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Revocable and Irrevocable Letters of Credit

By
Ozgur Eker (CDCS)
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0

Revocable Letters of Credit: Revocable letter of credit can be modified or cancelled by the issuing bank after its issuance at any moment without seeking the beneficiary’s consent.

There is one exception regarding the revocation of the credit.

Issuing bank must reimburse any nominated or confirming bank with which the revocable letter of credit has been made available if these banks fulfill their obligations under the documentary credit terms against complying presentation before they receive the amendment or cancellation notice from the issuing bank.

A revocable letter of credit can serve as a limited security payment method to the beneficiaries, because they are subject to amendment or cancellation without their prior knowledge.

As a result revocable letters of credit are not used frequently in international trade.

UCP 500,which is the previous letters of credit rules published by ICC, was indicated that a letter of credit may be either revocable or irrevocable.

UCP 500 assumed that a letter of credit is irrevocable in default of the indication whether it is revocable or irrevocable.

Current letter of credit rules, UCP 600, do not cover revocable letters of credit. This point is made clear in article 3 of UCP 600:

A credit is irrevocable even if there is no indication to that effect.

Irrevocable Letter of Credit: Irrevocable Letter Of Credit (ILOC) is a letter of credit type which can not be cancelled or amended by the issuing bank without the agreement of the parties of the letter of credit transaction.

For example, issuing bank has no power to modify letter of credit terms if beneficiary does not find them acceptable.

In other words, every amendment at least requires beneficiary’s acceptance in order to be effective.

Irrevocable letters of credit give much more payment security to the beneficiaries than revocable letters of credit because of the reasons explained above. As a result, irrevocable letters of credit are the types of LCs that dominantly seen on the market place.

Banks will only add their confirmation to the irrevocable letters of credit. A confirming bank is not obligated to add its confirmation to any amendment. Also, transferable letters of credit should not be issued in a revocable form.

Letters of credits are transmitted through banks via a secure and authenticated system which is called SWIFT.

There are various swift message types for different situations. For example banks use MT700 (Message Type 700) when issuing a letter of credit.

We will examine SWIFT messages in detail later on.

Here we want to explain one section of MT700 swift message (Issue of a Documentary Credit) which contains the information regarding the type of the documentary credit.

In order to understand the letter of credit type we need to check Field 40A in a MT700 swift message. This field contains the necessary information regarding the form of the documentary credit. There are seven possibilities as seen below.

  • IRREVOCABLE : The documentary credit is irrevocable.
  • REVOCABLE: The documentary credit is revocable.
  • IRREVOCABLE TRANSFERABLE: The documentary credit is irrevocable and transferable.
  • REVOCABLE TRANSFERABLE: The documentary credit is revocable and transferable.
  • IRREVOCABLE STANDBY: The standby letter of credit is irrevocable.
  • REVOCABLE STANDBY: The standby letter of credit is revocable.
  • IRREVOC TRANS STANDBY: The standby letter of credit is irrevocable and transferable.

Is It Possible to Submit 2 Sets Bills of Lading Under One Letter of Credit Presentation?

By
Ozgur Eker (CDCS)
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0

Amer from Ajman (United Arab Emirates (UAE)) asks this question. I would like to thank him once again for this great question.

Question: I have an L/C as follows:

  • 43P: Partial Shipment: Allowed
  • 43T: Transshipment: is not Allowed.

I shipped the goods in 5 container as below. Which means that I had submit 2 B/L s for the same L/C. Please keep in mind that all other details will be the same.

Can I know is it allowed to submit 2 B/L for my L/C.

Thanking you.

  • 2 container in one vessel on 11/02/2014
  • 3 container in another trip on 18.02/2014

Answer: First of all, we need to determine that the shipment, which is effected as indicated above, could be accepted as a partial shipment or not.

UCP 600 article 31 states that a presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

partial shipment letter of credit

As indicated in UCP 600 if more than one means of conveyance has been affected under one letter of credit presentation this will be regarded as a partial shipment.

We understand from Amer’s explanations that he has been used two means of conveyance on his shipments. He has loaded two containers to vessel A on 11.February.2014 and remaining 3 containers to Vessel B on 18.February.2014.

