Chapter Seven Payment
Section 1 Introduction • Understand the various methods of payment in order of decreasing risk to the seller and increasing risk to the importer (See Table 7-1, p.79) • Understandthe procedures of documentary credit transactions (See Figure 7-1 The three phases of documentary credit,p.81)
Section 2 Specimen Documents • Specimen 1: Advice of payment We have instructed our bank to arrange for a letter of credit for $8 789.90 to be paid against your pro-forma invoice No. H1167/G, and the proceeds will be credited to you as soon as Bank of China receive the documents.
Specimen 2: Advice of payment • Thank you for being so prompt in sending the documents for our last order, No. 15879. We have accepted the sight draft, and the bank should be sending you an advice shortly. • We have been dealing with you on a D/P basis for over a year and would like to change to payment by 40-day B/E, D/A. • When we first contacted you last February you told us that you would be prepared to reconsider terms of payment once we had established a trading association. We think that sufficient time has elapsed for us to be allowed the terms we have asked for. • As we will be sending another order within the month, could you please confirm that you agree to these new terms of payment?
Specimen 3: Advising the seller of credit issuance • A confirmed, irrevocable letter of credit against S/C No. 2235 has been issued through the National Bank, London. The amount is GBP 20 000 and the expiry date July 15, 2012. Please approach your bank with this matter. • You are authorized to draw a 45 days’ drafton the opening bank against this credit for the invoice amount, including the cost of freight and insurance, payable against a complete/full set of shipping documents,consisting of • a full set of clean shipped on board ocean bills of lading made out to order and blank endorsed, marked “Freight Prepaid”, notifying the Applicant • certificate of origin in duplicate • signed invoice in triplicate • insurance policy in triplicate covering All Risks and War Risk for full invoice value plus 10% as per China Insurance Clauses • With the sales season approaching, we are badly in need of the goods ordered. Please arrange for shipment immediately upon receipt of the L/C and let us know at your earliest convenience the name of the vessel and its sailing date.
A possible reply to the above letter • Thank you for your letter of May 10, 2012. We are pleased to learn that the L/C covering our S/C No. 2235 has been opened and sent. • When we receive your L/C, we will make proper shipping arrangements and then draw a 45 days’ draft on your bank. We will answer your request for the name of the vessel and sailing time as soon as they are available. • We look forward to hearing of the safe arrival of your order and to doing further business with you.
Specimen 4: Urging the opening of L/C • May we draw your attention to the covering L/C against our S/C No. 2145 for 5 000 dozen men’s T-shirts? The L/C is due to reach us before July 10 for our August shipment. However, it has not arrived yet, though the goods have long been ready for shipment. • Could you please find out what has happened to the L/C? Your attention to this matter would be greatly appreciated.
Specimen 5: Request to extend the L/C • L/C No. 20060715 • The above L/C covering 4 000 dozen poplin shirts arrived here yesterday. However, we have to ask you to extend it because of the unavailability of any vessels. • As stipulated in our S/C ABT234, shipment was to be effected in July provided your L/C reached us not later than July 5. Unfortunately, the only vessel available this month is leaving in a day or two, and the deadline for booking shipping space on it has passed. This means that it is now impossible for us to ship the goods in July. • Would you therefore please extend the above L/C to 1 September and to 15 August for shipment and have the amendment advice reach us by August 5 at the latest. Only in this way can we make the earliest shipment possible. • With anticipation of your cooperation in this matter.
Possible reply (negative) • In reply to your letter of July 9, we feel that it will be difficult to extend the validity of L/C No. 20060715 to 1 September and shipment date to 15 August. • The present L/C is already the earliest possible because the application for the relevant import license involved a lot of formalities. The import license was not issued until July 1, and becomes invalid after August 15. Arranging another L/C or amending the existing one may not be possible by 5 August. • Under these circumstances, could you please try your best to ship the goods within the time limit of the L/C. We would appreciate your cooperation in this respect and are looking forward to hearing from you about the shipment of the goods.
Possible reply (positive) • We have received your fax of July 9 requesting us to extend the shipment date and the validity of L/C No. 20060716 to August 15 and September 1 respectively. • We have instructed our bank to amend the above L/C as requested in your fax. We hope that everything is now in order and you will be able to ship the goods by August 15.
Specimen 6: Request to amend the L/C • We have received L/C No. 06AM720 issued by the Chartered Bank, London for our S/C No. 195. However, on examining the clauses, the following points are found not to be in conformity with the terms stipulated in the S/C: • the commission rate stated in the S/C is 3% rather than 6% • shipment isto be made during July/August instead of “on or before August 1” as in the above L/C. • the goods should be insured for 110% of the invoice value, not 120%. • As the goods are ready for shipment, your amendment to the L/C would be appreciated.
Section 3 Useful Expressions • All bank charges are for the beneficiary’s account. • We have debited your account with the amount plus our charges of USD 250. • Enclosed is our bank draft for USD 2 500 drawn on the Bank of China in payment of your invoice No. 232. • We have not received your letter of credit against our S/C No. 29984 up to now, although it should have reached us by the end of May, as stipulated. • We regret that we have been unable to effect shipment according to the price and other terms originally agreed upon owing to the delay in receiving your L/C, and the responsibility for any loss arising subsequently will wholly rest with you. • As you have failed to establish the letter of credit in time, we regret being unable to effect shipment within the stipulated time limit. • We hope you will take action and open the L/C at once. Otherwise you will be responsible for all losses ensuing.
Please amend the credit as “Transshipment is allowed”. • Please amend the credit to read “Partial shipments and transshipment are allowed.” • On examination, we find that the amount of your L/C is insufficient. Please increase the unit price from USD 25.00 to USD 28.00 and total amount to USD 85 000.00 as stated in our S/C. • Owing to the late arrival of the container vessel on which we have booked space, we would appreciate your extending the shipment date and the validity of your L/C No. 567 to 31 January and 15 February 2007 respectively and arrange for the amendment advice to reach us by 5 January. • As you have failed to establish the L/C covering our S/C No. 1023 in time, we have to cancel this sales confirmation and hold you responsible for all the losses ensuing.