Legal Features transactions with letters of credit

A feature of the letter of credit is its strictly formal nature. This means that all interested parties involved in the operation of a letter of credit are dealing with documents, and not with goods, services and / or other types of performance of obligations to which documents may relate.

Disadvantages of the letter of credit form of payment

The use of a letter of credit in settlements is most beneficial for an exporter who receives an unconditional guarantee of payment before the goods are shipped. At the same time, receipt of payment under a letter of credit (provided that the exporter fulfills the conditions of the letter of credit and submits the documents specified in it to the bank) is not associated with the buyer's consent to payment.

However, for exporters, a letter of credit is the most difficult form of payment: receipt of payment from a letter of credit is associated with strict observance of its conditions, correct execution and timely submission to the bank of the documents specified in the letter of credit. By monitoring compliance with the terms of the letter of credit and the submitted documents, banks protect the interests of the buyer, acting on the basis of his instructions.

The disadvantage of the letter of credit form of payment is a complex document flow and delays in the movement of documents associated with the control of documents in banks and their transfer between banks.

Payments in the form of an advance. The most beneficial for the exporter is settlements in the form of an advance payment (that is, payment of a part of the contract cost before the goods are shipped). As a rule, payment in the form of an advance can reach up to 1/3 of the total contract amount. However, this form can only be used when the importer is extremely interested in receiving the goods (if the number of sellers on the world market or the quantity of goods is limited), or when the exporter puts strong pressure on him, which the importer cannot for a number of reasons resist.

Payment after shipment of the goods is made by the buyer (in the case of an agreement between the seller and the buyer on the use of such a method of payment) after receiving a telegraph or telex message from the seller with a detailed description of the shipped goods. If payment is not received from the buyer, then the exporter has some guarantee, since all the documents necessary to receive the goods are in his hands. However, in this case, there is a problem of selling the shipped goods. Given the risk involved in this payment method, it can be used predominantly between firms with strong ties.

Calculations for open account. When making settlements on an open account, the importer makes periodic payments to the exporter after receiving the goods. After the settlements are completed, the final reconciliation and repayment of the remaining debt is carried out. This method of payment is the most beneficial for the importer, while the exporter does not have firm guarantees of receiving payment for the shipped goods. In addition, in some cases he has to resort to bank loan. Therefore, open account payments are more often used between business partners who have close economic relations and have a high degree of trust in each other.

Other forms of payment. Among the calculation tools, calculations using the SWIFT system require less time ( joint-stock company the Worldwide Interbank Financial Telecommunications Network, established in Brussels in 1973; Russia (USSR) has been a member since 1989), as well as telegraphic transfers. Settlements using checks and bills of exchange take a longer period.

Bills of exchange (drafts) used in international settlements represent an unconditional order of the drawer (creditor) to the drawee (borrower) to pay a certain amount of money to the remitter (third party) within the period specified in the bill. Drafts accepted by banks (that is, drafts that have the consent of the payer for payment) can be converted into cash by accounting (that is, by selling them to a bank or specialized institution before the expiration date, which charge a Specific fee for this). The regulation of bill legislation is based on the Uniform bill of exchange law, adopted by the Geneva bill of exchange convention of 1930.

Settlement using checks is based on the Check Convention of 1931. A check is a money document. prescribed form, containing an unconditional order of the drawer of the check to the bank to pay the bearer of the check the amount specified in it. A check can be drawn in any currency. Processing costs are relatively low. However, existing risks (for example, loss of a check during shipment) reduce the effectiveness of this means of payment.

AT last years in international settlements, credit cards are increasingly being used - nominal monetary documents that give their owners the opportunity to purchase goods and services without paying in cash. The credit cards used are issued primarily by US banks. Recently, there has been a trend towards an increase in the role credit cards in Russia.

It should be expected that as scientific and technological achievements are introduced into the practice of international settlements, the role of electronic means will increase.

Currently, in international settlements, Russian exporters and importers most often use settlements using bank transfer and, to a much lesser extent, collections and letters of credit. However, with the formation of a civilized market in Russia and the increase in the professionalism of its participants, the advantages of all forms of international settlements will be used in the future.

Comparative characteristics main forms of international payments.

