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1、Letter of Credit 信用证,Chapter Six,Warming-up Exercise,Part A English Tex,Part B Bilingual Tex,Warming-up Exercise,Chapter Six,Answer the following questions.,1,2,How does the buyer make payment to the seller in foreign trade?,What should the seller do, if the buyer refuses to pay?,3,Is there a method
2、 of payment which can protect both the seller and the buyer?,Part A English Tex,Chapter Six,Letter of Credit,In international trade practice, the seller and the buyer usually face such dilemma. On the one hand the seller worries about whether they can collect their payment successfully after he ship
3、s the goods. On the other hand, the buyer is reluctant to make payment in advance for fear that the goods he takes is not in accordance with the stipulation in the contract or never arrives.,Definition Letter of credit (L/C) can also be called credit. Letter of credit has two folds of meanings, in o
4、ther words, it is a document itself and it is also a kind of payment method like remittance and collection.,Part A English Tex,Chapter Six,Letter of Credit,As defined in Uniform Customs and Practice for Documentary Credits 600 (UCP 600), a letter of credit means “any arrangement, however named or de
5、scribed, whereby a bank acting at the request and on the instructions of a customer or on its own behalf, is to make a payment to or to the order of a third party, or is to accept and pay bills of exchange drawn by the third party.” In other words, in an international trade context a letter of credi
6、t is the written promise made by a bank to make settlement to a seller on behalf of a buyer on condition that the documents presented by the seller are in accordance with the terms and conditions stipulated in the credit. In nature, L/C is based on bank credit other than commercial credit since the
7、opening bank provides guarantee to both the seller and the buyer. The seller can get his payment after he submits the required documents to prove that he has delivered, while the buyer will take delivery of the goods he ordered so long as he has paid for it. Thats the advantage of letter of credit.,
8、Part A English Tex,Chapter Six,Letter of Credit,Parties involved in letter of credit Apart from applicant (buyer) and beneficiary (seller), there are also some banks which play different roles in the performance of letter of credit. (1) Beneficiary is usually the seller in international trade. (2) A
9、pplicant is the buyer in international trade. (3) Opening bank (issuing bank) is a bank which opens or issues the credit at the request of the applicant. (4) Advising bank is a bank which receives the letter of credit from the opening bank and then advises the beneficiary of it. The advising bank is
10、 usually in the exporting country.,Part A English Tex,Chapter Six,Letter of Credit,(5) Presenting bank is a bank which presents the documents to the opening bank on behalf of the beneficiary. (6) Negotiating bank is a bank which makes negotiation upon the receipt of the documents presented by the be
11、neficiary as long as the documents presented are in accordance with the terms and condition set forth in the credit. The negotiating bank is usually in the exporting country. (7) Paying bank is usually the opening bank. (8) Confirming bank is a bank, other than the issuing bank, undertakes the liabi
12、lity to pay in case the opening fails to make payment.,Part A English Tex,Chapter Six,Letter of Credit,Main Contents of L/C (1) The main contents of the L/C include the major conditions in the sales contract, the required documents and banks instructions. It may be stated like the following provisio
13、ns: (2) The parties involved, including the beneficiary, the applicant, the opening bank, the advising bank, the negotiating bank, confirming bank if any and so on. (3) Remarks about the L/C: the number of L/C, its form, the issuing date, the expiry date and place. (4) The amount of L/C. (5) The cla
14、uses of bill of exchange: the amount, the drawer and drawee.,Part A English Tex,Chapter Six,Letter of Credit,(6) The clauses about documents required. a)what kind of documents are required; b) the specific requirements for each kind of documents required; c) the required number of original and copy
15、for each document. (7) Special provisions, such the provisions about the transaction in accordance with the particular business or political situations in the importing country. (8) Instructions from the opening bank to the banks involved, such as paying bank, negotiating bank, confirming bank and o
16、thers. (9) The clause about the governance of the credit, e.g. This credit is subject to UCP600.,Part A English Tex,Chapter Six,Letter of Credit,Performance of L/C Performance of letter of credit includes three stages: issuance, amendment and utilization as shown in the following figures.,Part A English Tex,Chapter Six,Letter of Credit,Issuing an L/C,Part A English Tex,Chapter Six,Letter of Credit,1.The seller and buyer make a contract which stipulates that the settlement is made by L