After determining that partial shipment has been effected on this presentation, we need to look at the letter of credit text in order to understand, whether partial shipment was allowed or not.

Again, we can see from Amer’s information that partial shipment is allowed under respected documentary credit.

Conclusion: Partial shipment has been effected on these shipments and letter of credit allows partial shipments. As a result, beneficiary can submit two sets of bills of lading under the same presentation without any problem.

What is the Meaning of by Payment?

By
Ozgur Eker (CDCS)
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0

At sight payment is a payment due on demand.

At sight letter of credit can be defined as a letter of credit that is payable as soon as the complying documents have been presented to the issuing bank or the confirming bank.

Some credit do not mention at sight term, instead issued available by payment.

Is “by payment” the same as “at sight payment” in a letter of credit transaction?

What happens if the letter of credit does not mention at sight but states only by payment?

When should the issuing bank pay to the exporter if credit available by payment?

How long should an exporter wait for the payment when credit states that the payment terms is by payment only?

Let me try to answer all of these questions via case study.

Case Study: What is the Meaning of by Payment?

Dear Sir,

I find your website very useful. I think you have published more than 300 articles and they are very helpful to me. I am working as an export manager in an international steel manufacturing firm in India.

I would like to ask you a question regarding letter of credit payment terms.

A while ago I have received an irrevocable letter of credit, but in the letter of credit there is no specific payment date and also the credit does not mention a sight draft. In the letter of credit issuing bank only put below statement in “Field 41D : Available with… by..” section.

” :41D/AVAILABLE WITH … BY … : ANY BANK IN INDIA
BY PAYMENT “

What I would like to learn is that if the meaning of “BY PAYMENT” and “AT SIGHT” is the same or not?

Some of my friends here suggested that we should amend the “by payment” statement with “at sight”. Is he correct?

Regards
Durai Raj

Answer:

Dear Duraj thanks for your question. Actually “by payment” and “at sight” have the same meaning in letters of credit. Swift rule book states that “When code contains BY PAYMENT, this should be understood to mean payment at sight.”

Issuing banks have 5 banking days to check your documents after day have received your presentation. If they find your presentation complying, then they have to pay the letter of credit amount to you without losing time under at sight letters of credit.

If I were you I would not count too much on confirming banks when a letter of credit is available with at sight payment. In most cases confirming banks do not pay your money until they have been reimbursed by the issuing banks.

What Happens if Due Date of a Letter of Credit Falls on a Bank Holiday?

By
Ozgur Eker (CDCS)
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0

Letter of credit is a conditional payment method. It is only payable if the issuing or confirming bank determines that the presentation is complying.

Once, either the issuing bank or the confirming bank determines that the presentation is complying, the letter of credit amount must be paid to the beneficiary on due date.

But what happens if the due date of an L/C is a non-banking day or bank holiday? On this post I will answer this question.

However, first of all I must define the bank holiday term according to the international letter of credit rules. What is a banking day as per ICC? How a banking day is defined under the International Standard Banking Practices?

UCP 600 defines banking day as follows:

“Banking day means a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed.”

We should understand from the definition of the ICC is that if an issuing bank or confirming bank is open on a day to conduct letter of credit transactions, then that day will be defined as a banking day.

If an issuing bank or confirming bank is not open to conduct letter of credit transactions, then it will be understood as a non-banking day or bank holiday.

According to ISBP 745:

“Payment must be available in immediately available funds on the due date at the place where the draft or documents are payable, provided such due date is a banking day in that place. If the due date is a non-banking day, payment will be due on the first banking day following the due date.”

We understand from ISBP’s definition that if the due date of a letter of credit falls on a bank holiday, then the payment will be made the on the first banking day following the due date.

Case Study : Does a Saturday count as a “banking day”?

If an issuing bank, confirming bank or nominated bank is open on a Saturday to operate, among its other duties, documentary letter of credit transactions, then that half or full day will be classified as one of the “five banking days following the date of receipt of the documents”. As per UCP 600 there is no difference between a full working day or half working day when determining a banking day. If a bank’s letter of credit department is open on Saturday, then it will be deemed to be a banking day.

