| Brief: Trade Finance Solutions can support any firm's | | | | Beneficiary provided all the credit terms and |
| international trade finance requirements by providing | | | | conditions are fulfilled - Under UCP 600 all letters of |
| the necessary documentary Letter of Credit to help | | | | credit are irrevocable |
| the corporate cash movement provision. We as a | | | | Unconfirmed: - A letter of credit forwarded by the |
| company can open the required letters of credit to | | | | Advising bank directly to the exporter without adding |
| achieve inventory financing requirements for any | | | | its own undertaking to make payment or accept |
| large or small procurement order through our | | | | responsibility for payment at a future date, but |
| procurement order financing arrangements, and to | | | | confirming its authenticity |
| give an additional boost to present banking | | | | Confirmed: - Where a bank usually in the Beneficiary's |
| arrangements. By working with our clients / | | | | country, adds its own undertaking confirming that |
| customers we can provide the right trade | | | | payment will be made as long as compliant |
| instruments like Letter of Credit, performance | | | | documents are presented - This commitment holds |
| guarantee requirements, cash against document | | | | even if the Issuing bank or the Applicant fails to |
| request and others which can be used by our | | | | make payment - Confirmation gives the exporter |
| extensive global banking facilities. | | | | added security, particularly if the standing of the |
| About us: Trade Finance Solution (TFS) issues Letter | | | | Issuing bank is unknown or the current political and |
| of Credit to client/customer businesses and | | | | economic state of the importer's country is uncertain |
| commercials. TFS provides and manages the system | | | | • Note: Banks may not wish to confirm letters of |
| of opening and providing the Letter of Credit by | | | | credit issued in certain countries - A bank will make |
| representing its clientele, and proceeds with the | | | | an additional charge for confirming a letter of credit |
| ongoing management of the Letter of Credit process | | | | • Confirmation costs will vary according to the |
| throughout the term for which the transaction may | | | | country involved, but for many countries considered |
| occur. Several American and European banks services | | | | a high risk it will be between 2%-8% |
| are used by TFS and it is a representative for two | | | | Standby letter of credit: - A secondary payment |
| special purpose banks. Since the organization's firm | | | | mechanism used as support where an alternative, |
| banking relationships, it is targeted to give a flexible | | | | less secure, method of payment has been agreed |
| and quick service to its customers or clients. Due to | | | | • The parties involved with the transaction do not |
| the flexibility of the organization, a particular security | | | | expect that the letter of credit will ever be drawn |
| deposit is not required. TFS also does not essentially | | | | upon • They are also used in the United States of |
| become a creditor to its client firms. TFS gives an | | | | America in place of bank guarantees - Often used to |
| additional boost to the banking or the lending facilities | | | | guarantee performance or to strengthen the |
| which may be presently given by other institutions. | | | | credit-worthiness of a customer - Should the |
| An excellent relationship that was built between TFS | | | | exporter fail to receive payment from the importer |
| and their overseas suppliers was due to the good | | | | he may claim under the standby letter of credit. - |
| service which was offered and facilitated well, hence | | | | Certain documents are likely to be required to obtain |
| allowing the positive tread of the business segments | | | | payment including: • The standby letter of credit |
| to be built well which the organizations otherwise | | | | itself; • Sight draft for the amount due; • |
| would not have the ability to pursue. With our strong | | | | Copy of the unpaid invoice; • Proof of dispatch; |
| banking relationships, we work across the global | | | | and • A signed declaration from the Beneficiary |
| banking institutions in conjunction with TFS's expert | | | | stating that payment has not been received by the |
| staff. Our firm allows itself of the foremost experts | | | | due date and therefore reimbursement is claimed by |
| in the World of Trade Finance. With the standards | | | | letter of credit - The International Chamber of |
| set in UCP600** for documentary LC's and ISP98 for | | | | Commerce rules for operating standby letters of |
| standby Letter of Credit. An opportunity for growth | | | | credit are UCP600 and ISP98 International Standby |
| and profitability of the client organizations is created | | | | Practices |
| through these alliances. All kinds of commodity goods | | | | Revolving letter of credit: - Used for regular |
| to apparel and textiles, and electronic components to | | | | shipments of the same commodity between the |
| consumer appliances and specialty products are | | | | same exporter and importer. - The credit must state |
| helped in importing by the TFS clients. We issue | | | | that it is a revolving letter of credit. • It may |
| Letters of Credit to all our suppliers across the world. | | | | revolve either automatically or subject to certain |
| If your company is looking for a strategy to finance | | | | provisions - Avoids the need for repetitious |
| goods to fill your orders, or simply to support | | | | arrangements for opening or amending letters of |
| growth, you can CONTACT US NOW. Details are | | | | credit - Can revolve in relation to time or value • |
| provided below. The operation of Letters of Credit is | | | | If the credit is time revolving once utilized it is |
| governed by Uniform Customs and Practice which is | | | | re-instated for further regular shipments until the |
| the latest version of **UCP 600 | | | | credit is fully drawn • If the credit revolves in |
