O. NO. 12345
Bank of america merrill lynch SolutionS for importerS 76
Chapter 05
A Closer Look at Letter of Credit Documents
Exhibit F Sample Copy Only
drop in revised form
SHIPPER
CONSIGNEE
NOTIFY PARTY INTERMEDIATE CONSIGNEE
INITIAL CARRIAGE PLACE OF RECEIPT
EXPORT CARRIER
PORT OF EXCHANGE
B/L TO BE RELEASED AT SERVICE CENTER MPREPAID U.S. $
Vessel: Voyager TOTAL COLLECT
TOTAL PREPAID
Authorized Signature
COLLECT U.S. $ Local Currency
BL number: APLU 098033266
Conditions on Reverse SideOCEAN FREIGHT PAYABLE AT
PLACE OF DELIVERY
PARTICULARS FURNISHED BY SHIPPERExport Valuation
MARKS & NO.s / CONTAINER NO.S NO. OF PKGS H.M. STNEMERUSAEMTHGIEWSSORGSDOOGDNASEGAKCAPFONOITPIRCSED
PORT OF LOADING
PAGE
EXPORT REFERENCES
FORWARDED AGENT (References F.M.C. No)
POINT AND COUNTRY OF ORIGIN OF GOODS
ALSO NOTIFY
B/L NUMBER
CNTRY: US
1 OF 1
J.E. LOWDEN & CO FMC87NF CHB5118275 BATTERY STREET SUITE 400SAN FRANCISCO CA 94111
TEL:415-781-7040FAX:415-392-3970
NO SED REQUIRED, AES 942267037-SF0105028
CTR NBR SEAL NBR T/S MODE QUANT/TYPECRLU910345-9 4492 R40 CY/CY 1440 CTNS
SHIPPER’S WEIGHT LOAD AND COUNT
THESE COMMODITIES, TECHNOLOGY OR SOFTWARE WERE EXPORTED FROMTHE U.S. IN ACCORDANCE WITH THE EXPORT ADMIN. REGULATIONS.DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED.ON BOARD APL BELGIUM 107 ON AUG.28, 2007 AT OAKLAND
APLU 098033266
NON-NEGOTIABLE SEA WAYBILL
APL BELGIUM 107
KAOHSIUNG KEELUNG
1440
NO M/N
43200#19595K1-40 FT CY/CY CONTAINER/S SL&C
CARTONS
FRESH NECTARINESUNDER REFRIGERATIONMAINTAIN TEMPERATURE 34 DEGREES FVENT SETTING: 0015 CFMFREIGHT PREPAID
NLR
OAKLAND
Payment by Cheque to be made to the order of APL-Co. ED. Ltd.
NON-NEGOTIABLE COPY
This Bill of Lading is governed by and subject to the terms andconditions of APL’s Bill of Lading, which may be found on thereverse side of this document or obtained on your Homeport at:www.apl.com or by APL upon request.
Date: AUG. 28, 2007 American President Lines, Ltd., The CarrierPlace Issued: SERVICE CENTER By:
APL
Bank of america merrill lynch SolutionS for importerS 77
Chapter 05
A Closer Look at Letter of Credit Documents
Exhibit G Sample Copy Only
drop in revised form
SHIPPER / IMPORTER
CONSIGNEE (Not negotiable unless consigned “to order”)
NOTIFY PARTY
PRE-CARRIAGE BY PLACE OF RECEIPT
OCEAN VESSEL/VOY. NO.
PORT OF DISCHARGE
No. of Originals
By
Place and Date of B/L Issue: TotalsPay At:
PLACE OF DELIVERY
Container No.; Seal No.; Marks and No.s Type or Kind of Containers or Packages - Description of Goods
PORT OF LOADING
BOOKING NO.
EXPORT REFERENCES
FORWARDING AGENT
Also Notify -- Export Instructions for Merchant’s Reference Only
B/L NUMBER600781434-A
FMC# 0087
J.E. LOWDEN & CO275 BATTERY ST., STE 400SAN FRANCISCO CA 94111
TO ORDER OF SHIPPER
THESE COMMODITIES, TECHNOLOGY, OR SOFTWARE WEREEXPORTED FROM THE UNITED STATES IN ACCORDANCEWITH THE EXPORT ADMINISTRATION REGULATION.DIVERSION CONTRARY TO U.S. LAW PROHIBITED.
MOLU600781434
BILL OF LADING NON-NEGOTIABLE (COPY)
MOL DISCOVERY
NAGOYA NAGOYA - CY
MCTU0015535/0008087/C4MOLU0023233/0008085/C4MOGU0044804/0008175/C4TRIU9731550/0008156/C4CAXU9774887/0008155/C4
SED Not Required - AES 942267037-SP01051660FREIGHT PREPAID. SHIPPER’S LOAD AND COUNT.
5 x 40’ HIGH CUBE CONTAINERSSAID TO CONTAIN:
3F678.89101BL00.88948SGAB04033M008.882GK00.05583ETILREP
LADEN ON BOARD THE VESSEL MOL DISCOVERY VOY NO 016M AT OAKLAND, CA ON 09-26-2007
OFRBCGDOCUMENTJAPAN TWC
5.000 405.000 401.000 BL5.000 40
0110081A02
OAKLAND, CA UNITED STATES
OAKLAND, CA - CY
Gross Weight Measurements
Mitsui O.S.K. Lines, Ltd.
Mitsui O.S.K. Lines, Ltd., as Carrier
Point and Country of Origin of Goods (for Merchant’s Reference Only)
Loading Pier Terminal
Final Destination for Merchant’s Reference
No. of Containersor Packages
Total number of Containers or other packagesreceived by the carrier (inwards):
Code Tariff Item Basis Freighted As Curr. Rate Per Prepaid Collect
Part
icul
ars
furn
ishe
dby
Ship
per
CRB# 511B
OAKLAND - TRAPAC PORT
FIVE CONTAINERS
PCPCPBPC
4040BL40
USDUSDUSDUSD
600.00000140.0000025.00000
240.00000
3000.00700.0025.00
1200.00
LADEN ON BOARD THEVESSEL 09-26-2007 THREE SAN FRANCISCO 09-26-2007
USD 4925.00SAN FRANCISCO
Conditions on Reverse Side
Bank of america merrill lynch SolutionS for importerS 78
Chapter 05
A Closer Look at Letter of Credit Documents
Frequently Asked QuestionsWhat documents should I require? You may request the issuing bank to stipulate any of the above or additional documents that you may need or want. In
addition, you should have your customs broker verify that all documents that are required in order to clear the goods
through customs have been stipulated. While LCs are very flexible, one common-sense rule is to exclude excess detail
in the LC, as well as requirements for documents that the seller cannot provide. If you attempt to include documents
or conditions in the LC that the seller finds objectionable, they will most likely contact you with a request for an
amendment before shipment is made. This invariably will cause delay and additional cost.
What happens when the seller does not submit all of the required documentation? It is your bank’s obligation to examine the documents received from the seller’s bank with the utmost care, and
make payment only when all documents conform to the LC that was issued on your instructions. If the issuing bank
discovers discrepancies in the documents, they will contact you, list the discrepancies found for your consideration,
and inquire as to whether you wish to authorize payment. You must make a decision within a reasonable time period to
avoid the possibility of the seller arranging for the return of the merchandise or the sale of the merchandise to a third
party.
What internal controls does the bank employ to help determine accurate documentary review? How
does the bank measure quality of service? Bank of America Merrill Lynch exercises due diligence and care when examining documents presented under LCs
in accordance with the guidelines of UCP. We have established several levels of checking to help ensure that our
documentary review meets your requirements. Your LCs and documents will be checked by our experienced trade and
compliance specialists who are familiar with your processing and document requirements. Each trade specialist has a
specific delegated authority regarding negotiation. For any transaction over that specific dollar amount, an additional
review is required. A trade specialist will review all the transactions again to determine whether they are in compliance
with the ISBP. Our trade operations managers also perform periodic reviews of the transactions in order to maintain
consistent service quality and accuracy.
We measure quality using the following five key elements:�• Timeliness
•Responsiveness
•Accuracy
•Courtesy
•Knowledge
With our strong commitment to service quality, we have set up a system of measurements. All transaction processing
times and customer inquiries are recorded by our system automatically. Our trade operations managers review these
service levels on a regular basis to determine whether our service standards are met. Historically, the review process
mentioned above has resulted in an adherence rate that consistently exceeds industry standards.
Bank of america merrill lynch SolutionS for importerS 79
Chapter 05
A Closer Look at Letter of Credit Documents
A Discussion of ISBP for the Examination of Documents under Documentary CreditsIn November of 2002, the National Committees of the ICC Banking Commission voted overwhelmingly to adopt the
ISBP for the Examination of Documents under Documentary Credits, also known as the ISBP. It is believed that the
adoption of the ISBP will reduce the number of rejections by banks of documents under documentary credits. The ISBP
was updated in July 2007 to bring it in line with UCP 600.
The ISBP was written to help businesses that follow the ICC’s internationally accepted rules for LCs, the UCP.
Currently, it is reported that discrepancies in LC documents found by banks in the interpretation and application of
the UCP have led to 60-70 percent of documents being rejected on first presentation. As LCs are one of the chosen
methods of payment for financing world trade, these rejections have been slowing trade and at times have led to
costly disputes and court cases.
The ISBP has been written as a supplement to the UCP, and explains how theUCP applies to day-to-day practice. It
does not amend the UCP, but explains how the practices articulated in the UCP are to be construed by businesses
worldwide.
The ISBP deals with some of the following most-questioned practices:
•Alterations: What constitutes an “alteration” or “addition” to a document and when and how should these be
authenticated?
