Deprecated: mysql_pconnect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in /home/axstrade/public_html/Connections/iafl.php on line 10
Top tips; exercising choice of confirming bank
Tel: 01564 742750
Trade finance and banking specialists

Top tips; exercising choice of confirming bank

Posted on the 16th Jan 2015 in the category Letters of Credit

This article will explain why it is important to choose the right confirming bank and then to exercise control over which bank adds its confirmation

 

Choice of confirming bank

Once a bank has confirmed a letter of credit ("LC"), it will be that bank which will interpret whether the documents presented comply with the LC terms and conditions, and the bank that will undertake to honour and make payment to you, as the LC beneficiary

 

It is important therefore that the confirming bank is:

 

  • Of good financial standing and will be able to honour its undertaking to pay (and on a timely basis)
  • Completely independent of the buyer's bank (issuing bank) and thus independent of the actions, financial position and influence of the buyer
  • A bank that you, as the LC beneficiary, has a good working relationship with, or a bank that you wish to develop a relationship with (ideally)

Exercising control over which bank adds its confirmation

The issuing bank (buyer's bank) will determine which bank it uses to send the LC through in your country, and ordinarily therefore if you request a confirmed LC then you as the exporter will not be able to control which bank adds its confirmation

 

However, here are some top tips, which when applied, will enable you as the LC beneficiary to choose and control which bank handles the LC in your country and adds its confirmation:

 

1. Before an LC is issued, ask the buyer which bank (and country) it will use to issue the LC

2. On receipt of the proposed name (and country) of the issuing bank, check with your bank (or preferred bank) whether it can handle an LC from this issuing bank and whether (indicatively) it could add its confirmation and at what cost. (Your bank will also need the following information; amount, how long the LC will be open for i.e. expiry date and payment term). Our next top tip article will show you how to reduce LC confirmation costs

3. When you send the buyer a specimen or details ("LC proforma") of the LC that you require (see our top tip on requesting an LC), you should specify confirmation instructions (SWIFT field 49) as "MAY ADD" and availability instructions (SWIFT field 41D) as "ANY BANK BY NEGOTIATION" and details of your preferred advising bank. Please note that whilst this will not guarantee that the LC will be received by you from your chosen bank, (as the issuing bank ultimately will determine who it sends the LC to), the above instructions (if adopted by the issuing bank) will enable you to pass the LC to your chosen bank immediately on your receipt and request that bank to add its confirmation in accordance with the LC "may add" and availability with "any bank by negotiation" LC instructions - even if initially received by you from another bank

 

If you wish to receive any further information, and/or wish to receive future editions from our series "top tips on letters of credit", please email stephen@axstradefinance.co.uk or complete our enquiry form on our "Contact us" page


Top tips; the value of LC confirmation

Posted on the 15th Dec 2014 in the category Letters of Credit

Unconfirmed letter of credit ("LC")

An LC which is not confirmed carries only the undertaking of the issuing bank (buyer's bank) to honour or make payment to you, as the exporter, on receipt of a complying set of documents at its counter. You are thus exposed to the following risks:

  • The issuing bank is unable to make payment and transfer monies in the currency of the LC for the benefit of you as the LC beneficiary upon presentation of complying documents (in the case of an LC available by payment at sight) or on the due date for payment after a complying presentation of documents (in the case of a term or usance LC)
  • The country of the issuing bank is not able to transfer monies in the currency of the LC for the benefit of you as the beneficiary
  • The issuing bank interprets the documents received at its counter as discrepant (not complying with the LC) and rejects the documents and refuses to honour or pay the LC

Confirmed LC

A bank that has added its confirmation to an LC has added its own undertaking to honour or negotiate a complying set of documents, in addition to that of the undertaking of the issuing bank

Subject therefore to its receipt of a set of documents which fully complies with the terms and conditions of the LC, the confirming bank MUST honour the LC, if available with it by sight payment, deferred payment, or acceptance (determined by how the LC availability has been structured), and negotiate (pay you as the beneficiary without recourse) if the LC is available by negotiation with the confirming bank

 

Benefits of confirmation

We recommend that our clients seek an LC confirmed by an appropriate bank (our next top tip will explain how to choose and control which bank adds its confirmation), for the following reasons:

 