	Bank transfer	Letter of credit	Collection	Credit (including with the help of a promissory note)	Check form of payment	Counter forms of trade
Importer risk	Maximum, in case of advance payment	Minimum	Short	Significant	Average
Exporter risk	In case of 100% advance - minimum	Minimum	Average	Significant	Average	Depends on the type of trading form and the reliability of the counterparty
Bank share	Minimum	Maximum degree of participation (the bank is the guarantor)	Medium	Minimal or absent	Minimum (the Bank is not liable to the issuer of the check)	Depends on the type of trade. Usually insignificant
Other characteristics	The simplest form. Easy and often feasible	A very complex form of calculation, but the maximum possible. Implemented within tight deadlines	The most balanced form. For some reason this form is not recognized by the parties	It largely depends on the reliability of the counterparty. Requires certain guarantees.	Limited terms of use	---

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The trade sphere of activity is an invariable element of modern business. The expansion of the partner network led to the formation of a form of payment of a letter of credit type. It is relevant when implementing operations in the perspective foreign economic activity that differ in scale or have signs of partner dishonesty risks. It should be noted that any transaction with an unknown counterparty is fraught with risks, since there are no guarantees that the parties will fulfill their obligations in full. The letter of credit payment method is beneficial for both partners, since it initially contains a safe principle of respecting their interests.

What is a letter of credit

What is a letter of credit form of payment

The obligation of a banking institution to conduct monetary transaction, the purpose of which is to pay off the debt of the client after receiving the goods from the seller, is called a letter of credit. The basis for the transaction is the provision of papers confirming the shipment of products. It will be implemented only if the delivery conditions specified in the agreement, which are related to the deadlines for fulfilling obligations and the volume of production, are met.

Mutual settlements under the letter of credit scheme are drawn up in a separate agreement, which is an annex to the main contract of sale. All participants in such an agreement work only with documents that are the basis for the formation of debt and its repayment.

The advantage of the letter of credit form of payment is to ensure the security of the transaction.

They are expressed in the protection of financial and property interests sides. In order to receive payment for the delivery of goods, the seller must provide it within the terms strictly regulated by the contract. Products must comply with the qualitative and quantitative indicators. Cooperation using the letter of credit scheme allows you to work without pre-payment for services, and also guarantees a return Money in case the products were not delivered.

The disadvantage of the letter of credit form of payment is the complexity in the execution of the procedure, the time costs and the liability determined by the norms of the law and the provisions of the contract. Since the bank in fact assumes the obligation to conduct financial settlements between the parties to the agreement, before signing the agreement, its representatives conduct a thorough check of counterparties, which can take several weeks. Another negative side of the relationship scheme is the imposition of financial costs for the storage, transportation and sale of goods on the seller.

The situation is relevant if the buyer refuses to pay for the goods due to non-compliance with the terms of the agreement, which can be expressed in inappropriate product quality or in violation of the delivery time. In order to prevent an unpleasant relationship pattern, all the nuances and circumstances due to possible force majeure should be foreseen in advance.

Kinds

Since the letter of credit form of payment is a popular type of financial transactions between partners, several schemes for their implementation were formed, the use of each of which is convenient, profitable and relevant under certain circumstances. When choosing them, it is necessary to take into account the interests of both participants, who must be sure that counterparties fulfill their obligations in accordance with the parameters stated in the contract.

Letter of credit form of payment

If the partners trust each other, then they can issue a letter of credit form of payment of a revocable type. It can be canceled at any time without the need for agreement between the parties. The advantage of the scheme lies in the possibility of prompt financial transactions. When issuing an irrevocable letter of credit, the buyer cannot independently make adjustments to the terms of the agreement and is not entitled to revoke it.

Currently, the letter of credit form of payment is more reliable than other forms of cashless payments, it includes elements bank guarantee, direct payments of the enterprise and settlements by bills. In addition, a letter of credit can facilitate a commercial transaction by providing an appropriate mechanism and by making impossible transactions possible in various ways.

The letter of credit is a flexible instrument that allows the parties to negotiate various mechanisms protection. For example, the client may propose that the terms of the underlying contract require the letter of credit to back only a certain percentage of the sale price, thereby allowing the client to retain a portion of the price in the event of poor performance. The client may also require that payment be subject to the presentation by the beneficiary of a certificate confirming satisfactory inspection of the goods by an independent third party. The buyer-client may also require the seller-beneficiary to purchase a "backup" letter of credit to ensure satisfactory performance by the seller.

