Commercial_Correspondence

J.K.B. MOMS PIT

Dear Sir

You will shortly receive a bill of exchange for £4,163 and relevant documents from Panton Manufacturing Ltd, Hounslow, UK. Would you please accept the draft on our behalf, send us the documents, and debit our account?

Yours faithfully

L. Corey

L Corey

J.K.B. Products Pty

President

D. Bruce

Managing Director

L. Thompson

Directors

I. R. Marsh

T. L. Bradman

Request to a bank to aozep't'c Mil

ra ac

The Australian importer mentioned in the previous letter now writes to their bank to tell them to accept the bill.

.101.4al aidtuen

9

Example letter

Mon-payment of a bilH

If a customer cannot

pay a bill,they should

inform their supplier

immediately ii,.see page 91. When a bill is not paid and no notice has been given, the supplier usually writes to the customer before protesting the bill,

as here. Note the expression

drawer, which means the bank is returning the bill to the drawer.This expression is also used when a dishonoured cheque is returned. Also notice that a formal protest is to be made, which means that the drawer will contact a lawyer to handle the debt if payment is not made within the specified time.

10 April 20—

Mrs B. Haas

B. Haas B.V.

Heldringstraat 180-2

Postbus 5411

Amsterdam 1007

The Netherlands

Dear Mrs Haas

B/E No.1671

The above bill for £3,860.00 was returned to us from our bank this morning marked 'Refer to Drawer'.

The bill was due on 5 April and appears to have been dishonoured. We are prepared to allow you a further three days before re-presenting it to the bank, in which time we trust that the draft will have been met.

If the account is still not settled, we will have to make a formal protest.

We hope this will not be necessary.

Yours sincerely

DON AU PaAtokt,

Donald Panton

Managing Director

Registered No. England 266135

DOCUMENTARY CREDITS

A bill of exchange might be

we saw in the example on page 154, or an order might be cancelled. However, these risks can be reduced by issuing a letter of credit, which is a

more binding form of payment.

have been used for centuries in one form or another to enable travellers to obtain money from foreign banks. The process begins with the traveller asking their bank to open a letter of credit in their favour, i.e. for a specific amount of money to be debited to their account. The bank then drafts a letter, which will allow the traveller to draw money on foreign banks with whom the traveller's home bank has an agreement. The foreign banks will then draw on the home bank to recover their payments.

For individual travellers, credit cards,

EUROCHEOUES,aIldTRAVELLER 'S CHEQUES

have largely replaced this method of obtaining money, but

of credit accompanied by documents) are widely used in foreign trade.

There are two types of letter of credit: REVOCABLE, i.e. those that can be cancelled, and IRREVOCABLE, i.e. those that cannot be cancelled except with the agreement of the seller. The first type is very rarely used these days.

Documentary credits are governed by the International Chamber of Commerce code of practice, known as the Uniform Customs and Practice for Documentary Credits. The current code is ic c publication No.5oo and is generally referred to as ucp5oo.

S[raippilng documents

The following are the essential documents which accompany a documentary credit:

—bill of lading

— commercial invoice

—insurance certificate

Other documents which, in specific cases, it might also be necessary to include are:

—customs form

— CERTIFICATE OF ORIGIN (i.e. a certificate

showing where goods were made, which is used to prevent goods from outside coming into a free trade area or customs union without being taxed)

— CONSULAR INVOICE (i.e. an invoice, or sometimes a stamp on the commercial invoice, giving permission for goods to be imported, issued by the consulate in the importing country)

— certificate of inspection (i.e. a certificate signed by agents to ensure the customer is getting goods of the type and quality he ordered

— health certificate

With Electronic Data Interchange

of the relevant documents can be completed on computer templates to the exporter's specific requirements and transferred by email. In this case payment is made by SWIFT, the international bankers' computerized transfer of funds.

The stages in a documentavy cvedR tvansaction

The stages in an irrevocable documentary credit transaction are as follows:

1 The importer (buyer) asks their bank to issue a letter of credit in favour of the exporter (seller). The importer applies for a letter of credit by filling out a form. This gives the following details:

—type of credit (i.e. revocable or irrevocable)

— beneficiary (the person receiving the money)

—amount

—how long the credit will be available for (i.e. valid until a certain date)

—documents involved in the transaction

(e.g. bill of lading, insurance certificate, commercial invoice)

— description of goods

2 The importer's bank (called the is SUING BANK as it issues the letter of credit) asks a bank in the seller's country to advise the seller that a letter of credit has been issued in

CO oh

7

ac

their favour. The issuing bank may also ask the bank in the seller's country to confirm the letter of credit (i.e. promise to see that the conditions of payment are fulfilled) For these reasons the bank in the seller's country is called the

BANK.