| Letters of Credit: The Basics: | | | | relation to value once utilized and paid the value can |
| Definition: An importer/buyer (Applicant) may open a | | | | be reinstated for further drawings |
| letter of credit if they wish to ensure that the | | | | Transferable letter of credit: - The exporter has the |
| exporter/seller (Beneficiary) has performed those | | | | right to request the paying or negotiating bank to |
| requirements as per the underlying sales contract, by | | | | make part (or all) of the credit value available to third |
| making the documentation requested conditions of | | | | parties • Useful for those acting as middlemen, |
| the credit. (N.B. The sales contract is not an inherent | | | | especially where there is a need to finance purchases |
| part of the letter of credit, although the letter of | | | | from third party suppliers - At the request of the |
| credit may contain a reference to such contract). | | | | (first) Beneficiary, it may be made available in whole |
| Buyer: Because the documentary credit is a | | | | or in part to another (second) Beneficiary • A |
| conditional undertaking, payment is made on behalf of | | | | credit may be transferred in part to more than one |
| the buyer against documents, which may represent | | | | second Beneficiary |
| the goods and give the buyer rights to them. | | | | Back to back letter of credit: - Can be used as an |
| Seller or Beneficiary: A "beneficiary" in the broadest | | | | alternative to the transferable letter of credit - A |
| sense is a natural person or other legal entity who | | | | letter of credit is used as security to establish a |
| receives money or other benefits from a benefactor. | | | | second letter of credit issued by the Advising Bank in |
| Exporters will need to be certain that it is necessary | | | | favor of the exporter's merchandise supplier – |
| to use a letter of credit which includes a few typical | | | | rather than transferring the original letter of credit to |
| considerations like: • Is it a legal requirement in the | | | | the supplier - Many banks are reluctant to issue back |
| importing country? • What is the country risk of | | | | to back letters of credit due to the level of risk to |
| the importing country? • Would a confirmed letter | | | | which they are exposed, whereas a transferable |
| of credit be more suitable? • What is the usual | | | | credit will not expose them to risk higher than that |
| practice in trading with that country and in that | | | | under the original credit |
| particular commodity? • What is the value of the | | | | Step by step LC procedures |
| order? • Will the bank charges be out of | | | | 1. The company applying for a Letter of Credit |
| proportion to the value? • What is the importer's | | | | submits preliminary application and two other |
| credit rating? Are they a new customer or has a | | | | documents: pro-forma invoice from supplier to |
| trading relationship already been established? • | | | | applicant, and purchase order from applicant to |
| What is the standing of the Issuing bank? • Would | | | | supplier (please see TFS Checklist on the Downloads |
| a confirmed letter of credit be more suitable? • | | | | page of this website). |
| Recommendation by banks who may advise that the | | | | 2. We provide a draft LC based on the submitted |
| best method of payment is a "confirmed irrevocable | | | | application, as well as a request for further |
| letter of credit" irrespective of the country, strength | | | | compliance documentation. |
| of issuing bank and without much regard to the value | | | | 3. Applicant shows draft to his supplier for approval. |
| of the consignment • Insistence by a Credit | | | | 4. Once supplier has approved, applicant notifies us of |
| Insurer to trade on letter of credit terms with buyers | | | | that approval and sends in funds to take care of the |
| in certain markets. • Are there any other | | | | LC opening fees. |
| measures that could be taken to protect the | | | | 5. Once funds are received by LC provider and all |
| exporter - e.g. credit insurance? • Strategic | | | | documentation is complete, the LC is generally issued |
| decision made by the exporter - this strategy should | | | | within 72 business hours and sent by SWIFT to the |
| be flexible to adapt to the changing risk profile of | | | | beneficiary's bank. |
| both the country and the buyer • "Always traded | | | | 6. Beneficiary ships goods and sends the shipping |
| this way" • The reasons for requesting this | | | | documents to the bank that issued the LC. |
| method of payment should be periodically | | | | 7. We notify applicant that goods have been shipped, |
| re-assessed | | | | and where requested, provide copies (but not |
| Summary: Documentary credits therefore: - Are | | | | originals) of shipping documents to the applicant. We |
| arrangements that are made by banks for settling | | | | also give applicant a target date by which he should |
| international commercial transactions? - Provide a | | | | have sent in the funds due to the supplier. Funds to |
| form of security to the parties who are involved. - | | | | be passed on to the supplier are expected in within |
| Ensure payment, provided that the terms and | | | | three weeks of receipt of the shipping documents. |
| conditions of the Letter of Credit have been fulfilled. - | | | | Note that timing of funds due in order to pay your |
| Mean that payment by such means is based on | | | | supplier and get the documents released are based |
| documents only, and not on merchandise or services | | | | on when goods are shipped, which may be much |
| involved. | | | | earlier than the expiration date of your LC. |
| Types of Letters of Credit: Irrevocable: - It can be | | | | 8. Applicant wires in money to satisfy amount due |
| neither amended nor cancelled without the | | | | the supplier. |
| agreement of all the parties to the credit - The | | | | 9. Bank releases documents to the applicant, who |
| Issuing bank gives a binding undertaking to the | | | | now unloads his goods. |