TEAM

PAYMENT
PROCESS BY
L/C

INDEX

I.OVERVIEW OF L/C
II. PAYMENT PROCESS BY L/C
1.The process
2.The basic principles
III.

PRACTICE

INDEX

I.OVERVIEW OF L/C
II. PAYMENT PROCESS BY L/C
1.The process
2.The basic principles
III.

PRACTICE

OVERVIEW OF
L/C

Definiti
document
on
a bank

A
from
(issuing bank).

A
seller
(Beneficiary) will
receive
paymentup to the
amount
of
the
letter of credit.

OVERVIEW OF
L/C

Paymen
t
assuran
ce

Purpos
es

Buyer
Set
and
Seller payment
Protection
terms

Payment
assurance

Usefu
l
when

Not
wellestimated
Not having the
best credit
Proving
an
oversea
company that you are
able to pay for your
product

Set payment
terms
You can set certain terms in the
Letter of credit
The seller must abide by the terms
of the document to receive

Buyer and Seller

Protection
The L/C can give the
seller and the buyer
some security:

The bank acts as the

intermediary
The L/C acts as a legal
agreement

OVERVIEW OF
L/C

Ideal types of L/C

- Irrevocable
Letter
of
credit
- Confirmed
Letter
of
credit
- At Sight Letter of credit

OVERVIEW OF
L/C

PRACTIC
the E Vic

Presentation of
following documents
to
the
Bank
for
foreign trade of Viet
Nam
is
payable
within 3-5 working
days after receipt to
telex
from
Vietcombank
certifying
that
documents have been
checked
in

xut
trnh
nhng chng t sau
y cho Ngn hng
Ngoi Thng VN s
c
thanh
ton
trong vng 3-5 ngy
lm vic ca ngn
hng sau khi nhn
c in tn ca
Vietcombank
xc
nhn rng cc chng
t c kim tra

INDEX

I.OVERVIEW OF L/C
II. PAYMENT PROCESS BY L/C
1.The process
2.The basic principles
III.

PRACTICE

Issuing a Letter of Credit

BUYER

EXPORT
ER

EXPORT

ISSUING
BANK

ADVISING

Presenting a Letter of
Credit
1

2
EXPORT
ER
3

CARRIER

5
ADVISING

ISSUING BANK

The basic
principles

AUTONO
MY

STRICT COMPLIANCE

The basic
principles

AUTONOMY

The letter of credit is a contract in

its own right, entirely separate from
the contract for the sale of goods.
This is made clear by the UCP.
The UCP (Uniform Customs and
Practice for Documentary Credit ):
the bank is obliged to pay
whatever the disputes between the
buyer and the seller.

The basic
principles

STRICT
COMPLIANCE

The exporter must present to the bank

shipping document that comply in all
respects with the terms of the credit. Banks
must follow the buyers instructions strictly,
as is shown in another landmark case.
Small deviations will result in refusal
by the bank to pay.

The basic
principles

HOW OFTEN DO A BANK REFUSE

PAYMENT????

50%

Over
of
documents
are rejectedon the
first presentation

In
some
African
countries
:
some
banks
report

90%

rejecting
of
first application for
payment
under
letter of credit.

The basic
principles

WHAT HAPPENS WHEN A BANK

REFUSES TO PAY UNDER L/C?

Firstly, the bank will cite a

discrepancy, some
aspect of the
documentation that is not
in line with the terms of
the credit.

The basic
principles

WHAT HAPPENS WHEN A BANK

REFUSES TO PAY UNDER L/C?
Secondly, the exporter can:
+Provide the missing paperwork
or correct errors.
+Ask the buyer to instruct the
bank to change the terms of the
L/C.
+Ask the bank to process the L/C
with the discrepancies but to pay
only when the issuing bank

The basic
principles

IN
GENERAL

INDEX

I.OVERVIEW OF L/C
II. PAYMENT PROCESS BY L/C
1.The process
2.The basic principles
III.

PRACTICE

PRACTICE
1. Why letters of credit are formally called documentary
credits?
A. Because a letter of credit is a binding agreement by a
bank to pay a certain sum of money when the exporter
presents the necessary documents to the bank.
B. Because the letter of credit is issued by an issuing bank
at the request of the buyer.
C. Because in a letter of credit situation, documents are
exchanged for money.
D. Because the documents in a letter of credit are proofs

PRACTICE
1. Why letters of credit are formally called documentary
credits?
A. Because a letter of credit is a binding agreement by a
bank to pay a certain sum of money when the exporter
presents the necessary documents to the bank.
B. Because the letter of credit is issued by an issuing bank
at the request of the buyer.
C. Because in a letter of credit situation, documents are
exchanged for money.
D. Because the documents in a letter of credit are proofs

PRACTICE
2. The bank that the buyer asks to open a
letter of credit is called .
A.The issuing bank.
B. The advising bank.
C. The confirming bank.
D. The opening bank.

PRACTICE
2. The bank that the buyer asks to open a
letter of credit is called .
A.The issuing bank.
B. The advising bank.
C. The confirming bank.
D. The opening bank.

PRACTICE
3. The bank helping the exporter to check the
correctness of the documents and set the
payment procedure in motion is .
A.The issuing bank.
B. The advising bank.
C. The confirming bank.
D. Any third bank.

PRACTICE
3. The bank helping the exporter to check the
correctness of the documents and set the
payment procedure in motion is .
A.The issuing bank.
B. The advising bank.
C. The confirming bank.
D. Any third bank.

PRACTICE
4. The majority of shipping documents presented to
banks under documentary credit transactions are
accepted on first presentation. Right or wrong?
A.Completely right.
B. Definitely wrong.
C. Neither right nor wrong.
D. It depends.

PRACTICE
4. The majority of shipping documents presented to
banks under documentary credit transactions are
accepted on first presentation. Right or wrong?
A.Completely right.
B. Definitely wrong.
C. Neither right nor wrong.
D. It depends.

PRACTICE
5. What happens first when a bank refuses to pay
under a letter of credit?
A.The bank will cite a discrepancy, some aspect
of the documentation that is not in line with the
terms of the credit.
B. A check list of commonly cited discrepancies
will be used by banks.
C. The exporter will have to re-submit their
shipping documents.
D. The exporter must contact the buyer asking the

PRACTICE
5. What happens first when a bank refuses to pay
under a letter of credit?
A.The bank will cite a discrepancy, some aspect
of the documentation that is not in line with the
terms of the credit.
B. A check list of commonly cited discrepancies
will be used by banks.
C. The exporter will have to re-submit their
shipping documents.
D. The exporter must contact the buyer asking the