| [1] Definition |
- Purchasing bank upon completing Nego payment will organize the documents received from the exporter in two parts. And attach covering letter that indicates document inspection result of the purchasing bank and send the documents using courier or air express mail to the opening bank.
- In L/C transaction, the opening bank which received transportation documents and bill of change from the purchasing bank will inspect if the transportation documents are included as per L/C terms and decide whether to make payment (Payment on bill of change or taking over). And when the applicant (importer) settle payment, the bank accepts the transportation documents.
- When the importer take over exported goods with transportation documents, export process is completed.
- However, if vice is found from the document, the details of vice will be notified to the importer and discuss about claim and process in favor of importer's opinion if at all possible. |
|
[2] Procedure |
| (1) Examining/accepting transportation documents |
|
<1> Shipping documents: They are usually divided into Original Set and Duplicate Set to be sent to the opening bank (Original/duplicate sets are consider to have identical effectiveness, therefore, whichever arrive first and accepted, the later one lose its effectiveness)
<2> Documents inspection by opening bank |
|
- Standard when a bank inspects the consistency of transportation documents against L/C terms :According to International Standard Banking Practice, only the documents indicated in the L/C are subjected for thorough inspection.
- Documents inspection method by opening bank : As same as purchasing bank, the process will focus on the "consistency inspection, contradiction inspection, fabricated documents inspection".
- Bank's document inspection and acceptance decision : Must be executed with 7 bank business day from the date it was received. UCP 500 adopts receipt rule as starting point.
- If only terms are indicated and no specific documents on L/C: No such terms exist. Therefore, documents such as a bond of debt is required with Stand-by Credit.
- If inconsistent documents against L/C terms are presented : the opening bank may negotiate acceptance with the applicant about documents with inconsistent vice (abdicate right, Waiver of Discrepancy).
- The opening bank must complete dispatching notification of the payment or whether to claim within 7 bank business day from the date the documents have arrived.
- When the opening bank found vice details through document inspection: Before notifying vice to the importer, send Notice of Discrepancies by telegraphy to the purchasing bank.
1. Inspection procedure of documents |
|
| - Arrived documents will go through |
|
1 Covering Letter examination,
2 whether the attached documents fulfill L/C terms
3 examined in the order of possible mutual contradictions of the attached documents and the inspection result will be notified to the importer by a phone call and send shipping documents arrival notification. |
|
| - Details to be indicated in the covering Letter and managing method |
|
- The kinds of attached documents, name of the purchasing bank, payment method, L/C amount, bank service fee, inconsistency details against L/C terms and instruction to process the said document etc.
- If vice contained shipping document is indicated : Must immediately notify whether to refuse payment. |
|
| 2. Things to be cautious when inspecting documents |
|
- Thoroughly examine with resonable care.
- Inspection must be completed in the resonable time. |
|
| (2) Transportation document arrival notification and payment request |
|
<1> If no vice : Notify the importer of the shipping documents arrival and request payment.
<2> If with vice : Make inquiry to the importer of the vice details and the process method. |
|
| (3) Settling bill of change and accepting transportation document |
|
| - Bill of change taking over method |
|
<1> If the drawee of the bill of change is the applicant--Request export to take over or pay the bill.
<2> If the drawee of the bill of change is the opening bank--Bank will pay in advance and request payment to the importer.
<3> In UCP 500, it prohibits issuing bill of change to applicant. It only allows bill of exchange to be issued only to a opening bank, confirming bank or drawee bank. If bill of changed is to be issued to applicant per L/C: Bill of change will not be regarded as the 1st right of pledge but only as simple incidental document. |
|
| - Payment for Bill of change and take over period (Document examination period) |
|
<1> At sight L/C or D/P--Within 7 days from the date documents are received. If importer become default : The opening (confirming) bank process payment under guarantee on the 8th day from the date documents are received.
<2> USANCE L/C and D/A--The opening bank take over the bill and let applicant to take over the bill issued by the opening bank or to offer a promissory note. |
|
| - Hand over transportation document |
|
| - If determined as Clean as of a document inspection result |
|
- For at sight--Hand over soon as receiving payment from the importer.
- For usance--Hand over the shipping documents to the importer as soon as delivery form is received. |
|
| (4) Refusal notification of Import goods customs clearance, hand over and transportation document acceptance |
|
| - Opening bank's action if transportation documents acceptance is rejected |
|
<1> In timely manner, specifically notify of the existence of discrepancy between the transportation document and L/C term.
<2> With L/C transaction, settle refusal within 7 days after the transportation document is received.
<3> Expedite method such as telegraph should be used when sending rejection notification.