•Drafts: What constitutes a proper endorsement? When does “sight” really occur when documents are discrepant?
How should alterations on drafts be treated?
•Signing of documents: How should documents be signed if not expressly stated in the LC?
•Applicant and beneficiary addresses: How should obvious typing errors in the name and address on documents be
handled? What about different addresses of the same company?
• Trade terms: Must trade terms, such as Incoterms, appear on the commercial invoice and other documents?
•Mathematical calculations: How to deal with mathematical calculations appearing on invoices and other
documents.
•Combined documents: Should a beneficiary’s certificate, when required under an LC, appear on the invoice or be
included as a separate document?
• Transport documents: What constitutes the “face” of a document?
• Insurance documents: What constitutes a full set? What constitutes a proper endorsement? How does one
determine the effective date?
Potential benefits of the ISBP to trade business are significant:� •As an importer or applicant of an LC, you can look forward to faster receipt of import documents, avoiding
demurrage charges and delays in the receipt of goods and ultimately reducing the cost of goods.
•Banks are anticipating that this new consistency will enhance straight-through processing and significantly reduce
the amount of time spent on dealing with discrepancies in their back offices.
•Your supplier, the beneficiary of your LC, should realize improved cash flow and efficiency as a result of their
improved knowledge of document preparation and presentation requirements.
• The complex nature of the LC will no longer be an obstacle, but an asset to the participants and to the future
growth of world trade.
The full text of the ISBP for the Examination of Documents under Documentary Credits can be ordered from the ICC
Bookstore at www.iccbooksusa.com.
Bank of america merrill lynch SolutionS for importerS
Chapter 06Documentary Collection for Importers
Bank of america merrill lynch SolutionS for importerS 81
Chapter 06
Documentary Collection for Importers
Documentary collections were introduced in the first chapter of this guide, which explored the inherent collection risk
factors of buyers and sellers in addition to basic background information. This section expands upon that information
with definitions, a flowchart and significant additional information.
What are bank collections?Bank collections are the delivery through banking channels of various commercial and shipping documents for release
to a buyer against either payment or acceptance of financial instruments.
What are documents?Documents are financial and/or commercial instruments.
a. Financial documents include bills of exchange (drafts), payment receipts, checks, promissory or demand notes, or
other similar instruments.
b. Commercial/shipping documents include invoices, bills of lading, shipping receipts, title documents, commercial
certificates (weight, origin, packing, etc.) or any other documents not interpreted as financial documents.
What are clean versus documentary collections? Clean collections are collections of financial documents without attached commercial documents. Documentary
collections are collections of commercial documents and may or may not have financial documents attached.
Who are the parties to a collection? The involved collection parties consist of the “drawer,” or the party that requests the collection process through his/
her bank called the “remitting bank” (exporter’s bank). A “collecting bank” (importer’s bank) is the bank that makes
the ultimate proposal for acceptance or payment of documents to the final party under the collection order, known as
the “drawee”.
What are foreign collections? Foreign collections through banks are a time-proven, low-cost method of collecting money. Collections abroad can
involve a variety of items in the form of documents that companies or individuals are trading for a payment or a
promise of payment of money. Banks are entrusted with these items for their proper release when acceptance or
money is obtained as instructed. The charge for this service is usually a nominal flat fee, plus out-of-pocket expenses.
What are the benefits of collections for importers? When you are dealing with a familiar trading partner, you should consider using documentary collections. A
documentary collection is a more secure alternative to the risk of paying cash in advance, and it does not tie up your
credit facility.
Why use Bank of America Merrill Lynch for documentary collections? Savvy importers know when and how to protect themselves from unfamiliar trading partners and risky marketplaces.
You rely on, and know how to leverage, established trade partnerships to ensure prompt delivery of the goods you
need. Maintaining sound relationships with your suppliers while safely managing the process of receiving title to the
goods you ordered are two ingredients of a successful trade partnership.
Bank of america merrill lynch SolutionS for importerS 82
Chapter 06
Documentary Collection for Importers
Documentary collections can work to your advantage because payment is contingent on your bank receiving and
holding the documents that you will rely on to obtain your goods. These shipping documents—which you and your
seller agree to in advance—could include bills of lading or other title documents, commercial invoices, packing lists,
certificates of origin or inspection certificates.
When Bank of America Merrill Lynch receives documents from your supplier or your supplier’s bank, our collection
staff records the collection and notifies you that your supplier has delivered proof of shipment. You then either pay
for the goods or accept a time draft, depending on the terms you’ve agreed to with your supplier. In either case, title
documents will be released so that you can obtain your goods. When you pay for the shipment, we remit payment to
your supplier through the collecting bank.
Here again, Bank of America Merrill Lynch’s web-based product, TradePro, can be utilized to process these
transactions and provide the comprehensive reporting so critical to your business.
The two types of documentary collections are distinguished by the timing of the payment:
•Documents against payment (also known as sight draft or cash against documents)—you pay Bank of America
Merrill Lynch; we release the documents giving you title and forward your payment to your supplier’s bank.
•Documents against acceptance (financing agreed to in advance with your supplier)—you sign a time draft promising
to pay for the goods at a future date. Once you accept the draft you receive title documents.
Bank of America Merrill Lynch can receive documents from your supplier’s bank, or directly from your supplier. Either
way, you can be sure that you will be notified promptly and that you will receive the documents upon acceptance or
when payment has been made. That means no matter what the distance is between you and your supplier, you will
receive documentation promptly.
Bank of America Merrill Lynch makes it easy to establish an incoming documentary collection relationship in three
simple steps:
01. Complete our easy-to-use Incoming Documentary Collection Agreement.
02. Submit the completed application to your local Bank of America Merrill Lynch banking center or
Trade Services office.
03. Instruct your supplier to send collection documents to a Bank of America Merrill Lynch Trade Operations Center
as the presenting bank. Naming Bank of America Merrill Lynch as your presenting bank for import documentary
collections means that you will be working with a bank you know and trust.
How are collections sent?Collections may be sent to collecting banks by courier service (Airborne, FedEx, DHL, etc.), express airmail or regular
airmail. In the past it has been customary for sellers to deliver documents to their bank for transmittal as mentioned.
The documents would be accompanied by a precise letter of instruction, which the seller’s (remitting) bank could
transcribe on its own collection letter form. Today, however, many banks provide a service called direct documentary
collections. This is an arrangement that enables the exporter to send documents, drafts and collection letters
to the buyer’s bank. The purpose is to save time that would otherwise be required to pass the collection through
the exporter’s bank first. The seller sends a copy of the collection letter to his/her bank, which follows up on the
collection.
Commercial documentsAs with LCs, the basic instrument through which payment is obtained is a draft. This is an order for the payment of
money drawn by one party, the drawer, on another, the drawee. Drafts may be payable at sight upon presentation or
at a fixed future date, such as 60 days from presentation. A properly executed draft is a negotiable instrument. Drafts
are generally referred to as bills of exchange outside the United States. A time draft that has been accepted by the
Bank of america merrill lynch SolutionS for importerS 83
Chapter 06
Documentary Collection for Importers
drawee is called a trade acceptance.
The documents accompanying the draft are those required by customs authorities in both countries and those
stipulated by the importer. Failure to provide proper documentation could place the shipment in serious jeopardy. A
bill of lading is the title document for the goods shipped. In most cases, a negotiable bill of lading is used and title is
transferred by a simple endorsement. In the case of air shipments, the bills of lading are non-negotiable. To prevent
the importer from obtaining possession of the merchandise without paying or accepting a time draft, the exporter may
consign the shipment to the collecting bank, provided that the bank gives advance approval. Another alternative may
be to consign the goods to an impartial agent. If either option is not possible, the documentary collection device may
not be advisable when a straight or non-negotiable bill of lading or air waybill is used.
While the seller or its bank may select the collecting bank, the transaction may be expedited by using the buyer’s bank
in that role. Typically, the seller’s instructions list the documents transmitted and state the conditions under which
they are to be given to the buyer; they set forth the channel through which proceeds are to be remitted and establish
responsibility for paying bank charges. If the seller has an office or local representative in the buyer’s country, this
should be indicated in addition to listing a contact to be made there in the event of any problems.
Collection fees In addition to the protection provided by the retention of title by the exporter, documentary collections have other
advantages. The fees are usually lower than those charged for LCs, and the collecting bank’s assistance expedites
payment over that which would be obtained by open account. It should also be noted that foreign collecting banks
deduct their fees from the funds received before sending them back to the seller. Those charges in some countries
are surprisingly high. Sellers can learn what fees are involved by asking their banks. If the costs cannot be absorbed,
arrangements should be made during the sale to have the buyer pay all or part of the fees. If the collection letter does
not specify which party is to pay, the fees will be deducted from the collected amount.
Collection advantages/disadvantages Documentary collections are widely used to settle trade transactions. They are the primary terms of sale when a long
standing relationship exists between the buyer and seller and particularly when the buyer is an authorized dealer or
distributor for the seller. In practice, the most common disadvantage is the delay when local funds are exchanged into
dollars or other hard currencies desired by the sellers for sales to developing countries. Those delays are most often
the fault of the exchange control authorities, not the buyers.
Please note that when the goods being shipped are perishable or manufactured to a buyer’s unique specifications, this
settlement method may not be advisable.
ICC rules The ICC Uniform Rules for Collections (URC 522) govern the rights and responsibilities of the parties in most
countries. In a collection transaction, a bank acts as an agent for the seller. It is bound by the seller’s instructions and
acts at its own risk if it takes actions not covered by the instructions.
The full text version of the URC 522 can be ordered at www.iccbooksusa.com.