What are the Differences Between MT 700 and MT 760?

By
Ozgur Eker (CDCS)
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0

MT700 and MT760 swift message types that banks use when issuing documentary credits and guarantees, respectively.

  • Banks use MT700 when issuing a commercial letter of credit or a standby letter of credit.
  • Banks use MT760 when issuing a demand guarantee or a standby letter of credit.

MT700 is used to indicate the terms and conditions of a commercial documentary credit or a standby letter of credit which has been originated by the Sender (issuing bank). This message is sent by the issuing bank to the advising bank.

MT760 is is sent between banks involved in the issuance of a demand guarantee or a standby letter of credit. It is used to issue a guarantee or to request the Receiver to issue a guarantee.

Comparison Between MT700 and MT760

comparison between mt700 and mt760

How to Determine Date of Shipment on a Road Transport Document?

By
Ozgur Eker (CDCS)
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0

Date of shipment is one of the key definitions in a letter of credit transaction. It is used to determine

  • whether shipment made on time or not (in other words a late shipment has been effected or not)
  • whether documents presented within the presentation period or not (in other words a late presentation has been effected or not)
  • maturity date of the time draft
  • maturity date of a deferred payment letter of credit.

Date of shipment can be determined in two ways on a Road Transport Document.

  • In the first scenario we will face a situation where road transport document does not contain any date of receipt or a date of shipment notation.
  • In the second scenario we will be having a road transport document which contains a date of receipt or a date of shipment notation.

Option 1 => There is no notation of a date of receipt or a date of shipment on the Road Transport Document:

  • The date of issuance of the road transport document will be deemed to be the date of shipment.

Option 2=> Road transport document indicates, by notation, a date of receipt or a date of shipment:

  • Date of receipt notation/stamp => this date will be deemed to be the date of shipment.
  • Date of shipment notation/stamp => this date will be deemed to be the date of shipment.

How to Determine Date of Shipment on a Charter Party Bill of Lading?

By
Ozgur Eker (CDCS)
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0

Date of shipment is one of the key definitions in a letter of credit transaction. It is used to determine

  • whether shipment made on time or not (in other words a late shipment has been effected or not)
  • whether documents presented within the presentation period or not (in other words a late presentation has been effected or not)
  • maturity date of the time draft
  • maturity date of a deferred payment letter of credit.

Date of shipment can be determined in two ways on a Charter Party Bill of Lading.

  • In the first scenario we will face a situation where Charter Party Bill of Lading does not contain any date of shipped on board notation.
  • In the second scenario we will be having a Charter Party Bill of Lading which contains a dated shipped on board notation.

Option 1 => There is no shipped on board notation exists on the Charter Party Bill of Lading:

  • The date of issuance of the Charter Party Bill of Lading will be deemed to be the date of shipment.

Option 2=> Charter Party Bill of Lading indicates, by stamp or notation, a date of shipped on board: Notation date will be deemed to be the date of shipment as specified below:

  • Date of shipped on board notation/stamp => this date will be deemed to be the date of shipment

Example: On the below figure you can see a shipped on board notation which is located on the bottom of a Charter Party Bill of Lading.

As there is a dated on board notation exist on the Charter Party Bill of Lading, date of shipment will be deemed to be this shipped on board notation date which is 30.December.2012.

charter party bill of lading date of shipment

How to Determine Date of Shipment on a Sea Waybill?

By
Ozgur Eker (CDCS)
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0

Date of shipment is one of the key definitions in a letter of credit transaction. It is used to determine

  • whether shipment made on time or not (in other words a late shipment has been effected or not)
  • whether documents presented within the presentation period or not (in other words a late presentation has been effected or not)
  • maturity date of the time draft
  • maturity date of a deferred payment letter of credit.

Date of shipment can be determined in two ways on a Non-Negotiable Sea Waybill.

  • In the first scenario we will face a situation where Non-Negotiable Sea Waybill does not contain any date of shipped on board notation.
  • In the second scenario we will be having a Non-Negotiable Sea Waybill which contains a dated shipped on board notation.