3 The exporters despatch the consignment to the importers and present the shipping documents (bill of lading, commercial invoice, insurance certificate, etc.) to the confirming bank.

4 The exporters draw a bill of exchange on the confirming bank. The bank pays the exporters against the bill and then sends the shipping documents to the issuing bank.

5 The issuing bank checks the documents and pays the confirming bank.

6 The issuing bank releases the shipping documents to the importers and debits their account.

7 The importers collect the consignment by presenting the shipping documents to the shipper.

Standby letter of credit

Exporters may require a guarantee to make sure that they are paid. This is frequently done

by means of a STANDBY LETTER OF CREDIT

where the bank will pay the exporters if, for any reason, the importers do not pay. It is often used when there is a contract involving several shipments and the exporters want to get part of, or all, of their payment at once. In some countries, the USA for example, standby letters of credit are preferred to bank guarantees and have the advantage of being subject to the Uniform Customs and Practice for Documentary Credits (uc P500).

BUYER/IMPORTER

1 Asks his or her bank to open a letter of credit in favour

of the seller.

7 The buyer gets the consignment by presenting the

shipping documents to the shipping company.

ISSUING BANK

2 Asks bank in buyer's country to advise or confirm the shipping documents.

6 Releases the shipping ::.• documents to the buyer or agent bank in his or her country against payment.

ADVISING/CONFIRMING

BANK

3 Advises seller of the transaction and may confirm payment against a B/E drawn on it, if that has been arranged.

5 Pays seller or discounts B/E drawn on it, and sends the shipping documents to the issuing bank in the buyer's country.

SELLER/EXPORTER

4 Despatches consignment to the buyer and presents the shipping documents to the advising/confirming bank.

N.Z. BUSINESS NIACIHNES PTY

ioo, South Street • Wellington I Directors: C.M. Perimann • L.F.Drozin Telephone: (+64) 4 8617 Fax: (+64) 4 3186 Email: m.tanner@nzbm.co.nz

3 May 20--

Ian Close

New Zealand Bank

Takapuna House

Takapuna Street

Wellington 8

Dear Mr Close

Please open an irrevocable documentary credit for £22,000 in favour of Delta Computers Ltd, Wellingborough, UK. I have enclosed your application form with all the relevant details completed.

Please inform me when you have made arrangements with your agents in London.

Yours faithfully

MiCkiaet Tafuter

Michael Tanner

Export Manager

N.Z. Business Machines Pty

Enc. Application for documentary credit

A donuarterrotawy evedit transaction

nom the ingoovtews to the issuing bank

N.Z. Business Machines, of Wellington, New Zealand, who are importing a consignment of computers from Delta Computers, based in the UK, ask their bank to issue a letter of credit in Delta's favour.

Ca

ao

9

Jaw' *wen

•••

Official order 8851

Dear Mr Millar

We are placing the attached order for 12 (twelve) C3001 computers, your Catalogue No. 548.

We have instructed our bank, New Zealand Bank, Takapuna St, Wellington, to open an irrevocable letter of credit for £22,000.00 (twenty two thousand pounds sterling) to cover the consignment, shipment (CIF Wellington), and bank charges. The credit is valid until 10 June

20—.

You will receive confirmation from our bank's agents, Eastland Bank Ltd, 401 Aldgate, London, EC1 2DN, and you can draw on them at 60 (sixty) days for the full amount of the invoice. When submitting your draft, please enclose the following documents.

Bill of Lading (3 copies)

Invoice CIF Wellington (2 copies)

AR Insurance Policy for £24,000.00 (twenty four thousand pounds sterling)

Please fax or email us as soon as you have arranged shipment.

Michael Tanner

Export Manager

N.Z. Business Machines Pty

100, South Street, Wellington

Phone: +64 4 8617

Fax: +64 4 3186

Email: m.tanner@nzbm.co.nz

Fvorrn the impouten to the enporrten

At the same time as they open the credit at their bank, N.Z. Business Machines email their supplier. Notice that Mr Tanner mentions the confirming bank in London.

9

m

3

m

3

to.

1 How does

Mr Tanner specify which computers he requires?