Bank of america merrill lynch SolutionS for importerS 84
Chapter 06
Documentary Collection for Importers
Cash FlowIncoming Documentary Collections
importerexporter
exporter’s Bank (remitting Bank)exporter Documents
Bank of america merrill lynch SolutionS for importerS 85
Chapter 06
Documentary Collection for Importers
Cash FlowIncoming Documentary Collections (Continued)
exporter’s Bank (remitting Bank)
importer’s Bank (collecting Bank)exporter Documents Documents
importerexporter
Bank of america merrill lynch SolutionS for importerS 86
Chapter 06
Documentary Collection for Importers
Cash FlowIncoming Documentary Collections (Continued)
exporter’s Bank (remitting Bank)
importer’s Bank (collecting Bank)
exporter Documents Documents
exporter’s Bank (remitting Bank)
importer’s Bank (collecting Bank)importer
importerDocuments
exporter
exporter
importer’s Bank (collecting Bank)
importer’s Bank (collecting Bank)
Bank of america merrill lynch SolutionS for importerS
Chapter 07Bankers’ Acceptances Under Import LCs
Bank of america merrill lynch SolutionS for importerS 88
Chapter 07
Bankers’ Acceptances Under Import LCs
A bankers’ acceptance is a draft (an order for payment) or bill of exchange, payable at a fixed or determinable future
date, which is drawn on and accepted by a banking institution in the course of financing domestic or international
trade. By accepting the draft, the bank assumes an unconditional promise to pay the amount of the draft to any proper
holder who presents the draft for payment at maturity. A customer on whose behalf a draft is accepted is obligated
to make payment to the bank on or before the maturity date of the draft. A bankers’ acceptance is a negotiable
instrument that normally does not state an interest rate. Bankers’ acceptances are bought and sold on a discount
basis (that is, for less than face value) by subtracting an interest charge from the face amount of the acceptance.
When a bank buys (discounts) a bankers’ acceptance, it earns the difference between the purchase price and the face
amount that will be reimbursed at maturity by the client. After a bank has initially discounted its acceptance, it may
either hold the bill until maturity in its own portfolio as an investment, or rediscount with another investor.
Appropriate types of business for bankers’ acceptance financing Because of restrictions imposed by the Federal Reserve Act and related regulations, the majority of users of this
type of financing tend to be engaged in some aspect of domestic or international commerce. Nonetheless, there
remains a very broad segment of business types that can effectively use this vehicle when the financing relates to
the movement of goods or their storage under contract of sale. Acceptance financing may also be employed for other
purposes as well, but there are some additional limitations to its use. Financial institutions, including banks and
other types of lending institutions, that do not have the ability to create or market bankers’ acceptances because of
laws, regulations, lack of expertise, size, location or lack of market recognition may also find this type of financing
to be useful by employing banks such as Bank of America Merrill Lynch that do have this capacity. The advantage of
acceptance financing is its fixed, predetermined cost.
Financing characteristics Unlike conventional bank lending, which normally requires funding for the life of the loan, there is an active secondary
market for bankers’ acceptances. This secondary market gives these negotiable instruments a high degree of liquidity
that permits a bank to sell or rediscount them rather than hold them in portfolio. The secondary market consists
principally of a number of dealers (most of whom are nationally known brokers or securities dealers) who stand
ready to buy acceptances from banks at a discounted rate primarily for resale to their customers. Banks may also
market acceptances directly to customers or others who seek high-quality, short-term, liquid investments. Because
of the marketability feature, it has been said that when a bank finances a customer on an acceptance basis, it lends
its name rather than its money. The holder or investor in acceptances has the assurance of payment by both the
accepting bank and other endorsers. For this reason bankers’ acceptances are marketed at very competitive rates.
Bank of america merrill lynch SolutionS for importerS 89
Chapter 07
Bankers’ Acceptances Under Import LCs
Structure and mechanics of transactionsOf interest to importers, bankers’ acceptances are created through commercial LCs by requiring that drafts be drawn
to mature at a specific future date rather than at sight. If the documents accompanying the time draft are found to
be in order, the time draft is accepted by the drawee bank, thereby creating a bankers’ acceptance. If the beneficiary
desires payment before maturity of the draft, the bank may discount the draft and pay the beneficiary. Bankers’
acceptances are also generated independent of commercial LCs. A bankers’ acceptance is actually created when a
bank formally acknowledges its obligation to honor a time draft drawn on itself by stamping word “Accepted” across
the draft, dating and officially signing the notation.
Parties to the draftThere are three main parties involved in the execution of a draft:
01. The Drawer: The seller or exporter who draws the draft.
02. The Drawee: The person or entity to whom the draft is addressed. This will be a bank under an LC transaction.
03. The Payee: The specific person/company to whom payment is directed.
TenorTime (usance) drafts for acceptance must indicate payment at a fixed or a determinable future period in time. This
is called the tenor of a draft. An example of a fixed future time is a draft drawn on October 1, 2007, specifying
payment on November 1, 2007.Most time drafts, however, specify payment on a determinable future time. Various
determination type tenors are:
• Thirty days sight (30 d/s)—this means the determined payment date would be 30 days after the inscribed date of
acceptance on the draft.
• Thirty days date (30 d/d)—the determined payment date under this method would be 30 days after the date of the
draft.
• Thirty days after bill of lading date—this denotes that the draft is payable 30 days after the “on board” date
if a marine bill of lading, or 30 days after the reception date by the carrier in the case of truck, railroad or air
shipments. (See UCP 600, Articles 19 through 27).However, this type of tenor is not determinable unless the draft
also shows on its face the bill of lading date or date of receipt by the carrier. If the draft were being drawn under an
LC, the preferred method would be to have the creation date of the draft the same as the “on board” bill of lading
date or receipt date. Note: the above examples show 30 as the number of days for projection. This number can vary
as necessary, such as 45, 60, 90, 120, 150 or 180. Acceptance financing is usually short term, up to six months
or 180 days.
Draft tenors must always be fixed maturities or capable of being projected to a definite maturity. A draft tenor can
never be ambiguous or based on a contingency. Examples of inappropriate tenors are: thirty days after ship arrives,
sixty days after merchandise is accepted or forty-five days from delivery.
Bank of america merrill lynch SolutionS for importerS 90
Chapter 07
Bankers’ Acceptances Under Import LCs
Advances The creation of a bankers’ acceptance does not itself generate a flow of cash since it is simply a promise to pay the
acceptance at maturity. To initiate the flow of funds, the bill must be discounted. Customarily, such discount is made
by the bank by deducting a fee (interest) from its face value for the period from the date of discount until maturity. In
most instances, the initial discount is performed by the accepting bank, usually at a rate related to going market rates.
The total cost to the beneficiary consists of the fee assessed by the bank for accepting the draft and the discount.
Often, both elements are combined in an “all-in” or all-inclusive quotation to the customer. Under an LC, acceptance
fees and discount costs may be either for the account of the beneficiary (normal) or the applicant. If discount charges
are payable by the applicant, discount of the acceptance is virtually automatic since the beneficiary will receive the
face amount of the acceptance as proceeds.
Repayment The accepting bank is obliged to honor at maturity the acceptance it created, so it looks to its customer for
reimbursement. By paying the holder (purchaser) of the draft upon presentation at maturity, the bank extinguishes its
obligation.
Bank of america merrill lynch SolutionS for importerS 91
Chapter 07
Bankers’ Acceptances Under Import LCs
Bankers’ Acceptance Cash Flow
Flow of funds at time BA created
01 Exporter draws $500,000 draft on Bank of America Merrill Lynchassumption: acceptance commission at 1.5% per annum, 90 days to maturity.
assumption: discount at illustration rate of 6%03
Bank of America Merrill Lynch deducts acceptance commissions of $1,875 and $7500 for discount charges
02 Bank of America Merrill Lynch accepts the draft
04 Bank of America Merrill Lynch advances $490,625
05 At maturity, borrower repays Bank of America Merrill Lynch $500,000
Bank of america merrill lynch SolutionS for importerS
Chapter 08Obtaining Your Merchandise
Bank of america merrill lynch SolutionS for importerS 93
Chapter 08
Obtaining Your Merchandise
The issuing bank will send the documents presented under your LC either directly to you, or to your customs broker,
after proper examination has been completed. Your customs broker will then use the documents to clear the goods
through customs.
The customs broker will advise you of charges for duty, ocean freight, insurance or entry fees. These charges must be
paid to the customs broker immediately as failure to do so may result in penalties from U.S. Customs. In addition, you
should keep the following in mind:
•No pier pickup can be made until all duty and ocean freight have been paid
•All figures should be verified against those given by the seller
• If any of the charges appear to be out of line, advise the seller immediately
•Duty should not be paid on items that are not dutiable
•Wharfage charges must be paid at the pier
• If goods travel as loose cargo, a loading charge must be paid
•Wharfage charges and loading charges are nominal and vary from port to port.
Full container loads are normally available for pickup within two days after arrival, and loose cargo is typically ready
for pickup three or four days after docking. Either you or your customs broker can check on cargo availability after
arrival. Some steamship companies require an appointment to pick up merchandise. If your goods require further
transportation, you must provide your trucker with a delivery order on your company’s letterhead for him to take
possession of your merchandise. All the information needed for this delivery order will be contained in your bill of
lading.
What happens if the goods arrive before the documents? Much depends on the type of transport document used.
Shipments made under an “order” bill of lading will normally not be released by the carrier without a properly endorsed
original bill of lading. However, Bank of America Merrill Lynch may be able to help you avoid costly delays and
demurrage charges by issuing a Steamship Guarantee or Air Release to the carrier.
A good customs broker is frequently the key to successful importing and should be contacted before finalizing any
contracts. Customs brokers can provide you with current information on:
•All documents needed from the seller—both regular and special—in order to have your goods clear customs.
