Parties to an LC

1. Applicant – Party who requests and instructs the issuing bank to open a letter
of credit in favour of the beneficiary. Applicant is usually the importer or
buyer of goods/Sevices
2. Issuing Bank – Opens the LC in favor of the Beneficiary at the request and on
instructions of the applicant. Issuing Bank is always located in the country of
the applicant.
3. Beneficiary – Natural person/Entity who receives money/benefits. The party
in whose favour the LC is opened, generally an exporter. The party to whom
funds are allocated thru crediting of an account
4. Advising Bank – Usually is a foreign correspondent bank to an issuing bank
of letter of credit. Bank local to the beneficiary of the LC, informs the
beneficiary that the letter of credit is arrived.Not responsibkle for payment to
the creidt it advises
5. Claiming Bank – Is a paying/accepting/negotiating bank which claims
reimbursement on another party called reimbursement party
6. Reimbursing Bank – party authorised by the issuing bank to reimburse the
claiming bank. Issuing Bank also can be a reimbursing bank
7. Correspondent Bank – Bank in another country/location with which the first
bank maintains a banking service agreement
8. Advise Thru Bk – This is a bank which is party to the beneficiary with whom
the beneficiary holds an account with or has a relationship with.
9. Confirming Bank: The advising/Correspondent bank which adds the
confirmation to the credit. Adds its own promise to pay upon authorisation on
request of the issuing bank.
10. Notify Party – Name and address of a party indicated in the transport doc to
be notified by the shipping co. of the arrival of the shipment.

Trade Forms
1. MT 700 – LC transmitted to the advising bank.
2. MT 707 – Amedment of a DLC, sent by the Iss Bank to the Adv Bank
3. MT 799 – Misscedllaneous message format sent by either parties.
4. MT 740 – Authorisation to reimburse sent by the iss bank to the reimbursing
bank
5. MT 747 – Amendment to the reimbursement authority.
6. MT 742 – Reimbursement Claim sent by the claiming bank/advising bk to
reimbursing bank.
7. MT 710 – Third Bank Documentary advice
8. MT 720 – Documentary Credit Transfer
9. MT 730 – Acknowledment of advice from the Advising bk to the Issuing Bk

Settlements
1. Sight bill - Bill of Exchange that requires payment to be made immediately upon
presentation to the drawee i.e. on sighting
2. Deferred payment LC- A credit that is not payable at sight but at a future time. A
feature is that no bill of exchange is involved and issuing bank will give a written
undertaking to pay at maturity.
3. Usance bill of exchange Another name for a term or tenor Bill of Exchange.Period of
time between the date a bill of exchange is presented and the date it is paid
4. TT Reimbursement -
 Types of LC
1. Revocable: A Credit that can be cancelled or changed by any party at any time
without the consent of any other parties
2. Irrevocable: A Credit cannot be amended or Cancelled without the consent of
the issuing bank, the confirming bank (If any) and the Beneficiary. The
Payment is guaranteed by the bank if the credit terms and conditions are fully
met by the beneficiary.
3. Transferable: Credit that allows the beneficiary to transfer his right to obtain
payment to a third party. It can be transferred once and to more than one
seconf bene. Can be transferred only if credit allows for tranfer expressly.
4. Revolving: Type of LC issued only once and throu which the money made
available to the seller after being drawn within a stated period of time will
again become available in future, usually under the same terms and without
another LC being issued. This is used in connection with regular and ongoing
purchases from a constant foreign supplier.Can be Revocable or Irrevocable
and is linked to a time and value.
5. Confirmed:An irrevocable LC opened by the Issuing bank whose authenticity
has been confirmed by the advising bank and where the advising bank has
added its confirmation to the credit. The words quoted “We confirm the Credit
and hereby under take” or “ We add our confirmation to this credit and hereby
undertake” are normally inlcuded. Confirmed credit indicates that the advising
bank takes on the responsibility of the issuing bank to pay the beneficiary. It
takes the country risk of the issuing bank.
6. Unconfirmed:An irrevocable LC opened by the issuing bank in which gthe
advising bank does not add kits confirmation to the credit. “Without any
Engagement” is the common phrase noted in such credits. Promise to pay
comes from the issuing bank only.
7. Standby LC: The standard L/C is the method used to pay for an export
transaction. The standby L/C is used to secure the creditor in the event of non
payment by the importer. Standby's are often used when customers have being
doing business for a period and want to avoid issuing L/C's for every
shipment. The standby is usually issued for a fixed sum for a fixed period.
8. Red Clause: A credit that allows the beneficiary to claim payment (usually a
percentage of value) from a bank before the presentation of documents representing
the supply of goods. A means of providing pre-shipment finance to a supplier
9. Green Clause: These types of LCs enable the beneficiary to obtain pre-
shipment finance for the procurement of raw materials / goods. Green clause
letters of credit additionally require that the goods financed are warehoused (to
be supported by documentary evidence)