Option 1 => No shipped on board notation exists on the Non-Negotiable Sea Waybill:

  • The date of issuance of the Non-Negotiable Sea Waybill will be deemed to be the date of shipment.

Option 2=> Non-Negotiable Sea Waybill indicates, by stamp or notation, a date of shipped on board:

  • Date of shipped on board notation/stamp => this date will be deemed to be the date of shipment

Example: On the below figure you can see a shipped on board notation which is located on the bottom of a Non-Negotiable Sea Waybill.

As there is a dated on board notation exists on the Non-Negotiable Sea Waybill, date of shipment will be deemed to be this shipped on board notation date which is 30.December.2012.

date of shipment on sea waybill

How to Determine Date of Shipment on a Multimodal Bill of Lading?

By
Ozgur Eker (CDCS)
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0

Date of shipment is one of the key definitions in a letter of credit transaction. It is used to determine

  • whether shipment made on time or not (in other words a late shipment has been effected or not)
  • whether documents presented within the presentation period or not (in other words a late presentation has been effected or not)
  • maturity date of the time draft
  • maturity date of a deferred payment letter of credit.

Date of shipment can be determined in two ways on a multimodal bill of lading according to the letter of credit rules.

  • In the first scenario we will face a situation where multimodal bill of lading does not contain any date of dispatch, taking in charge or shipped on board notation.
  • In the second scenario we will be having a multimodal bill of lading which contains a date of dispatch, taking in charge or shipped on board notation.

Option 1 => There is no shipped on board or taking in charge notation exists on the multimodal bill of lading:

  • The date of issuance of the multimodal bill of lading will be deemed to be the date of shipment.

Option 2=> Multimodal bill of lading indicates, by stamp or notation, a date of dispatch, taking in charge or shipped on board: Notation date will be deemed to be the date of shipment as specified below:

  • Date of dispatched notation/stamp => this date will be deemed to be the date of shipment
  • Date of taken in charge notation/stamp => this date will be deemed to be the date of shipment
  • Date of shipped on board notation/stamp => this date will be deemed to be the date of shipment

Important Note: Only applies when the notation is in respect of dispatch, taking in charge or shipped on board at the place or port named in the credit for the commencement of the carriage.

To Order and Blank Endorsed Bill of Lading

By
Ozgur Eker (CDCS)
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0

Bill of lading, which is a transport document used in international trade, is an authentic receipt delivered by a carrier, confirming that the goods therein specified (markings, types of goods, number of packages, etc.) have been loaded or taken in charge for loading on a designated vessel for carriage to a specified port.

On this article you can find the definitions of “to order” and “blank endorsed” terms as used on bills of lading.

To order and blank endorse term is related to the consignee field of a bill of lading and determines if a letter of credit issued in a negotiable or straight form.

If you need more information regarding negotiable bills of lading and straight bills of lading, please read my article “What Does “Made Out to the Order of” Mean in a Bill of Lading?”.

To order bill of lading is the one that consignee part of the bill of lading have been completed by writing “to order” only as can be seen on the below example.

To Order Bill of Lading Example

  • “To order” means that the bill of lading has been consigned to order of the shipper. The shipper indicated on the bill of lading determines who should collect the goods at the port of discharge by surrendering at least one original copy to the carrier.

The shipper makes this determination with the help of the endorsement.

  • “Blank endorsement” means that the holder of the original bills of lading can claim the goods from the carrier at the port of discharge by surrendering at least one original copy of a bill of lading.

To order bill of ladings can be blank endorsed by putting Shipper Company’s stamp and signature on the reverse side of the bill of lading.

According to ICC experts a bill of lading issued to the order of a party can only be endorsed by the party stated in the “consignee” field of the bill of lading.

Only when the B/L is made out to order of the shipper is the shipper able to endorse in blank before presentation under the credit.

As a result,

  • Consignee: to order ==> shipper can endorse in blank
  • Consignee: to order of the shipper ==> shipper can endorse in blank
  • Consignee: to order of the issuing bank ==> issuing bank can endorse
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