• Import duties that may be assessed on your goods.
•Any quota that limits the quantity of a specific item for import.
•Some of the other ways in which your customs broker can assist you include:
•Most shipments require formal customs entry and the posting of a bond.
A customs broker can assist you in both areas.
•Goods in transit should be insured by either the buyer or seller. If you do not have a policy, and insurance is not
provided by the seller, your customs agent can obtain the necessary coverage.
Bank of america merrill lynch SolutionS for importerS
Chapter 09Incoterms—International Shipping/Trade Terms
Bank of america merrill lynch SolutionS for importerS 95
Chapter 09
Incoterms—International Shipping/Trade Terms
What are Incoterms?When buying or selling in international markets, it is critical that all parties to the transaction know and understand
the terms of sale. For example, a seller may think that he has quoted a price to a buyer exclusive of the freight costs.
If the buyer thought that the price included the freight charges then a costly misunderstanding has occurred. For this
reason the ICC has developed a set of trade terms that are used worldwide. They come under the general heading of
Incoterms. Some of the more frequently used terms are outlined below. The most recent Incoterms, Incoterms 2010,
was published on January 1, 2011.
There are 11 Incoterms subdivided into 2 categories: rules for any mode of transport and rules for seas and inland
waterway. The following is a summary of the highlights of the Incoterms, which is not intended to furnish Incoterms
in their entirety. For a more complete understanding please refer to the Guide to Incoterms 2010 published by ICC
Publishing Co. in New York, which can be ordered through ICC’s website at www.iccbooksusa.com.
RULES FOR ANY MODE OF TRANSPORT
EXW (ExWorks . . . named place) Ex Works means that the seller fulfills his obligation to deliver when he has made the goods available at his premises
(that is, works, factory, warehouse, etc.) to the buyer. In particular, he is not responsible for loading the goods on the
vehicle provided by the buyer or for clearing the goods for export, unless otherwise agreed. This term thus represents
the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from
the seller’s premises. If the parties wish the seller to be responsible for the loading of the goods on departure and its
risks and costs, this should be made clear by adding explicit wording to this effect to the contract of sale. This term
should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances,
the FCA term should be used, provided the seller agrees that he will load at his cost and risk.
FCA (Free Carrier . . . at the named point) This term has been designed to meet the requirements of modern transport, particularly such multimodal transport as
container or roll on-roll off traffic trailers and ferries. It is based on the same main principle as FOB except that sellers
fulfill their obligations when they deliver the goods into the custody of the carrier at the named point. If no precise
point can be mentioned at the time of the contract of sale, the parties should refer to the place or range where the
carriers should take the goods into their charge. The risk of loss or damage to the goods is transferred from seller
to buyer at that time and not at the ship’s rail. A “Received for Shipment” bill of lading is acceptable in lieu of an
“On Board” bill of lading. This allows exporters to receive shipping documents more quickly and to get paid in a more
timely manner. “Carrier” means any person by whom or in whose name a contract of carriage by road, rail, air, sea or
a combination of modes has been made. When the seller has to furnish a bill of lading, waybill or carrier’s receipt, he/
she duly fulfills this obligation by presenting such a document issued by a person so defined.
CPT (Carriage Paid To . . . named place of destination) This term means that the seller delivers the goods to the carrier nominated by him, but the seller must also pay the
cost of carriage to bring the goods to the named destination. The buyer bears all risks and any other costs occurring
Bank of america merrill lynch SolutionS for importerS 96
Chapter 09
Incoterms—International Shipping/Trade Terms
after the goods have been so delivered. “Carrier” is defined as any person who, in a contract of carriage, undertakes
to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of
methods. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods
have been delivered to the first carrier. This CPT term requires the seller to clear the goods for export.
CIP (Carriage and Insurance Paid To . . . named place of destination) This term is the same as “Carriage Paid To . . .” but with the addition that the seller has to procure transport insurance
against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the
insurance premium. CIF is used for goods carried by sea, while CIP is used irrespective of the mode of transport. This
term allows the exporter the greatest control over all aspects of shipment.
DAT (Delivered At Terminal. . . named terminal at port or place of destination)This term is the same as CPT “Carriage Paid To . . .” but with the addition that the seller must pay for the unload
main carrier charges. The seller’s obligation ends when the goods are delivered to the disposal of the buyer, unloaded
from the arriving carrier at the named destination terminal, cleared for export, but not cleared for import. The buyer is
responsible for the import clearance of the goods. If the seller is also to be responsible for delivering the goods past
the terminal to another place, then DAP or DDP terms should be used.
DAP (Delivered At Place. . . named place of destination))This term is the same as DAT “Delivered at Terminal. . ..” but with the addition that the seller must pay for the
destination terminal charges. The seller’s obligation ends when the goods are delivered to the disposal of the buyer at
the named destination place, cleared for export, but not cleared for import. The seller and buyer should agree which
party will be responsible for unloading. The buyer is responsible for the import clearance of the goods.
DDP (Delivered Duty Paid. . . named place of destination). This term means that the seller delivers the goods to the buyer (cleared for import) but not unloaded from any arriving
means of transport at the named place of destination. The seller must bear all costs and risks involved in bringing the
goods thereto including, where applicable, any “duty” (which includes the responsibility for and the risk of carrying out
of customs formalities, customs duties, taxes and other charges) for import in the country of destination. While the
EXW term signifies the seller’s minimum obligation, the DDP term represents the maximum obligation.
RULES FOR SEA AND INLAND WATERWAY
FAS (Free Along Side . . . named port of shipment) This means that the sellers fulfill their obligation to deliver when the goods have been placed alongside the vessel on
the dock or quay at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the
goods from that moment. The FAS term requires the seller to clear the goods for export.
FOB (Free on Board . . . named port of shipment) FOB means “Free on Board.” The goods are placed on board a ship by the seller at a port of shipment named in the
sales contract. The risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods
pass the ship’s rail. All costs from that point forward, including freight and insurance, are for the buyer’s account. This
term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the
ship’s rail, the FCA term should be used.
Bank of america merrill lynch SolutionS for importerS 97
Chapter 09
Incoterms—International Shipping/Trade Terms
CFR (Cost and Freight . . . named point of destination) CFR means “Cost and Freight.” The seller must pay the costs and freight necessary to bring the goods to the named
destination, but the risk of loss or damage to the goods, as well as any cost increases, is transferred from the seller
to the buyer when the goods pass the ship’s rail in the port of shipment. The CFR term requires the seller to clear
the goods for export. This term should only be used for sea and inland waterway transportation. If the parties do not
intend to deliver the goods across the ship’s rail, the CPT term should be used.
CIF (Cost, Insurance and Freight . . . named port of destination) CIF means “Cost, Insurance and Freight.” This means that the seller delivers when the goods pass the ship’s rail
in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port
of destination, but the risk of loss or damage, as well as additional costs due to events occurring after the time of
delivery, are transferred from the seller to the buyer. In CIF the seller also has to procure marine insurance against the
buyer’s risk of loss or damage to the goods during the carriage. Consequently, the seller contracts for insurance and
pays the premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on
minimum cover. The CIF term requires the seller to clear the goods for export. This term should be used only for sea
and inland waterway transport. If the parties do not intend to deliver the merchandise across the ship’s rail, the CIP
term should be used
Incoterms summary of seller’s and buyer’s charges/fees responsibilities
Any Transport Mode
EXW FCA CPT CIP DAT DAP DDPEx Works Free Carrier Carriage Paid
toCarriage Insurance Paid to
Delivered at Terminal
Delivered at Place
Delivered Duty Paid
Packaging Buyer or Seller Seller Seller Seller Seller Seller Seller
Loading Charges
Buyer Seller Seller Seller Seller Seller Seller
Delivery to Part/Place
Buyer Seller Seller Seller Seller Seller Seller
Export Duty & Taxes
Buyer Seller Seller Seller Seller Seller Seller
Origin Terminal Charges
Buyer Buyer Seller Seller Seller Seller Seller
Loading on Carriage
Buyer Buyer Seller Seller Seller Seller Seller
Carriage Charges
Buyer Buyer Seller Seller Seller Seller Seller
Insurance Seller
Destination Terminal Charges
Buyer Buyer Seller Seller Seller Seller Seller
Delivery to Destination
Buyer Buyer Buyer Buyer Buyer Seller Seller
Import Duty & Taxes
Buyer Buyer Buyer Buyer Buyer Buyer Seller
Bank of america merrill lynch SolutionS for importerS 98
Chapter 09
Incoterms—International Shipping/Trade Terms
Sea/Inland Waterway Transport
FAS FOB CFR CIFFree Alongside Ship Free on Board Cost & Freight Cost Insurance & Freight
Packaging Seller Seller Seller Seller
Loading Charges
Seller Seller Seller Seller
Delivery to Part/Place
Seller Seller Seller Seller
Export Duty & Taxes
Seller Seller Seller Seller
Origin Terminal Charges
Seller Seller Seller Seller
Loading on Carriage
Buyer Seller Seller Seller
Carriage Charges
Buyer Buyer Seller Seller
Insurance Seller
Destination Terminal Charges
Buyer Buyer Buyer Buyer
Delivery to Destination
Buyer Buyer Buyer Buyer
Import Duty & Taxes
Buyer Buyer Buyer Buyer
Bank of america merrill lynch SolutionS for importerS
Chapter 10Standby LCs and Special Purpose LCs
Bank of america merrill lynch SolutionS for importerS 100
Chapter 10
Standby LCs and Special Purpose LCs
Standby LCs A standby LC is an assurance of the performance of the client (applicant) to a beneficiary. Bank of America Merrill
Lynch issues standby LCs for its clients (individuals, corporations or correspondent banks).