Documentations

1. Commercial Invoice
2. Packing List: The packing list indicates the number of packs involved, the
contents of each pack and the individual weights and dimensions. This list
 enables you to check that the correct number of units has been received.
Customs authorities can also easily identify a specific pack they wish to
inspect.
3. Packing Declaration: Packing Declaration are an essential tool for sourcing barrier
information in relation to imported containerised cargo consignments. Packing
declarations have replaced the requirements for shipping companies to provide
quarantine codes on manifests and/or bills of lading. AQIS has provided a general
instruction to the Australian Chamber of Shipping (ACOS) that Quarantine Codes no
longer need to be provided.

AQIS, through the issuance of this instruction, has placed the requirements for reporting
barrier concerns back onto the actual importer. The importer/importers representative
must ensure that correct and concise barrier information is provided for ALL
containerised cargo consignments. This barrier information is usually presented as a
packing declaration. This requirement has been in place for FCLs for sometime.

4. Weight List
5. Beneficiary’s Certificate
6. Fumigation Certificate: Fumigation certificate is required as proof that the
packing materials e.g. wooden crates, wood, wool etc), have been fumigated
or sterilized. Certificates contain details such as purpose of treatment, articles
concerned, temperature range used, chemicals and concentration used etc.
7. Certificate of Origin: A certificate evidencing the origin of goods (usually
exported). Such certificates are usually attested by semi-official organisations such
as local chambers of commerce.
8. Test Certificate
9. Inspection Certificate: The inspection certificate---inspection report or
report of findings---is required by some importers and/or importing countries.
The export-trader uses such a report in the inspection of goods purchased from
a manufacturer. The export-manufacturer also uses such a report in the
inspection of its own productions.
10. In case an inspection certificate is required, the importer may stipulate in the
letter of credit (L/C) to use a specific independent surveyor.
11. In the case of a foreign government required pre-shipment inspection, which is
stipulated in the L/C, the report of findings can be in the form of a security
label attached on the invoice. The label bears the number and date of the
corresponding report of findings issued by the foreign government engaged
surveyor.
12. Insurance Documents: An Insurance contract determines the legal framework
under which the features of an insurance policy are enforced. Insurance contracts are
designed to meet very specific needs and thus have many features not found in many
other types of contracts. Many features are similar across a wide variety of different
types of insurance policies.
13. Certificate of Insurance is a document that indicates your coverage amounts,
carriers and policy effective dates. A Certificate Holder is a client who wants to be
named on the certificate of insurance to assure that they will be contacted if your
policy cancels prior to the renewal date.
14. Bill of Lading
15. Airway Bill: Transport document issued by a carrier of goods for air
transportation. If issued by the actual carrier, it is a master air waybill. If issued by an
airfreight consolidator or forwarder, it is a house air waybill. Air waybills are never
documents of title.
16. Cargo Receipt/Freight Forwarders Receipt
17. Transport Receipt
18. Phytosanitary Certificate
19. Certificate of Analysis
20. Drafts/Bill of Exchange: The bill of exchange, commonly referred to as the
draft or the bill, is an unconditional order in writing, signed and addressed by
the drawer (the exporter usually) to the drawee (the confirming bank or the
issuing bank usually), requiring the drawee to pay the drawer a certain sum of
money at sight or at a fixed or determinable future time.

The draft is widely used in international trade, most frequently in the payment
against a letter of credit (L/C). It is also used in the open account without any L/C
involved.
Sight Draft
The sight draft is most commonly used in international trade. In a sight draft, the
payment is on demand or on presentation of the negotiation documents to the
paying bank or the importer. In practice, the bank may pay within three (3)
working days (not instantly) after the receipt and review of the negotiation
documents and if they are in order, that is, the documents comply exactly to the
letter of credit (L/C) stipulations.
\In certain countries where the business relationships between the exporter and the
bank is well established, the bank may pay the exporter a few hours after the
receipt of the negotiation documents that are in order.
Term Draft
The term draft---time draft or usance draft---is used in a deferred payment
arrangement. The payment is on the maturity date determinable in accordance
with the stipulations of the letter of credit (L/C). The maturity date can be at a
stated period after sight or after date
Clean Draft
In a clean draft, no shipping documents are attached to the draft sent to the
remitting bank. The documents are sent together with the goods, directly to the
buyer. Therefore, unless the credibility of the buyer is unquestionable, using a
clean draft in the shipment of goods is risky. The clean draft is more often drawn
for the collection of payment for the services, not goods.
Documentary Draft
In a documentary draft, the shipping documents are attached to the draft sent to
the remitting bank. The buyer will be able to receive the shipping documents from
the collecting bank only after he/she has accepted the draft for payment later or
after he/she has paid the draft.