The positive side of the letter of credit form of payment is:

· Guarantee of payment subject to all the basic rules of settlements;
payment is made after the shipment of the goods;
payment is made with the consent of the payer, expressed in this case by the very fact of opening a letter of credit;
the payer is given the right to refuse payment if violations of the terms of the contract are found;
· a letter of credit is opened at the expense of the buyer or a bank loan, if the buyer has the right to receive it.

Consider the main advantages of using a letter of credit form of payment for the buyer and supplier.

For the buyer, the benefits are as follows:

· the letter of credit enables the buyer to demonstrate his ability to pay, which is especially important when establishing new trade relations;
using a letter of credit form of payment, the buyer can achieve more favorable conditions delivery and payment for goods;
the buyer may refuse to pay for the goods if the documents submitted by the supplier do not comply with the terms of the letter of credit;
The buyer can obtain a commodity credit when using a letter of credit with a deferred payment or, in the absence of the required quantity working capital to open a letter of credit, it can use the possibility of opening a letter of credit against a certain security (goods, liquid assets, etc.), paying "in cash" with the issuing bank only at the time of payment or within the time specified in the agreement on opening a letter of credit.

The advantages of the letter of credit form of payment for the supplier are as follows:

· the supplier can be sure that he will receive payment in full, subject to the timely submission of documents that comply with the terms of the letter of credit;
· Possibility of obtaining confirmation of the letter of credit by another bank or directly by the issuing bank;
The letter of credit gives confidence that the supplier will receive payment for the delivered goods, regardless of financial condition the importer and the importer's bank (with a confirmed letter of credit);
· the use of stand-by letters of credit (stand-bay) allows you to get guarantees, both for the buyer and the seller, about reimbursement of expenses and possible losses in case of default on obligations under the main contract.

It should also be noted that there are a number of shortcomings inherent in the letter of credit form of payment, these include:

· a higher commission rate of banks compared to direct settlements;
Difficulty in the qualified drawing up of the terms of the letter of credit for the buyer and seller;
the need for all participants in the settlements to have specific knowledge in the field of international trade;
time "run" of documents between banks.

Without a doubt, a letter of credit is a very effective and reliable form of payment, which, more than others, allows counterparties to feel protected from improper actions of the other party, in connection with which it has become widespread in international settlements.

It is one of the most popular forms of payment for international settlements and complex structured transactions.

Under optimally formulated conditions and requirements for the documents against which it is paid, a letter of credit provides the buyer with the maximum guarantee of receiving the goods (works, services) specified in it within the stipulated time and the ability to control their payment in case of violation of the terms of the letter of credit. For the supplier, however, settlements by means of a letter of credit guarantee the timely receipt of payment (subject to compliance with all conditions) and exclude the risk of refusal to supply, and, therefore, are a good alternative to advance payments.

In addition, having received a letter of credit opened in his favor, the exporter can be sure that his counterparty will comply with the requirements of the currency legislation of his country and that the payment will be made without hindrance. For the importer, the letter of credit is also a tool for monitoring the correctness of execution and timeliness of submission by a foreign exporting company of commercial documents required for import into the territory of the Russian Federation and proper customs clearance of imported goods, including obtaining various kinds of certificates (quality, origin, compliance with GOST standards). , sanitary, veterinary, etc.).

An irrevocable documentary letter of credit is obviously a more expensive form of payment compared to others (transfer, collection), but at the same time it allows you to control the timing of deliveries and payments.

Bankers almost unanimously call letters of credit one of the most promising and dynamically developing instruments. Currently, letters of credit are becoming more and more attractive. The market for letters of credit annually increases in proportion to the growth of import volumes.

In the international banking practice this unique tool, which combines settlement and security functions, has been actively used for centuries and still does not lose its relevance, since its use significantly reduces the risks of non-fulfillment of obligations by counterparties.

Tonight Spectrum banking services so wide that customers can find among them options for any occasion. Including a letter of credit can be a good helper in certain life situations.

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Ministry of Education and Science

federal state budgetary educational institution higher professional education

"St. Petersburg State University of Economics"

by discipline Financial flow managementand

Head: Barakh Akhmetovich

Artist: Bezborodov V.A.

St. Petersburg, 2016

Introduction

Export-import transactions can be complicated by a number of circumstances: the time and risk of transportation, customs formalities, import-export restrictions, as well as partners' lack of awareness of each other's business reputation and honesty. To create favorable conditions for making payments, there is a system of international payments.