The standby LC substitutes the credit standing of Bank of America Merrill Lynch for that of our client. Generally,
standby LCs are payable against the presentation of a draft and a statement from the beneficiary stating that our
client, the applicant of the standby LC, has defaulted under the terms of a specific underlying agreement.
The standby LC is an extremely flexible instrument and can be tailored to fit many situations. The following are
examples of typical uses for standby LCs:
•Bid and performance bonds or guarantees
• To ensure the repayment of principal and/or interest on loans, bonds, or commercial paper
•Assurance of timely invoice payment
•Substitute for a cash security deposit.
Applicants should be cautious when a standby LC is requested. Since most of these LCs require only statements
or declarations prepared by the beneficiary, they can be drawn on arbitrarily. The beneficiary should therefore be of
unquestionable character and have an established relationship with the applicant.
Standby LCs are governed by the International Standby Practices, ICC Publication 590 (ISP98), when incorporated by
reference in the standby LCs. The ISP98 reflects generally accepted practice, custom, and usage of standby LCs.
The formulation of standby LCs practices in separate rules evidences the maturity and importance of this financial
product. The outstanding amounts of standby LCs greatly exceed the outstanding amounts of commercial LCs. While
the standby LCs is associated with the United States, where it originated and where it is most widely used, it is truly
an international product. Non-U.S. bank outstandings have exceeded those of U.S. banks in the United States for the
past several years. The full text version of the ISP98 is available from the ICC at www.iccbooksusa.com.
Bank of america merrill lynch SolutionS for importerS 101
Chapter 10
Standby LCs and Special Purpose LCs
Bank of America Merrill Lynch provides...
Feature Advantages Benefits
Cash Flow Financial strength of Bank of America Merrill Lynch Frees customer funds that would otherwise have been tied up separately as deposits.
Expertise Staff of professionals have years of experience in the technical handling of standby LCs.
Assures that the standby letter of credit is issued in a manner that best protects client interest.
Foreign Exchange Bank of America Merrill Lynch can issue a standby letter of credit in currencies other than U.S. dollars.
Achieves compliance with contracts requiring foreign currency payments.
Credit Assurance Bank of America Merrill Lynch can issue a standby letter of credit on behalf of a client to serve as an assurance to a bank overseas for the repayment of loans made by the bank to our client or its subsidiary or affiliate.
Provides access to foreign loans that would otherwise not be available to client.
A “Standby Letter of Credit Application Kit,” which includes additional information and guidance on completing a
standby LC application, is available through your local Global Trade & Supply Chain Solutions Officer.
Bank of america merrill lynch SolutionS for importerS 102
Chapter 10
Standby LCs and Special Purpose LCs
A typical standby LC, as issued, is shown here:�
WE HEREBY ISSUE IN YOUR FAVOR THIS IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXXXXXX WHICH ISAVAILABLE BY PAYMENT WITH OURSELVES AGAINST PRESENTATION OF YOUR DRAFT AT SIGHT DRAWN ON BANKOF AMERICA, LOS ANGELES CALIFORNIA, BEARING THE CLAUSE: “DRAWN UNDER STANDBY LETTER OF CREDITNUMBER XXXXXXX OF BANK OF AMERICA, LOS ANGELES, CA” ACCOMPANIED BY THE FOLLOWING DOCUMENTS.
BENEFICIARY SIGNED STATEMENT CERTIFYING THAT (APPLICANT NAME) HAS FAILED TO COMPLY WITH THETERMS AND CONDITIONS OF CONTRACT NO. KFX-KAF-02005.
IT IS A CONDITION OF THIS LETTER THAT IT WILL BE AUTOMATICALLY EXTENDED WITHOUTAMENDMENT FOR ADDITIONAL PERIODS OF ONE YEAR FROM THE CURRENT OR ANY FUTURE EXPIRATION DATEHEREOF UNLESS, SIXTY (60) OR MORE DAYS PRIOR TO ANY SUCH EXPIRATION DATE, BANK OF AMERICA WILL NOTIFYBENEFICIARY BY REGISTERED MAIL OR COURIER SERVICE AT THE ABOVE ADDRESS, THAT THE BANK ELECTED NOTTO RENEW THIS LETTER OF CREDIT FOR ANY SUCH ADDITIOANL PERIOD.
IT IS A FURTHER CONDITION HEREOF THAT BENEFICIARY MAY DURING THE LAST FIFTEEN (15) DAYS OF THETHEN CURRENT VALIDITY PERIOD DRAW HEREUNDER BY MEANS OF THEIR SIGHT DRAFTS ON OURSELVES FOR ANAMOUNT UP TO THE AVAILABLE BALANCE ACCOMPANIED BY THEIR SIGNED STATEMENT STATING THAT THEYHAVE RECEIVED NOTICE FROM BANK OF AMERICA, LOS ANGELES, CA THAT BANK ELECTED NOT TO CONSIDER THEEXPIRY DATE OF STANBY LETTER OF CREDIT NUMBER XXXXXXX EXTENDED.
PARTIAL DRAWINGS PERMITTED.
ALL REQUIRED DOCUMENTS MUST BE PRESENTED TO BANK OF AMERICA, LOS ANGELES, CA.
WE HEREBY ENGAGE WITH YOU THAT DRAFTS DRAWN AND PRESENTED IN THE CONFORMITY WITH THETERMS OF THIS CREDIT WILL BE DULY HONORED ON PRESENTATION.
“EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS DOCUMENTARY CREDIT IS SUBJECT TOINTERNATIONAL STANDBY PRACTICES (ISP98), PUBLICATION NO. 590 OF THE INTERNATIONAL CHAMBER OFCOMMERCE.”
PLACE AND DIATE OF ISSUE IRREVOCABLE STANDBYLOS ANGELES, CA JUNE 29, 2007 LETTER OF CREDIT NO. XXXXXXX
APPLICANT DATE AND PLACE OF EXPIRY(APPLICANT NAME) DECEMBER 31, 2010 IN SAN FRANCISCO, CA
35 MAIN STREETSAN FRANCISCO, CA 94116 BENEFICIARY
(BENEFICIARY NAME)ADVISING BANK GPO BOX 444BANK OF AMERICA HONG KONGHONG KONG
AMOUNT: U.S. $3, 500,000.00 (THREE MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS)
Bank of america merrill lynch SolutionS for importerS 103
Chapter 10
Standby LCs and Special Purpose LCs
Special Purpose LCsRevolving LCs A revolving LC is one which, under the terms and conditions thereof, the amount is renewed or reinstated without
specific amendment to the LC.
A revolving LC:
•Can be revocable or irrevocable
•Can revolve in relation to time or value
In the case of an LC that revolves in relation to time, which is available for up to $15,000.00 per month during a fixed
period of time such as six months, the credit is automatically available for $15,000.00 each month whether or not
any sum was drawn during the previous month. A LC of this nature can be cumulative or non-cumulative. If the LC is
stated to be cumulative, any sum not utilized during the first period carries over and may be utilized during subsequent
periods. If the LC is non-cumulative, any sum not utilized in a period ceases to be available (not carried over to a
subsequent period).
In the case of an LC that revolves in relation to value, the amount of the LC is reinstated upon utilization, with a
given overall period of validity. The LC may provide for automatic reinstatement immediately upon presentation of
the specified documents only after receipt by the issuing bank of those documents. To give a degree of control it is
necessary to specify the maximum total amount that may be drawn under the LC. Such amount would have to be
decided by the buyer and seller to meet their requirements and agreed to by the issuing bank. A LC for the full value of
goods to be shipped by requiring specific quantities to be shipped weekly or monthly, and allowing partial shipments,
is not a revolving credit. It is a LC available by installments as defined in the UCP 600 Article 32. In this type of LC it is
important to note than any missed installment makes the LC unavailable for further drawings.
Transferable LCs A transferable LC is one that can be transferred by the original (first) beneficiary in whole or in part, to one or more
other parties (second beneficiaries) (ISP98 Rule 6 orUCP 600 Article 38,). It is normally used when the first beneficiary
does not supply the merchandise but is a broker and thus wishes to transfer part, or all, of the rights and obligations
to the actual supplier(s) as second beneficiary(ies). This type of LC can only be transferred once (any second
beneficiary cannot transfer to a third beneficiary).
Bank of america merrill lynch SolutionS for importerS 104
Chapter 10
Standby LCs and Special Purpose LCs
The transfer must be effected in accordance with the terms of the original LC, subject to the following exceptions:
01. The name and address of the first beneficiary may be substituted for that of the applicant of the LC.
02. The amount of the LC and any unit price may be reduced; this would enable the first beneficiary to draw against
the LC for commission or profit.
03. The expiration date of the credit, the period of time after date of issuance of the transport document for
presentation of documents, and the shipment period may be shortened.
04. The percentage for which insurance coverage must be effected may be increased in such a way as to provide the
amount of cover stipulated in the original LC.
It should be noted that a LC would only be issued as “transferable” on the specific instructions of the applicant.
This would mean that both the LC application form and the LC itself must clearly show that the credit is to be made
transferable (only an irrevocable LC would be issued in this form).
The transfer is effected by the bank authorized in the LC as the transferring bank at the request of the first beneficiary.
In practice, the first beneficiary is allowed to substitute any invoices and any drafts for those presented to the
transferring bank by the second beneficiary. The bank must correlate and check both invoices and drafts with the other
documents called for and determine that all documents comply with the terms of the original LC.
Bank of america merrill lynch SolutionS for importerS
Chapter 11International Cash Management and Foreign Exchange Services
Bank of america merrill lynch SolutionS for importerS 106
Chapter 11
International Cash Management and Foreign Exchange Services
International Treasury Management ServicesBank of America Merrill Lynch Treasury Management Services help you manage your cash position and cash flow.
