The letter of credit

Perhaps the most interesting way to study the correspondence of the L\C would be to follow a transaction from order to payment. Let us suppose that the Jameson Construction Company of Durban, South Africa, needs aluminium fittings and has already made an enquiry to the Aluminium Alloy Co. Ltd. of Birmingham, England. They now decide to place the order and do so in accordance with the price quotations already made by the sellers. At the same time they decide to pay by letter of credit, payable in London and available by draft on a London bank at 60 days sight. They write this letter to their suppliers:

The jameson construction co. Ltd.

Durban, S A

The Aluminium Allay Co. Ltd. 3 August 1978

Birmingham

Dear Sirs

Many thanks for your letter of 30 June enclosing your catalogue and details of your terms. We have decided to place the attached order with you and would be glad if you would give it your early attention.

We have instructed The General Bank of South Africa to open a credit for £625 in your favour, valid until 15 September. The credit will be confirmed by The General Bank of South Africa, Clements Lane, London, who will accept your draft on them at 60 days for the amount of your invoice. Please attach the following documents to your draft:

2 Bills of lading,

2 commercial invoices,

Insurance policy for £700.

Despatch and marking instructions will be given by our forwarding agents in London, who will advise you of their charges. Your invoice should include c.i.f. Durban, and the amount of our credit is sufficient to cover this and your bank commission on the draft.

Please advise us by airmail when the goods have been despatched.

Yours faithfully

(Signature)

THE JAMESON CONSTRUCTION COMPANY LTD.

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Aluminium Alloy Co. Ltd. Birmingham

79 Prince Albert St Birmingham B21 80J Great Britain

The Jameson Construction Co. Ltd. 10 August 1978

Durban S.A.

Dear sirs

We are very pleased to have your order and are able to confirm that all the items required are in stock. It is a pleasure to have the opportunity of supplying you and we are quite sure you will be satisfied both with the quality of our goods and our service.

Your choice of method of payment is quite acceptable to us, and we note that this will be by irrevocable latter of credit for a fun not exceeding £625, valid till September 15th. then we receive confirmation of this credit from The General Bank of South Africa, London, we will make up your order and await despatch instructions from your agent.

We assure you that this order and all further orders made will have our immediate attention.

Yours faithfully

(Signature)

THE ALUMINIUM ALLOY CO. LTD.

The Jameson Construction Co. open the L/C by writing to their bankers, The General Bank of South Africa, Durban, giving full instruc­tions, or by using a form something like that printed on page 116. That bank then notifies the credit to their branch in London. Meanwhile, The Aluminium Alloy Co. Ltd. receives the order and acknowledges it:

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А сору of the form used by The Jameson Construction Co. is mean­while sent by the branch of The General Bank of South Africa in Durban to the London branch of this bank to authorise the opening of the credit.

The next step is, of course, for the London branch of The General Bank of South Africa to advise The Aluminium Alloy Co. that the credit is available (i.e. to confirm the credit). Here again, a form may be used. If, however, advice is by letter it would read something like this:

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THE GENERAL BANK OF SOUTH AFRICA LONDON

16 August 1978

The Aluminium Alloy Co. Ltd.

Birmingham.

Dear Sirs

We have received instructions from The General Bank of South Africa, Durban, to open an irrevocable letter of credit for £625 in your favour and valid till 15 September, 1978. You are authorised to draw a 60 days' bill on us against this credit for the amount of your invoice after shipment of various metal fittings as list enclosed and consigned to The Jameson Construction Co. of Durban, South Africa, has been effected.

We shall require the documents listed below to be produced by you before we accept your draft, which should include all charges to Durban and our discount commission at 6%. It is also stipulated by the buyer that the goods covered by this draft be despatched in one shipment.

Yours faithfully

M. J. LOWE

Manager

(List of documents)

When the order has been collected, marked and shipped by the for­warding agent, who sends his note of charges with the insurance policy and the various other documents to The Aluminium Alloy Co. Ltd., the latter sends the documents to The General Bank of South Africa (Lon­don).

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