  • The payment undertaking from the confirming bank is independent to the issuing bank (the buyer's bank) unless the LC is confirmed by the local branch of the issuing bank
  • The confirming bank will examine the documents and honour the presentation and pay you as the benefciary based solely on its own interpretation of whether the documents presented comply with the LC. This enables you to work closely with the confirming bank to check its interpretation of what is required. This is particularly important if the LC has terms and conditions which are unclear or ambiguous
  • Subject to a fully complying presentation of documents, the confirming bank should honour and pay you as the beneficiary without recourse. This is important. Should the issuing bank subsequently claim that documents received from the confirming bank are discrepant and refuse to reimburse the confirming bank, the confirming bank cannot reclaim the money back from you (unless fraud is cited)

If you wish to receive any further information, and/or wish to receive future editions from our series "top tips on letters of credit", please email stephen@axstradefinance.co.uk or complete our enquiry form on our "contact us" page


Top tips; getting a letter of credit which is right for you

Posted on the 30th Nov 2014 in the category Letters of Credit


 A letter of credit ("LC") can be a very secure way of trading and getting paid quickly. However, in the majority of cases, exporters who rightly request payment by LC become exposed to unforseen costs, delays, and even a risk of not getting paid. Why?

  

If the structure and terms & conditions of the letter of credit are left to the buyer, or their bank, you will receive an LC which is biased towards the buyer and therefore offers limited (or no) protection to you, as the exporter. They can also be poorly drafted by the buyer or their bank resulting in confusion and ambiguity with the resultant risk that the bank interprets your documents as discrepant and cannot pay you.

 

Given the importance that all the LC terms & conditions can be fulfilled by you, as the exporter, here are some top tips in getting an LC which is right for you:

 

1. Send your buyer a specimen or details of the LC that you require ("letter of credit proforma"), and where

    possible, make this part of the contract

2. Ask the buyer to send you a copy of their completed LC bank application form, or even better, a draft of

    the LC prepared by their bank, for your approval prior to issuance. This will help to ensure that the LC

    meets your requirements. This practice also cuts down on the need, and therefore costs and delays, of

    seeking changes (amendments) once the LC has been issued

3. Particular attention should be paid to the following:

    Advising bank; try to get the LC advised through your own bank (or your preferred bank). Ask your

    buyer which bank they will (or can) use to issue the LC and then check with your bank whether they can

    handle LCs from the buyer's bank. It is good practice to always specify that the LC is "available by

    negotiation with any bank" just in case it is advised to you by another bank, thus allowing you to pass it

    to your bank on receipt, without the need for amendment

    Place of expiry; ensure the LC expires in your country and not that of your buyer

    Availability; stipulate that the LC must be available for payment, acceptance or negotiation with a bank

    in your country. If the LC is payable only at the counters of the buyer's bank, you will encounter a delay

    in getting paid, and at worst no payment at all, as you are exposed to a) documentary risk (the risk that

    the buyer's bank will find discrepancies in the documents), and b) the ability of the buyer's bank to pay

    you

    Confirmation; if you require a local bank to add their undertaking to pay (in addition to the buyer's

    bank), ensure the letter of credit allows or specifies confirmation

    Latest date for shipment; this should be a date that you can comfortably achieve

    Days allowed for presentation; the longer the period, the more time you have to get your documents to

    the bank, and to correct documents. For shipment by sea requiring bills of lading, 21 days is usual; for

    other transport documents (or forwarder's cargo receipt) try to negotiate 28 days. However, ALWAYS

    aim to get your documents to the bank as soon as possible - the sooner you present documents the

    sooner you get paid (and the more time you have to make any corrections after presentation)

    Documents; avoid documents which need to be issued, or signed, by your buyer as this places them in

    control. Keep the nature and content of documents (and goods description) simple (the more detail - the

    more that can go wrong). Avoid being required to send any original bills of lading direct to your buyer, or

    their agent, outside of the protection of the letter of credit

    Bank charges; who is to pay bank charges; typically the buyer will pick up issuing bank charges, and  

    you as the exporter, other bank charges, although it is possible to negotiate that all charges are payable

    by the buyer (albeit unusual)

 

    If you wish to receive a free letter of credit proforma template, or wish to receive future editions

    from our series "top tips for letters of credit", please email us at stephen@axstradefinance.co.uk or

    complete our enquiry form on our "Contact us" page


Records 1 to 3 of 3

 

Our expertise, your growth