We build comprehensive, customized solutions to meet the unique needs of our clients, improve their financial
competitiveness, and make their treasury functions more efficient.
By working with you, we help you streamline the way you make payments, collect your receipts, and reconcile your
accounts worldwide. With our broad treasury management suite of services, we guide you through the steps to make
your treasury functions more efficient.
Bank of America Merrill Lynch Treasury Management services can:�•Reduce your administrative costs and help you analyze and forecast your financial needs
•Help you concentrate on managing your working capital and other strategic financial objectives, including
maximizing company investments
• Increase cash for investment, capital expenditures, and other purposes by helping you predict your day-to-day cash
needs
• Free up resources by providing you with fast and accurate information.
PaymentsBank of America Merrill Lynch offers you quick, efficient payment services that can streamline the way you remit to
your vendors, clients and employees and reconcile your accounts. We can provide a customized solution, integrating
the following components:
•Account Reconciliation—reconcile your accounts quickly, easily and accurately
•Automated ClearingHouse (ACH)—save time and money by moving funds electronically, from your own personal
computer
•EDI—increase your efficiencies through the electronic transfer of business data with your business partners
• Information Reporting—receive timely account information at your desktop
•Wire Transfer Service—Efficiently send or receive same-day funds with robust security.
ReceiptsWe can help you quickly turn your receipts into cash while reducing information float and improving credit management.
If you are challenged to provide your clients with payment flexibility or to improve efficiencies in your receipt
processing, we can help you manage your receivables by developing customized solutions from the following range of
services:
•Account Reconciliation—fast and economical method to help you manage your deposit activity by outsourcing all or
part of your monthly checking account reconciliation functions
•ACH—save time and money by moving funds electronically
•EDI—increase your efficiencies through the electronic transfer of business data with your business partners
Bank of america merrill lynch SolutionS for importerS 107
Chapter 11
International Cash Management and Foreign Exchange Services
• Information Reporting—receive timely account information at your personal computer
• Lockbox—utilize our network of post office boxes to accelerate the collection of client remittances, improving
control of your receipts in selected countries
TreasuryBank of America Merrill Lynch Treasury Services gives you the information and services to help you get the most out of
your deposits and balances.
•SWEEP—automate the concentration of your daily excess collected balances
•Zero Balance Accounts—gain greater control of your funds by automatically transferring them between master and
subsidiary accounts on a same-day basis
•Euro Cross-Border Automated Zero Balance—concentrate your Euro currencies
•Online capabilities
•Current-day reporting
•Prior-day reporting
•ACH initiation
•Wire transfer initiation
• International U.S. dollar wires
• FX international wires.
Working Capital ManagementTreasury Management has typically been charged with studying and documenting the cycles of receipts and payments
to improve return on investment portfolios and/or to reduce debt. The credit management function involves managing
raw materials, work in process, inventory and the distribution of finished goods. These are all components of the
cash flow cycle and very closely tied to one another. If one component fails or is delayed, the next activity and all
subsequent activities will suffer.
Your Bank of America Merrill Lynch Treasury Management team is prepared to work with you to identify issues and
discover opportunities and solutions.
Investment/Paydown
Sales of goods
Raw Materials
Inventory
Work in Progress
Payables
Receipts
Equity/Debt
Distribution
Bank of america merrill lynch SolutionS for importerS 108
Chapter 11
International Cash Management and Foreign Exchange Services
Client financial architectureThe focus of your Corporate Treasury staff has expanded to include overseeing the complete transaction process—
receipts, payments and treasury.
Bank of America Merrill Lynch Treasury Management officers will ask questions to gain an understanding of your core
processes so they can more easily develop and implement solutions that add value to your internal operations.
•Your Bank of America Merrill Lynch Treasury Management team will work with you to learn and understand your
issues and needs to uncover opportunities not easily recognized.
•Working as advisors, we will deliver innovative solutions, drawing from our comprehensive U.S. and international
payments, receipts, treasury and global trade capabilities to help you meet your business objectives.
•As the #1 provider of treasury management services to middle market and large corporate clients in the United
States, we provide exceptional customer service and ongoing technological advancements.
• The Global Banking System (GBS), the backbone of Bank of America Merrill Lynch’s international banking
operations, links accounts and services through one single platform.
Risk
ReceiptsCredit
Invoice
Receipts
Cash Application
Deductions Mgmt
Disputes
Collections/Loss Control
Research/Inquiries
TreasuryCash Position
Bank Relations
Miscellaneous
PaymentsPurchasing
Request for Payment
Payment Origination Settlement
Fraud Control
Reconcilenment
Research/Inquiries
Information
Client Access Technology Strategy Information Security
Bank of america merrill lynch SolutionS for importerS 109
Chapter 11
International Cash Management and Foreign Exchange Services
Foreign Exchange ServicesBank of America Merrill Lynch Foreign Exchange Services Group provides the following products and services:
Worldwide trading•Nearly thirty sales and trading centers
•Short-and long-dated forwards in all non-exotic currencies
•Non-deliverable forwards pricing in selected exotic currencies
•Standard and exotic options.
Risk analysis•Quantitative analysis of FX exposures and hedging strategies
•Analysis and review of the risk management process
•Development of new hedging approaches and products
•Currency research and risk management monographs
Currency strategy•Economists located on trading floors, who are responsive to market developments
•Globalmacro-economic coverage of all markets through worldwide network
•Regular publication of market research and country analysis available electronically in real-time
Other services•Extensive series of workshops and seminars
• Full-featured capital markets Web site with instant access to research, market commentary, and risk analysis tools
E-SolutionsBank of America Merrill Lynch’s Global Markets website provides clients with valuable ideas, analyses and tools
required to manage their physical assets, liabilities and risks.
The resources available through the site include:
•Research: Market commentary, economic analysis, technical analysis, forecasts and research on practical
investment and risk management issues, such as setting foreign exchange budget rates, estimating international
costs of capital and evaluating hedging strategies
•News & information: Economic calendar hyperlinked to Bank of America Merrill Lynch research and online futures
and margin statements
•Analysis tools: TradeCalc (Options pricer), Chart Room (historical data), Portfolio Optimizer, Implied Volatility and
Daily FX rates
• Trading: FX02, an FX e-dealing service that offers spot, forward and swap transactions, online trade blotters,
confirmations and valuation reporting
Bank of america merrill lynch SolutionS for importerS 110
Chapter 11
International Cash Management and Foreign Exchange Services
CashPro FXYour business is increasingly global. Your operations are expanding internationally. Employees and suppliers extend
across borders. As your company changes and grows, you need the ability to make multi-currency payments quickly,
easily and cost-effectively. Bank of America Merrill Lynch FX Wires and Drafts allow you to tap the power of the internet
to manage foreign currency payments effectively.
Integrated FX platformThe CashProFX service allows you to issue payments—in more than 100 currencies—using the web browser on your
PC desktop.
The service makes it easy for you to make payments of up to $5 million (USD equivalent) to suppliers, overseas
employees, international operating units, or any other beneficiary, via our state-of-the-art web-browser¬based system.
Payment settlement is made via deductions from your Bank of America Merrill Lynch account. Since competitive
foreign exchange rates are critical, our system provides the most current rates, which are continuously updated
throughout each business day.
Benefits of CashPro FX:�• Intuitive pull-down menus and clear data input screens make it easy for you to complete a transaction in minutes.
• The service is available 24 hours a day, allowing you to set up payments and review transactions on a schedule
that’s convenient for you.
•With on-site draft printing, you can print your foreign currency drafts locally and immediately.
• The service gives you robust security, using digital certificates and flexible user controls.
•You have the benefit of real-time, competitive FX rates from one of the leading FX trading operations in the world.
•You have the added confidence that your payments are made with greater accuracy since the system automatically
provides certain standard payment information.
Bank of america merrill lynch SolutionS for importerS 111
Chapter 11
International Cash Management and Foreign Exchange Services
Seminars and WorkshopsForeign Exchange Workshop•A three-day, case study-based workshop that introduces the attendees to such topics as: “Defining Foreign
Exchange Exposures,” “Settling Currency Risk Management Policies and Procedures,” “Foreign Currency Options”
and “Managing Foreign Currency Exposures”
•A one-day seminar specifically designed to cover the key aspects of the three-day seminar in a more condensed
version.
Currency Option SeminarsTo complement Bank of America Merrill Lynch’s extensive capabilities in providing currency options to its clients, the
bank also offers educational opportunities where clients can improve their understanding of option-related products
and learn to use them within an appropriate risk management framework.
Seminars include:
• Introduction to Vanilla Currency Options
• Introduction to Exotic Currency Options
•Hedging with Currency Options and the Accounting Implications
•Currency Option Risk Management
Managing risk for the MNCThis seminar is designed for the Treasury professional who desires a deeper understanding of the issues and
strategies that are necessary for managing risk for a multi-national corporation.
FAS 133This comprehensive seminar will help Treasury and Accounting implement and maintain compliance with the new
derivatives and hedging rules. The seminar will focus specifically on new developments, including recent decisions
from the DIG and insight into future changes.
If you are interested in attending any of these seminars, please contact your Global Product Solutions officer.
Bank of america merrill lynch SolutionS for importerS 112
Chapter 11
International Cash Management and Foreign Exchange Services
Accounting ConsiderationsAccounting for Derivatives and Hedging Transactions—FAS 133 (as amended by FAS 138)• Financial Accounting Standard No. 133 (as amended by FAS 138), effective for fiscal years starting after June 15,
2000, requires all derivatives to be shown on the balance sheet at fair value. Changes in fair value of the hedge will
go through earnings unless the transaction qualifies for special hedge accounting.