<4> When rejecting acceptance, the transportation documents must be return to the exporter (purchasing bank) immediately. |
|
|
- If vice is found from document inspection by the opening bank, a claim is accepted based on the fact.
<1> Negotiating with a importer |
|
- When vice is found, general custom for a opening bank is to negotiate with the importer whether to construct with claim.
- Claim with authority : Since a negotiation with the importer is recommending term (UCP 500, The article 14-C) the effectiveness of the claim made by the opening bank's authority has no problem. |
|
| <2> Correction supplement of documents |
|
- If a purchasing bank received vice notification in accordance with Notice of Discrepancies sends corrected supplement document within the validity period of L/C(If partial shipping is prohibited) or within the document presenting period (Within 10 days from the transportation document issue date and only with unusual agreement case), the vice will be cured as is therefore, the opening bank have no right to make claim against the vice.
- Since vice notification has to be made all at once, the later notified vice can not back up for claim. |
|
| <3> Preparing claim notification |
|
- A opening bank prepares claim notification related to claim in writing and send it to a purchasing bank.
1. The cause for default should be specifically stated.
2. Must clarify the whereabouts of the arrived documents.
3. If a importer already cleared the cargo in accordance with import cargo L/G, all the right to make claim will be deprived. |
|
|
- If a importer tolerate vice or no vice document, payment for L/C can be made in the following procedures.
- Import L/C payment calculation method |
|
1. For remittance base: T/T Selling Rate X Importing amount
2. For debit or reimbursing method |
|
- T/T Selling rate + (Number of days of mail / 360 X yearly exchange commission rate X book value) = Import bill rate
Importing amount X Import bill rate = Payment |
|
|
| - Goods payment = Importing amount X usance reimburse date standard T/T buying rate usance interest = Importing amount X Interest rate of usance X usance period / 360 X Import bill rate |
|
|
- For sight bill L/C (From the date document arrived)
- Within 3 days -- Pay only the L/C amount
- After 4 days --Including interest from the 4th day until the actual paying date.
- If payment is not made until 7th day: Bank payment under guarantee on the 8th day. The interest rate until reimburse date is variable overdue interest. |
|
| <2> Payment by opening bank |
|
- For remittance basis: Since a opening bank is remitting money received from a importer to third banks that was agreed with a purchasing bank, it is no harm to delay the payment period a little more than 7 days.
- The number of exceeding day to make payment to third banks (Paying bank) can be allowed as much as it needed for negotiating period.
- For Debit or reimbursement Basis: Automatically withdraw from a opening bank account in the foreign Depositary Correspondent Bank. |
|
[3] Payment method for export/import earning |
|
- Remittance base: Importer remit total amount in advance to a exporter before taking the goods.
- COD(Cash on Delivery), CAD(Cash against Documents) base : Remit after receiving export goods or shipping documents. |
|
|
- Exporter issue bill of change to drawee as importer and collect export earning through a correspondent bank.
<1> Flow of D/P(document against payment) term |
|
1. Conclude a trade contract
2. Request collection: Exporter is sight bill to importer and request to the correspondent bank for collection.
3. Bill Purchased : A bank purchase bill of change and pay export earning to a exporter. (Exporter offer security in case for default )
Bill Collection : Pay to exporter after payment is collected from a importer.
Amount to receive = Foreign exchange amount of bill of change X T/T Selling rate
4. Collection advise (Send shipping documents)
5. Collection bank offer documents received from collection requested bank to a importer.
6. If there is no vice in the shipping documents, a importer settle payment right after bill of exchange at sight and receive the shipping documents.
Amount to pay = Foreign exchange amount of bill of change X T/T selling rate
7. Collection bank debit entry from its bank and advise to request to collection requested bank to credit entry.
8~9. A paying bank debit from collection bank's account and stand by at collection requested bank, and 8. debit advice to each bank 9. for credit advice.
10. |
|
| <2> Flow of D/A(document against acceptance) term(Same as D/P other than the indicated items) |
|
1. Conclude a trade contract
2. Collection request : A exporter is usance bill to a importer and request correspondent bank for collection
3. Collection advise (Send shipping documents)
4. Collection advise (Send shipping documents)
5. Collection bank offer documents received from collection requested bank to a importer.
6. If no vice in the shipping documents, a importer mark take over on the attached bill of exchange and receive the shipping documents from a bank. Pay import earning after Usance period.
Amount to pay = Foreign exchange amount of bill of change X T.T.S.
7. Collection bank debit entry from its bank and advise to request to collection requested bank to credit entry.
8~9. A paying bank debit from collection bank's account and stand by at collection requested bank, and 8. debit advice to each bank 9. for credit advice.