When discussing a contract for the sale of goods or services, the main topic is the method of payment. On the domestic market everything is quite simple - it is either an advance payment or payment within a reasonable period of time. Exporters and importers also seek to protect themselves by choosing a letter of credit as the most used and secure payment system. For the buyer, documentary letters of credit are beneficial in that he can impose conditions on the seller and minimize the risk of the supplier not fulfilling his obligations to deliver the goods. In addition, he purchases goods, using the Bank's extensive experience in such transactions. The seller, for his part, can be sure that after sending the goods and providing all the documents in accordance with the terms of the letter of credit, he will receive payment regardless of the buyer, because in this case the Bank pays.

letter of credit collection settlement documentary

Letter of credit

A letter of credit is an instruction from the buyer's bank (issuing bank) to the supplier's bank to pay the supplier of goods and services on the terms stipulated in the buyer's letter of credit statement against the relevant documents submitted by the supplier confirming the delivery of goods in accordance with the contract. A letter of credit is used if the buyer and seller of the goods are far from each other or need a reliable intermediary to complete the transaction, since they have little experience in cooperation. In such a situation, a letter of credit provides counterparties with:

Flexible payment terms;

legal security;

Obtaining short-term loans.

Settlements under a letter of credit are one of the most commonly used forms of payment for goods (works, services) in foreign economic contracts. When settling under a letter of credit, a bank acting on behalf of the payer and in accordance with his instructions (issuing bank) undertakes to make payments to the recipient of funds or pay, accept or discount a bill of exchange. For settlements under a letter of credit, it is typical that the withdrawal of money from the payer's account occurs in parallel with the dispatch of goods to his address. This distinguishes the letter of credit form from other forms of payment, in particular from collection payments. Payments are made by the bank of the payer (recipient of the goods) in accordance with his order and at the expense of his funds or the loan received by him against the documents named in the letter of credit order and subject to other conditions of the order, which the bank brings to the attention of the party authorized to receive payment. At the same time, the money listed on the letter of credit continues to belong to the recipient of the goods and is withdrawn from the letter of credit only after the seller sends the specified goods and submits the relevant documents to the bank.

Benefits of using a letter of credit for the importer (buyer):

Reducing the risks associated with prepayment;

Possibility exact definition the date of delivery of the goods, as well as its price;

The possibility of obtaining goods on credit;

Possibility to confirm your solvency, which is especially beneficial when establishing new trade relations;

The possibility of achieving more favorable terms of delivery and payment for goods;

The buyer will not have to pay the seller until the seller has fulfilled all contractual obligations;

Possibility of obtaining commodity credit when using a letter of credit with a deferred payment.

Benefits of using a letter of credit for an exporter (seller):

Reducing the risks associated with the solvency of the buyer;

Reducing the risks associated with the supply of goods;

Ability to reduce risks associated with the political situation in the country of the buyer;

Flexible cash flow planning;

Reliability of payment regardless of the buyer, provided that the seller delivers the goods and submits shipping documents in accordance with the terms of the letter of credit;

A guarantee given by a documentary credit that the rules in force in the importer's country at the time the letter of credit is opened will not prevent payment from being received.

So, the use of a letter of credit in settlements is most beneficial for an exporter who receives an unconditional guarantee of payment before the goods are shipped. At the same time, receipt of payment under a letter of credit (provided that the exporter fulfills the conditions of the letter of credit and submits the documents specified in it to the bank) is not associated with the buyer's consent to payment.

From a practical point of view, all letters of credit are divided into two large groups:

Cash letters of credit

Commodity letters of credit.

A letter of credit is a nominal document issued by a bank to a person who has paid a certain amount to receive it in another bank, city or country within a certain period.

A documentary letter of credit is an instruction from a bank serving the buyer to the supplier's bank to pay the supplier's invoices for shipped inventory items on the terms stipulated by the buyer and specified in the letter of credit.

There is also a documentary letter of credit - an obligation given by a bank as a result of an order received by it from an importing client to pay the exporter a certain amount against the transfer of certain documents before a certain date. Depending on the guarantees provided to the exporter, a revocable letter of credit, which can be revoked at any time, and an irrevocable letter of credit are distinguished. The latter may or may not be confirmed. In both cases, the obligation of the issuing bank is firm.

