Example

Suppose that a UK importer, UK Ltd, wants to buy goods from abroad, possibly on a regular basis, say once a month or once every two or three months. The foreign supplier wants payment for each shipment to be by means of an irrevocable letter of credit, with drafts drawn at 60 days' sight, say, on a UK bank.

A UK bank might agree to issue such letters of credit on behalf of UK Ltd, but suppose that UK Ltd already has quite a large amount of credit, so that the bank might have second thoughts about extending the company much more.

An alternative solution to the problem would be to:

(a) persuade the foreign supplier to agree to a documentary collection as the method of payment for each shipment, with drafts drawn at 60 days' sight on UK Ltd. In this way, UK Ltd could take 60 days credit for each shipment from the supplier, and would not be using any credit facilities from the bank. The company would be taking trade credit from the supplier;

(b) satisfy the foreign supplier's requirement for a secure method of payment (ie letters of credit drawn on a UK bank) by issuing a standby letter of credit in favour of the supplier. This would be a guarantee of payment by the issuing bank in the event that UK Ltd dishonoured one of its bills.

A standby letter of credit would be issued for a fixed term, typically one year, and

(a) would cover a series of shipments in this time, but

(b) would be for a specific maximum value - say, covering one or two shipments.

Another example of standby credits would be as follows.

A buyer might receive regular shipments from a supplier and pay on open-account creditterms. However, the supplier might ask the buyer to arrange a standby credit in his favour, in case of default on a payment. If the buyer does default, the supplier would be expected to present

• an invoice and

• a signed statement that payment has not been received within a stated time after the due date of payment

• a copy of the certificate of shipment covering each consignment shipped.

The supplier would present these documents in order to claim payment under the standby letter of credit. The credit would only be used if the buyer defaults on payment under the normal arrangements.

In summary:

• Standby letters of credit provide security to the exporter, and at the same time reduce the total amount of bank credit required by the buyer (the applicant for the credit).

• They can act as a standby guarantee for trade conducted on other payment terms (documentary collection with bills drawn on the buyer, not the bank).

• When the standby letter of credit is invoked, the beneficiary will be able to draw bills on the issuing bank.

• Standby letters of credit are covered by the Uniform Customs and Practice for Documentary Credits.

Дата добавления: 2015-09-07