10. For Bill Collection, a collection requested bank settle remitted export earning to a exporter. |
|
|
- A corresponding bank of a importer open L/C by the importer's request and commit payment settle.
- Since the principle of payment settle in L/C transaction is a opening bank, a importer is not drawee of bill of change.(Since the principle of payment settle in D/P, D/A method is importer a importer is the drawee of bill of change.)
<1> Payment L/C transaction procedure |
|
- If importing using sight method with payment L/C, L/C can be established when L/C opening bank has a Depositary Correspondent Bank in the region where exporter is in.
1. Conclude trading contract using Sight L/C method to settle payment.
2. Importer request opening Sight L/C to a corresponding bank.
3. Opening bank notify to the Depositary Correspondent Bank of the opening of Payment L/C.
4~5. Exporter present documents consistent to L/C terms to a paying bank.
6. Upon inspecting documents, a paying bank debit from a opening bank's account to pay a exporter. Amount to pay = L/C amount X T.T.B.
7~8. A paying bank send documents to a opening bank and a opening bank present the document to a importer after document inspection.
9. Importer settle import earning. Amount to pay =L/C amount X T.T.S.
(Import bill settling rate) |
|
| <2> Deferred Payment L/C transaction procedure |
|
- If importing on a credit Deferred Payment L/C can be established when L/C opening bank has a Depositary Correspondent Bank in the region where exporter is in.
1. Conclude trading contract using Deferred Payment L/C method to settle payment.
2. Importer request opening Deferred Payment L/C to a corresponding bank.
3. Opening bank notify to the Depositary Correspondent Bank of the opening of Deferred Payment L/C .
4~5. Exporter present documents consistent to L/C terms to a paying bank.
6~.7 Upon inspecting documents, a Deferred Payment debit from a opening bank's account to pay a exporter.
8. Importer settle import earning on Deferred Payment expiration date.
Amount to pay = L/C amount X T.T.S rate
9. Deferred paying bank settle export earning to a exporter on the deferred payment expiration date.
Amount to pay = L/C amount X T.T.B rate |
|
| <3> Negotiation L/C transaction procedure |
|
- Negotiation L/C : L/C to be establish if a bank in exporter site and opening bank is in Non Depositary Correspondent Bank relation in regardless of Sight or Usance method.
- Third parties' intervention is necessary to settle payment between a opening bank and a purchasing bank.
- Reimburse L/C : When opening bank is appointing a paying bank at the time to L/C opening.
Remittence L/C : When appointing a purchasing bank in the later time.
a. For reimburse L/C |
|
1. Conclude trading contract using L/C method to settle payment
2. Importer request opening L/C to a corresponding bank.
3. Notify to Non Depositary Correspondent Bank located in the exporting site and Reimbursement Authorization to reimbursing bank.
4. A advising bank advise L/C to a seller
5. A exporter prepares documents consistent to the L/C terms and issue bill of change to reimbursing bank as drawee and request to purchasing bank for negotiation.
6. If no vice is found upon inspection documents, purchasing bank purchase bill of change and attached documents and bill purchase export earning.
Purchased amount = L/C amount X At sight bill of change selling rate
7. Reimbursing bank debit form a opening bank and after credit to a purchasing bank debit advice each bank or credit advice.
9~10. Opening bank inspect shipping documents and present them to a importer and the importer settles import earning.
Amount for payment = L/C amount X Import bill payment rate |
|
| b For remittence L/C (Same as reimburse L/C except indicating items) |
|
1. 2.
3. Notify of L/C opening to the Non Depositary Correspondent Bank at the export site.
4. 5. 6.
7. A purchasing bank send bill of change and shipping documents to a opening bank and appoint a paying bank and instruct to remit L/C payment to the account of the same bank.
8. Upon inspection documents for vice and not found, a opening bank instruct to paying bank to debit from the said account to credit an account of a purchasing bank.
9. A paying bank execute as instructed and debit advice and credit advice to each bank.
10~11. A opening bank take over shipping documents from a importer and a importer settles import earning.
Amount to pay = L/C amount X T.T.S rate |
|
[4] Payment settlement between bank to bank |
|
| - The only method actually being used between bank and bank for payment method is "Transfer between accounts" method. |
|
| (2) correspondent arrangement |
|
- For a bank to execute foreign affairs such as remit, collection, advice L/C, a bank must be exist as an intermediary between the each country.
- And if a branch of the bank is located in the other party's country, foreign transaction can be executed by using the bank however, establishing one is difficult due to maintenance fee of the branch and because of the local policy restriction. Then by concluding a correspondent arrangement with a influential bank in the region, a service can be received.
- The kind of contract is called correspondent contract.