2 What sort of shipment is this?

3 When does the letter of credit expire?

4 What should Delta Computers do to get

their money?

5 What is the name of the confirming bank?

6 What is attached to the email?

7 Why do you think

the insurance amount is greater

than the invoice

amount?

Example letter

Dear Sir

Please find enclosed a copy of the notification we received yesterday from the New Zealand Bank, Wellington, to open an irrevocable letter of credit in your favour for £22,000 which will be available until 10 June 20—.

You may draw on us at 60 days against the credit as soon as you provide evidence of shipment. Please would you include the following documents with the draft:

Bill of lading (three copies)

Commercial invoice CIF Wellington (two copies)

AR Insurance certificate for £24,200

Your draft should include our discount commission which is 5%, and our charges listed on the attached sheet.

Yours faithfully

P.Me4147ay-

P.Medway Documentary Credits

Enc. Irrevocable Credit No. 2/345/ 16

BARCLAYS BANK PLC

DOCUMENTARY CREDITS DEPARTMENT

BARCLAYS BANK PLC

LONDON TRADE SERVICES CENTRE

PO BOX 36495, GROUND FLOOR

ST SWUM'S HOUSE

11112 ST SWITHIN'S LANE

LONDON EC4N 8YB UR

PHONE: 020 7200 3200 FAX NO: 0870 607 3601 ANSWKRBR: BARCGB G TELEX: 418319

SPECIMEN

date 20 July 2002

IRREVOCABLE CREDIT No: - ENDC 70844

To be quoted on all drafts and correspondence

IN ACCORDANCE WITH INSTRUCTIONS RECEIVED FROM THE DOWNTOWN BANK & TRUST CO. WE HEREBY ISSUE IN YOUR FAVOUR A DOCUMENTARY CREDIT FOR GBP4106 (FOUR THOUSAND ONE HUNDRED AND SIX POUNDS STERLING)

AVAILABLE BY YOUR DRAFTS

FOR 100% CIF INVOICE VALUE ACCOMPANIED BY THE FOLLOWING DOCUMENTS: •

NOT LATER THAN 10TH AUGUST 2002

PARTSHIPMENT NOT PERMITTED

THIS CREDIT IS AVAILABLE FOR PRESENTATION TO 115 UNTIL 31ST AUGUST 2002

DOCUMENTS TO BE PRESENTED WITHIN 21 DAYS OF SHIPMENT BUT WITHIN CREDIT VALIDITY.

DRAFTS DRAWN HEREUNDER MUST BE MARKED "DRAWN UNDER BARCLAYS BANK PLC LONDON T.S.C. CREDIT NUMBER ENDC70844

WE UNDERTAKE THAT DRAFTS AND DOCUMENTS DRAWN UNDER AND IN STRICT CONFORMITY WITH THE TERMS OF THIS CREDIT WILL BE HONOURED.

UNLESS OTHERWISE STIPULATED ALL DOCUMENTS SHOULD BE ISSUED IN THE ENGLISH LANGUAGE OTHERWISE THEY MAY BE DISREGARDED.

(1993 REVISION), ICC PUBLICATION

M0t0g¢iti© of documentavy evedIK

The notification forwarded to Delta Computers by Eastland

Bank will have been similar to this one. Instead of a form like this, many banks ask importers to fax the application form

1 Who will receive the money?

2 Which documents are involved besides the letter of credit?

3 What special clause is mentioned in the insurance policy?

4 Can the goods be moved from one ship to another?

5 What is the value of the credit?

6 When is the letter of credit valid until?

7 Who is the issuing bank?

10

8 Who opened the 0 letter of credit?

9Can the exporters ship the consignment in different lots?

o fFlr©m the otposten cn

•to the cohfinata hag

ns

cc hank

Delta Computers now acknowledge Eastland Bank's letter, and send them the documents they asked for and their draft.

9

Example letter

Dear Mr Medway

Thank you for your advice of 15 May. We have now effected shipment to our customers in New Zealand and enclose the shipping documents you asked for and our draft for £23,100 which includes your discount, commission, and charges.

Will you please accept the draft and remit the proceeds to our account at the Mainland Bank, Oxford Street, London W1A IAA.

Yours sincerely

At. smith,

N. Smith

Senior Shipping Clerk

Enc. Bill of lading (3 copies)

Commercial invoice CIF Wellington (2 copies)

AR Insurance certificate for £24,200

Draft 2152/J

Reg. England 1831713

VAT 2419 62114