Types of documentary letter of credit:

1) at sight - the exporter receives the amount of payment in exchange for the transfer of documents in his bank;

2) acceptance - when transferring documents, the exporter issues a draft to the advising bank, which accepts it.

The accepted draft is then taken into account. Thus, the exporter can receive payment in any case, and the importer - only upon the due date of performance;

3) with deferred payment - payment is made not upon transfer of documents, but after the expiration of the period specified in the letter of credit;

4) "stand-by" is a declaration of a full guarantee issued by a bank;

5) transferable - the recipient of the payment in this case may instruct his bank to transfer the entire amount or part of it to another beneficiary;

6) returnable - this is a letter of credit that can be replaced by a non-transferable letter of credit issued in favor of another beneficiary;

7) revolving, or automatically renewed, - after using the letter of credit, the issuing bank renews it for the initial amount. This type of documentary letter of credit is convenient for an importer who receives goods in batches;

8) documentary collection - a method of financial settlements used in conditions where partners know each other well and their reliability and solvency are not in doubt. It can simultaneously be a means of payment and a lending instrument.

In addition, letters of credit are divided into revocable and irrevocable, as well as confirmed and unconfirmed. A revocable letter of credit is a letter of credit that can be canceled both by the bank that opened it and by the buyer during the validity period of the letter of credit. An irrevocable letter of credit is a letter of credit that cannot be canceled during its validity period without the consent of the supplier. A confirmed letter of credit contains the confirmation of a first-class bank, which is equivalent to an additional guarantee of payment to the supplier of the shipped goods. An unconfirmed letter of credit contains no guarantees from a first-class bank.

The use of the letter of credit form is most favorable for the seller of goods (payee). Settlements under a letter of credit are made at its location, which brings the payment closer in time to the time of shipment of goods, contributing to the acceleration of the seller's turnover of funds. In turn, the untimely opening of a letter of credit by the payer allows him to delay the delivery or even refuse to fulfill the concluded contract, referring to the insolvency of the counterparty. The opening of a letter of credit gives him confidence that the delivered goods will be paid. Settlements by letters of credit are carried out in accordance with the scheme shown in Figure 3.2.

Rice. 1. Scheme of settlements by letters of credit

The exporter and the importer enter into a contract between themselves, in which they indicate that payments for the delivered goods will be made in the form of a documentary letter of credit. The contract must define the payment procedure, i.e. the conditions of the future letter of credit are clearly and fully formulated. The contract also indicates the bank in which the letter of credit will be opened, the type of letter of credit, the name of the advising and executing bank, the terms of the payment, the list of documents against which the payment will be made, the terms of the letter of credit, the procedure for payment bank commission etc. The terms of payment contained in the contract must be contained in the importer's instruction to the bank to open a letter of credit.

Conclusion

After the conclusion of the contract, the exporter prepares the goods for shipment, and informs the importer about it. After receiving the exporter's notice, the buyer sends his bank an application for opening a letter of credit, which indicates the terms of payment contained in the contract. After formalizing the opening of a letter of credit, the issuing bank sends a letter of credit foreign bank, as a rule, to the bank serving the exporter - advising bank. The advising bank, having verified the authenticity of the received letter of credit, notifies the exporter of the opening and terms of the letter of credit.

The exporter checks the compliance of the terms of the letter of credit with the payment terms of the concluded contract. In case of discrepancy, the exporter notifies the advising bank of non-acceptance of the terms of the letter of credit and the requirement to change them. If the exporter accepts the terms of the letter of credit opened in his favor, he ships the goods to established by the contract terms. Having received from transport organization transport documents, the exporter submits them, together with other documents stipulated by the terms of the letter of credit, to his bank.

The Bank checks whether the submitted documents comply with the conditions of the letter of credit, the completeness of the documents, the correctness of their preparation and execution, the consistency of the details contained in them. After checking the documents, the exporter's bank sends them to the exporting bank for payment or acceptance. The cover letter specifies the procedure for crediting the proceeds to the exporter.

Upon receipt of the documents, the issuing bank carefully checks them, and then transfers the payment amount to the bank serving the exporter. The importer's account is debited for the payment amount. The exporter's bank credits the proceeds to the exporter's account. The importer, having received from the issuing bank commercial documents takes possession of the goods.

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