- correspondent bank : A bank concluded a correspondent contract. Depositary correspondent bank or depo bank: A bank with a depository account for payment settlement.
Non-depositary correspondent or non-depo bank: A bank without a depository account.
- correspondent contract |
|
| - Following documents are to be exchanged when making Non-Depositary Correspondent Contract. |
|
<1> List of authorized signature : A list of authorized personnel in charge of foreign currency business at both banks or a booklet that contains the signature of the said people or a micro film. (To compare and confirm document's authenticity)
<2> Cyper code : A booklet containing all kinds of terminology cyper code related to foreign currency business (Use to reduce telex fee and security maintenance)
<3> Test key : It is a code mark when exchanging Telex by both banks, it is used to display the bank's position. (For security purpose)
<4> Schedule of Terms and Conditions : A table that indicates the said service fees in US dollars as per the kinds of foreign currency business. (For fair service fee charge purpose) |
|
| - When contracting, a Credit Facility Agreement should be made to resolve a temporary insufficient balance. |
|
| (3) Payment settlement between the depositary correspondent banks |
|
- If both banks reserve accounts from each banks: When a purchasing bank is sending
documents related to L/C to a opening bank, notify "We will debit Nego payment
from our depository account".
- And opening bank notify "We will credit Nego payment to our depository account" for
the settlement to complete.
- For Sight payment L/C, Deferred payment L/C, Restricted L/C and Acceptance L/C: Payment will be settled simply between banks. |
|
| (4) Non depositary correspondent mutual settlement |
|
| - If no account is open between banks : Since settlement is impossible using "Transfer between accounts" third banks' intervention is necessary for settlement. |
|
| <1> Intervent of third banks |
|
- Reimbursing bank : Limit a opening bank's with reimbursing authorization for reimburse.
- Opening bank: No duty to be impose to a reimbursing bank such as to inspect the shipping documents consistency to the L/C terms. (The Sub-Article 19-b of UCP 500) |
|
| <2> Reimburse request by purchasing bank |
|
- For reimbursing L/C: A purchasing bank request a bill indicated drawee as a opening bank from a exporter, and a bill indicated drawee as a reimbursing bank.
- Purchasing bank: After document inspection, attach Nego documents presented by a exporter on a bill indicating a opening bank as a drawee and send it to a opening bank. To reimbursing bank, send only "Bill for reimburse". |
|
| <3> Credit facility agreement |
|
- In purpose to secure business profit, a opening bank can not always deposit large capital in a reimbursing bank,
- however, to prevent possible default condition due to insufficient despot amount when dealing a large L/C, conclude Credit facility agreement when concluding correspondent contract.
1. Credit line |
|
- Depends on a opening bank's credit level, a reimbursing bank determines a opening bank's total limitation amount.
- A concept to include possible debt and the available amount that a reimbursing bank has to pay in cash. |
|
|
- For credit activities of reimbursing bank in paying cash in proxy, there are over draft and refinance.
a. Over draft : Available limitation agreement when cash balance of a reimbursing bank's deposit in a opening bank account is insufficient, up to certain amount can be handle by a reimbursing bank. (May be used as a rotation method)
b. refinance |
|
- A system constructed as a 2nd defense to prepare for a large funds that would exceed over draft limit.
- When refinance agreement in concluded, a opening bank place a usance blank time draft on its name to a reimbursing bank.
- Once the bill for reimburse is accepted by reimbursing bank, the bank settle the bill with its own capital, issue usance bill for the said amount, return it to international fund market to recover the fund it previously settled. |
|
|
| <1> ex post facto management when vice is found |
|
- When a opening bank is intented to make claim with reimbursing L/C but the Nego payment is already been withdraw from a reimbursing bank, a opening bank can process liability to a purchasing bank.
- But if a purchasing bank refuse to reimburse, a lawsuit is the only method left.
- At this point, a opening bank usually demand importer to take over documents, a importer must prepared safety action regard to this matter when opening L/C.
(Ex-Specify the sending period for reimbursing authorization after documents inspection took place by a opening bank) |
|
|
| - Refer to expenses related to L/C |
|
|
- In case both the reimbursing bank and purchasing bank form an alliance with SWIFT, orignal shipping documents can be processed using EDI method.
- At this point, the export earning can be processed immediately therefore, causing increase with interest for a opening bank and a importer.
- Therefore, L/C with large amount indicates "T/T Reimbursement is not allowed" in the unusual agreement for a opening bank to reduce interest burden. |
|
Trade Helper 
Ex-Import Procedure(to Way of Payment)
Export-Import procedure according to the Irrevocable Documentary Credit method
Import Earning Payment and Taking over Shipping Documents
2006 - 2011 tradegoods.com All right reserved