Custom Law

Finances, banks, offshor

Informational technologies and Web

Insurance

Railway transportation

Road transportations

Sea transportations

Transport Law

PRACTICE OF WORK UNDER THE LETTER OF CREDIT AT GRAIN EXPORT

1. Negotiation of the treatment by parties of the contract (the example is presented by UGRU PrivatBank, www.privatbank.com.ua)

   The Buyer (non-resident of Ukraine) and the Ukrainian Exporter as a result of negotiations reach an arrangement for 3-rd class wheat delivery within 45 day with quantity of 2,5 thousand tons on the conditions of FOB port of Black sea. Term of payment is the documentary credit, the bank commissions on which are paid by each party to their bank accordingly

2. Coordination of conditions of the letter of credit. The Exporter addresses to his bank for consultative help and asks to work out the drafts of contract and the letter of credit, as much as possible protecting Exporter's interests. The exporter's bank, having inspected with the contract, works out the necessary project of the letter of credit and the payment section of contract, which the Exporter directs for coordination to the Buyer. If necessary Buyer also addresses to his bank for receiving of consultative help.
3. Issuing of the letter of credit The Buyer deposits necessary funds on the special cover account, pays the banking commission for issue and asks to issue the letter of credit to the address of Exporter on agreed by parties conditions. According to the Exporter's requests, Exporter's Bank is nominating bank under the letter of credit. After the check of documentary credit application the Buyer's Bank transmits by the protected telecommunication the conditions of the letter of credit to the Exporter's Bank.
4. The letter of credit advising. After the check of the authenticity of the received message of issuing of the letter of credit, the Exporter's Bank advises the Exporter about issuing to his address the documentary credit executed by the Exporter's Bank by payment at sight and points his remarks to conditions of the letter of credit.

   Payment effects against:

   • Commercial invoice - 3 originals.
   • Full set of marine bills of lading made out to order notify the Buyer, stating sea trade port Odessa, Ukraine as port of loading, port Dammam, Egypt as port of discharge.
   • Certificate of origin of the goods, form A - 1 original.
   • Quality certificate - 1 original.
   • Phyto-sanitary certificate - 1 original.
   • Certificate of a radioactivity - 1 original.

   The Exporter pays a commission of the Exporter's Bank for advising.

5. Preparation of the necessary documents and loading of the goods Before the official issuing of the documents Exporter addresses to his bank asking to realise consultative help and to inspect the drafts of documents, prepared for payment under the letter of credit. After coordination with the Exporter's Bank issuing of documents and dispatch of the goods under the contract begins.
6. Presentation and examination of documents under the letter of credit The Exporter presents documents to his bank for examination and pays examination commission of the bank. The Exporter's bank in term, as a rule, within 7 bank days realises the examination of the documents for their conformity to the letters of credit conditions. By examination results some variants of the further development of events are probable:
   • Documents correspond to conditions of the letter of credit. Depending on location of a cover, the Exporter's Bank realises transfer to the Exporter's account, or gives the order to the Buyer's bank to effect payment for documents.
   • Documents do not correspond to conditions of the letter of credit, then:
   • Documents are to be returned to the Exporter for correcting;
   • And/or the Exporter's Bank informs the Buyer through his bank about detected discrepancies and requests the Buyer about the consent to payment of documents in such kind in what they are presented to the exporter's Bank.

     Only after adjustment of the documents to conditions of the letter of credit or receiving from the Buyer's bank the accept for payment documents will be paid. Up to the moment of the expiration of the letter of credit and fulfilment of the mentioned above conditions documents will not be paid!

   • Payment under the letter of credit and submission of documents to the Buyer

     At fulfilment of all conditions of the letter of credit the Exporter's Bank effects payment under the letter of credit and sends the documents to the Buyer through his bank. The Buyer's bank after receiving transmits documents to the Buyer. Buyer after receipt of documents receives goods. The given article was devoted to the review of methods of payment assurance (letters of credit and collection) and execution of contracts (bank guaranties). But even in case of serious theoretical knowledge of economical entities in field of documentary payments, their activity in this field could be unsuccessful. For this reason the given article pursues the purpose to give the useful recommendations to economical entities with the help of examples.

The letter of credit example is given below.

V.A. Nomerovanny, Y.V. Vitjuk, Odessa branch of Privat-bank