•Each operating unit determines whether it has an FX exposure based upon its functional currency. Companies must
document hedge strategies and the hedge must be highly effective to qualify for hedge accounting. Any ineffective
portion of the hedge may be charged to earnings immediately.
• Three types of hedges that qualify for special accounting are cash flow hedges, fair value hedges and net
investment hedges.
•A cash flow hedge protects against changes in the USD-equivalent cash flows associated with an unrecognized firm
commitment, recognized assets or liabilities or a forecasted transaction.
•A fair value hedge protects against changes in fair value of an FX-denominated unrecognized firm commitment, a
recognized asset or liability or an available-for-sale security.
•A net investment hedge protects the USD equivalent net asset position of a foreign currency functional subsidiary.
•Hedges of business combinations, inter-company dividends and anticipated exposures that are not probable do not
receive special hedge accounting.
Cash Flow Hedge AccountingThe fair value of the hedge is recorded on the balance sheet as an asset or liability and the effective portion of the
hedge is offset in equity (Other Comprehensive Income). The balance in equity is released to income as the hedged
item affects earnings (i.e., when forecasted transaction occurs or when sport/sport changes of balance sheet items
are recognized).
Fair Value Hedge AccountingThe fair value of the hedge is recorded on the balance sheet as an asset or liability with the offset in income. The
carrying value of the underlying hedged item is also adjusted with the offset in income as well.
Net Investment Hedge AccountingThe fair value of the hedge is recorded on the balance sheet as an asset or liability with the offset in the cumulative
translation account CTA (equity). The change in value of the foreign subsidiary net asset position is also adjusted to
CTA.
Please note that Bank of America Merrill Lynch Corporation is not an accounting advisor. Please consult with your
auditors to determine the appropriate accounting treatment for your company.
Bank of america merrill lynch SolutionS for importerS
Chapter 12International Trade Glossary
Bank of america merrill lynch SolutionS for importerS 114
Chapter 12
International Trade Glossary
Acceptance. A time draft that the drawee (the payer) has accepted and acknowledged in writing the unconditional
obligation to pay it at maturity.
Accepting Bank. A bank that is the drawee of a time draft and that becomes the acceptor of the draft.
Account party. (See Applicant.)
Advising Bank. A bank which receives a LC issued by the applicant’s bank and forwards it to the beneficiary without
assuming any responsibility or liability other than to ensure their advice accurately reflects the terms and conditions of
the credit (and to verify the credit’s authenticity).
At XX days after date. A term used to indicate that the maturity date of a draft is determined by the date on which it
was drawn and is not determined by the date of acceptance by the drawee.
At XX day after sight. A term indicating that the maturity date of a draft is determined based on a specified number
of days after presentation of the draft to the drawee or payee.
Air Waybill. A transport document/bill of lading which serves as a receipt for goods, (contract to transport the goods,
and which indicates to whom the goods are to be delivered). Generally, air carriers do not allow Air Waybills to be
issued in negotiable form. Air Waybills should not be consigned to order of a named party, but should be consigned
directly to a named party.
All Risks Coverage. The broadest type of standard marine insurance coverage; may show exclusions for damage
caused by war, terrorism, strikes, riots and civil commotion.
Alongside. Place that is at the side of the vessel. Goods to be delivered alongside are to be delivered to the dock
from which they can be loaded aboard the ship.
Applicant. The buyer/importer/account party who applies to its bank to issue a LC in favor of the beneficiary/seller/
exporter.
At Sight. The tenor of a draft or availability term of a credit indicating that payment is due upon presentation or
demand.
Aval. A time draft drawn by an exporter on the buyer under which the buyer’s bank has guaranteed that the draft will
be paid at maturity.
Banker’s Acceptance. A time draft drawn on a bank, usually by an importer or exporter, which, once accepted by the
drawee bank, becomes an unconditional obligation of the bank to pay at maturity.
Beneficiary. The person or company in whose favor a LC is issued. Usually the beneficiary is the seller/exporter.
Bill of Exchange. (See Draft.)
Bank of america merrill lynch SolutionS for importerS 115
Chapter 12
International Trade Glossary
Bill of Lading. A transport document which serves as a receipt for goods, a contract to transport the goods, and
engagement to deliver the goods at the prescribed destination to the lawful holder of the bill of lading. While this term
is frequently used to describe an ocean/marine bill of lading, its legal definition is much broader. (See also, Air Waybill,
Ocean Bills of Lading, Inland Bills of Lading.)
Boycott. A refusal to deal commercially with a person, firm, or country.
Carnet. A customs document that permits the holder to temporarily bring goods into a country (e.g. for a trade show),
and then take them back out without having to pay customs duties.
Cash in Advance. The payment by a buyer to a seller prior to the purchased goods having been shipped.
Cash Against Documents. (See Documents Against Payment.)
Central Bank. A government-owned or controlled bank that oversees other banks in the nation, issues currency, and
serves as a depository for government funds.
Certificate of Analysis. A certificate issued regarding the quality and composition of food products or
pharmaceuticals.
Certificate of Inspection. A document certifying that merchandise was in good condition immediately prior to its
shipment.
Certificate of Origin. A document, often issued by a Chamber of Commerce, certifying the origin of the goods being
shipped. It is used to satisfy import regulations and to determine customs duties.
Clean Transport Document. A transport document that bears no clause or notation, indicating that goods were
received in apparent good order and were not damaged or had other irregularities.
Clean Draft. A draft to which no shipping documents are attached.
Commercial Invoice. A document issued by a seller listing goods being sold to a named buyer, including the price and
shipping terms.
Confirmed Letter of Credit. An obligation assumed by one bank (the confirming bank) on behalf of the issuing bank, of
a LC under which the confirming bank undertakes to honor or negotiate drafts and/or documents which are presented
in compliance with the credit’s terms and conditions.
Consignee. The person or firm named in a freight contract to whom merchandise is to be delivered.
Documentation differentiates between an intermediate consignee and an ultimate consignee for export control
purposes.
Consular Invoice. A commercial invoice that has been reviewed by the Consulate of the buyer’s country for the
purpose of verifying the value and quantity of the shipment and to ensure that no indigenous laws or regulations are
being broken.
Container. A uniform-sized, sealed, reusable metal box in which goods are shipped by vessel, truck, rail or air.
Country Risk. The risks inherent in doing business in a foreign country over and above commercial risks, which are
generally beyond the local company’s ability to control.
Credit Risk Insurance. Insurance purchased through either the Export-Import Bank of the United States, or private
sector companies, to provide protection against non-payment due to country or commercial risks.
Customs. National government authorities that regulate the flow of goods to or from a country and collect duties
levied on imports and exports.
Bank of america merrill lynch SolutionS for importerS 116
Chapter 12
International Trade Glossary
Customhouse Broker. A private firm that arranges to clear goods through customs. Customhouse brokers also
commonly act as freight forwarders.
Demurrage. Additional storage charges incurred as a result of excessive delays in clearing cargo off a vessel, wharf,
freight car or air cargo facility.
Devaluation. The official lowering of a country’s currency in relation to one or more currencies of other countries.
It tends to make imports in that country more expensive, and to make exports more attractively priced to overseas
buyers.
Discharge. To unload cargo.
Dock Receipt. A receipt for goods issued by an ocean carrier or their agent at their dock or warehouse, but not
covering the loading on a vessel.
Documentary Collection. The presentation through banking channels for payment or acceptance by a buyer of
documents relating to the shipment of goods.
Documents Against Acceptance (D/A). A documentary collection wherein shipping documents are released to buyers
in exchange for them obligating themselves to future payment via execution of a trade acceptance. (See also Aval.)
Documents Against Payment (D/P). A documentary collection wherein shipping documents are released to the buyer
in exchange for payment for the amount of the draft.
Draft. An unconditional order in writing from drawer (exporter) to drawee (importer) directing the drawee to pay a
specific amount of money to the payee on demand or at a fixed or determinable future date. (See also, Sight Draft,
Time Draft.)
Drawee. The person, company or bank upon which a draft is drawn.
Drawer. The person, company or bank that creates the draft and generally is entitled to receive payment.
Durable Goods. Furniture, machinery, appliances and similar goods that are not processed or consumed by their
users.
Duty. A tax on imported goods imposed by the customs authorities in that country.
Economic Sanctions. A foreign policy tool used to punish and/or influence a target nation. Sanctions can include
prohibiting trade, economic assistance, financial transactions or even all economic relations.
Embargo. A restriction or prohibition on exports or imports with respect either to specific products or specific
countries.
Exchange Rate. The value or price of one currency when used in relation to its value in another currency, for example,
the number of units of currency A that is required to be exchanged for one unit of currency B.
EXIM-Bank. The U.S. Export-Import Bank. The U.S. Eximbank is an independent agency that finances the export of
U.S. goods and services through loans, guarantees, working capital guarantees and insurance.
Exporter. The person or company that sells or arranges to transport goods out of a country.
Export License. A government document used in some countries that allows the export of certain controlled products
to specific destinations.
Export Management Company. A private firm that serves as the export department for a number of companies. The
firm typically do not take title to the goods and is paid on a commission basis.
Bank of america merrill lynch SolutionS for importerS 117
Chapter 12
International Trade Glossary
Export Trading Company. A firm that serves as the export department for a number of companies that takes title to
the goods. They make their money by making a profit margin on the goods being exported.
Force Majeure. Conditions such as floods, earthquakes, hurricanes or other events beyond the control of various
parties involved in transporting goods. Marine contracts typically exempt the affected parties from their contractual
obligations as a result of Force Majeure.
Foreign Exchange. The currency of a foreign country and/or the conversion from one currency to another.
