International Payment

To the seller, having a Letter of Credit means:

• Issuing bank eliminates commercial risk of buyer
• Confirmation eliminates economic, political, foreign bank risk
• Streamlines pre-export financing

To the buyer, having a Letter of Credit means:

• Payment made upon full compliance of L/C term
• Possible import/export financing
• (bankers’ acceptance)
• Buyer must tie up credit availability
• (potential loan)

• The life of a Typical Banker’s Acceptance

• Mr. Jones (Importer)

• Mr. Susuki
• (Exporter)

• Japan Bank

• 1. Purchase Order

• 5. Shipment of Cars

• 3. L/C

• 7. Shipping documents & Time Draft

• American Bank

• Draft Accepted (B/A Created)

• 8. Payment - Discounted Value of B/A

• Money Marker
• Investor

• 15. B/A Presented at Maturity

• 16. Payment - Face Value of B/A

• 13. Payment-Discounted Value of B/A

• 12. B/A

• 4. L/C Notification

• 6. Shipping Documents & Time Draft

• 9. Payment-Discounted Value of B/A

• 9. Payment - Face Value of B/A

• 6. Shipping Documents

• 10. Signed Promissory Note for Face Value of B/A

• 2. L/C Application

• Prior to B/A Creation

• At and just after B/A Creation

• At maturity date of B/A

Where We Go Wrong:

• L/C expired
• Late shipment
• Documents discrepancy
• Amount differs with invoice
• Amount in excess of L/C
• Signatures missing
• Drawn on wrong party

Where We Go Wrong Commercial Invoices

• Good description differs from L/C
• Extension of cost wrong
• Partial shipment not authorized
• Term of shipment missing