Forward Exchange. The setting of an agreed-upon exchange rate between a foreign exchange trader and a client
whereby the trader contracts with the client to buy/sell a specific amount in foreign currency at a future date at a
predetermined exchange rate. (See also, Spot Exchange.)
Foul (not clean) Bill of Lading. A receipt for goods issued by a carrier with an indication that the goods or the
packaging were in damaged condition when received.
Free (Foreign) Trade Zone. An enclosed and secured area, usually designated by a port, into which goods may
be taken and customs duties may be deferred or waived until such time as the goods are removed for domestic
distribution or re-exported.
Freight Forwarder. A private company that arranges cargo space on a carrier, as well as the logistics for delivering the
goods to the carrier (e.g. ship, airplane etc.). They also frequently assist in the preparation of shipping documents for
presentation, either under a LC or collection basis.
Free of Particular Average (FPA). A clause used in marine insurance indicating that partial loss or damage to a
shipment is not covered. Loss resulting from conditions such as the ship sinking or burning may be exempted from the
clause. (See also, With Particular Average.)
GATT. “General Agreement on Tariffs and Trade.” A multilateral treaty designed to reduce trade barriers, and to
provide a forum for resolution of trade disputes.
General Export License. Authority to export without the need for a specific or validated export license.
Gross Weight. The full weight of a shipment, including goods, packaging and container.
Import. To bring goods into a country whose origin is in another country. The importer is usually the buyer or the
buyer’s agent.
Import License. A government document required in some countries for importing specific goods originating in specific
countries.
Incoterms. International rules published by the International Chamber of Commerce for the interpretation of foreign
trade terms.
Inland Bill of Lading. A bill of lading used to cover the transport of goods within a country’s borders, such as by rail or
truck.
Insurance Policy/Certificate. A document that assures the consignee that the merchandise is insured to cover loss
or damage while in transit.
International Chamber of Commerce (ICC). An organization founded to promote free trade and private enterprise and
to represent business interests at the national and international level. The ICC is composed of national councils from
over 90 countries.
Issuing Bank. The bank that issues a LC; also called the opening bank.
Bank of america merrill lynch SolutionS for importerS 118
Chapter 12
International Trade Glossary
Letter of Credit. A conditional undertaking by a bank on account of a buyer (applicant) of goods in favor of a seller
(beneficiary) under which payment is effected against presentation of stipulated documents in compliance with the
LC’s terms and conditions.
Marine Risk Insurance. Insurance covering loss or damage while goods are at sea. Typical coverage includes losses
sustained due to fire, shipwreck, piracy, strikes, riots or civil commotion, as well as the standard losses caused as a
result of the cargo being damaged.
Marks. Letters, numbers or symbols used on packaging so as to identify the cargo.
Marks of Origin. Physical markings on a product indicating the country where the merchandise was produced.
MERCOSUR (Mercado Comun del Sur—Southern Cone Common Market). A preferential trade agreement among
countries of the southern cone of South America that aims to establish free trade and increased economic
cooperation among members.
Most-Favored-Nation Treatment. A commitment that a country will extend to another country the lowest tariff rates
or the most favorable non-tariff policies it applies to any third country. All GATT contracting parties undertake to apply
such treatment to each other.
Multimodal Transport. The movement of freight using two or more different kinds of transport such as ocean and
truck, ocean and rail etc. (May also be called combined transport bill of lading, intermodal bill of lading or through bill
of lading)
NAFTA (North America Free Trade Agreement). A regional preferential trade agreement that aims to eliminate tariffs
and other trade, services and investment barriers among its constituents.
NAICS Code. The North American Industry Classification System—the industry classification system used by the
statistical agencies of the United States
Net Weight. Weight of the goods with any immediate wrappings.
Ocean Bill of Lading. A document issued by a shipping line that serves as (a) a receipt for goods, (b) a contract to
transport goods, and (c) a means to transfer title from the shipper to a designated party. Most often, the carrier will
issue three original bills of lading. Ocean bills of lading may either be “negotiable” or “straight.” Under a negotiable bill
of lading, one original bill of lading must be surrendered to the shipping line in order for the consignee to take delivery.
The bill of lading is consigned to the order of a named consignee. Ownership in the goods may be transferred through
endorsement of the bill of lading. Under a straight bill of lading, the consignee may take delivery by surrender of either
an original or copy of the bill of lading or in some instances by simply proving their identity. Straight bills of lading are
consigned to a consignee with no possibility of transferring ownership through endorsement.
Open Account. A selling arrangement whereby goods are shipped to a buyer prior to payment being made, and where
the seller’s risk is entirely with the buyer and the buyer’s country.
Open Insurance Policy. A marine insurance policy that applies to all shipments over a period of time rather than on a
single shipment.
Opening Bank. The bank that issues the LC. Same as issuing bank.
OPIC. Overseas Private Insurance Corporation. AU.S. government agency that provides risk protection on capital
investments made in foreign countries.
Packing List. A document that lists the various packages or cartons being shipped and their contents.
Particular Average. Partial loss or damage to goods.
Bank of america merrill lynch SolutionS for importerS 119
Chapter 12
International Trade Glossary
Phytosanitary Certificate. A certificate typically issued by a country’s agricultural department to satisfy import
regulations in various countries certifying that specified perishable food, weed and plant items are free from
contamination, pests and plant diseases.
Pro-Forma Invoice. A draft or sample of what the final invoice will look like. Used by sellers in the negotiating process
with potential buyers in order to ensure that all parties understand what costs are included in the quoted price.
Purchasing Agent. An agent who purchases goods on behalf of a foreign buyer.
Quota. A limitation placed by a government on the quantity of specific goods that may be imported or exported without
the imposition of additional customs duties.
Rate of Exchange. The value of one country’s currency in terms of another.
Shipper’s Export Declaration (SED). A U.S. Treasury form required to be completed for all shipments leaving the
United States. It indicates the value, nature of the goods, weight, destination, etc. It is not an export license. Very few
products leaving the United States require an export license.
Shipping Weight. The gross weight of a shipment, including moisture content, wrappings, crates, boxes and
containers (other than cargo vans and similar substantial outer containers).
Sight Draft. A draft which is payable by the drawee at the time of presentation. (See also, Draft, Time Draft.)
Spot Exchange. The immediate conversion of one currency to another at the prevailing exchange rate.
(See also, Forward Exchange.)
SIC Codes (Standard Industry Classification). A numerical coding system formerly used in the United States to
classify various types of businesses, goods and services. Replaced by NAICS Code.
Tare. Weight of the package in which merchandise is contained and/or packing materials used to protect it. Gross
weight minus tare gives net weight.
Tenor. Terms fixed for payment of a draft; e.g., sight, 90 days after sight, 60 days after shipment date.
Through Bill of Lading. See multimodal transport document.
Time Draft. A draft which is payable at a determinable future date. It is drawn on a buyer (importer) or bank and, once
signed as accepted by the drawee becomes the drawee’s obligation to pay at maturity.
(See also, Trade Acceptance.)
Trade Acceptance. A time draft that has been accepted across the face of the instrument, in writing, by the drawee
(generally the buyer/importer) thus signifying the drawee’s undertaking to honor the acceptance at maturity. (See also,
Documents Against Acceptance.)
UCP (Uniform Customs and Practice for Documentary Credits). Globally accepted (by all member nations of the
International Chamber of Commerce) set of rules governing LC transactions.
Warehouse Receipt. A receipt issued by a warehouse operator for goods received for storage.
With Average. A Marine Insurance term meaning that a shipment is protected from partial damage whenever the loss
exceeds a stipulated percentage.
Bank of america merrill lynch SolutionS for importerS 120
Chapter 12
International Trade Glossary
Table of Weights and Measures
BARREL = 36 British Imperial gallons9987.12 cubic inches
BOARD FOOT =144 cubic inches2360 cubic centimeters
BUSHEL =2150.42 cubic inches35.2390 liters
CARAT =200 milligrams3.0865 grains
CENTIARE (square meter) =10.764 square feet1.196 square yards
CENTIMETER =0.3937 inch
CORD =128 cubic feet3.625 cubic meters
DRAM (fluid) =60 minims3.697 milliliters4 grams (approx.)
GALLON (U.S.) =231 cubic inches4 quarts8 pints3.785 liters128 fluid ounces
GALLON (British Imperial) =277.42 cubic inches1.201 U.S. gallons4.546 liters
GRAIN =0.00014 pound avoirdupois0.0648 grams
GRAM =15.43 grains0.0353 ounce0.0022 pound
HUNDREDWEIGHT (British) =112 pounds50.80 kilograms
KILOGRAM =2.2046 pounds35.274 ounces15432.36 grains0.0011 short ton0.00098 long ton
LITER =1.000027 cubic decimeter0.2642 gallon1.057 quarts61.02 cubic inches0.035 cubic foot33.8147 fluid ounces270.518 fluid drams
METER =39.37 inches3.28 feet1.09 yards
OUNCE (Avoirdupois, ordinary) =
437.5 grains0.911 troy ounce0.0000279 long ton28.3495 grams
OUNCE, FLUID =1.805 cubic inches29.58 milliliters
OUNCE, FINE =troy ounce480 grains31.104 grams
POUND =16 ounces7000 grains454 grams0.454 kilogram14.58 troy ounces
QUARTER (British) = Quarter hundredweight
28 pounds12.68 kilograms
QUINTAL =100 kilograms220.46 pounds
STERE =1 cubic meter
STONE (British) =14 pounds6.35 kilograms
TON (short) =2000 pounds907 kilograms
TON (long) =2240 pounds1016 kilograms
TON (metric) =1000 kilograms2204.62 pounds
©2012 Bank of America Corporation. AA-AE-0890ED 050071