Letter of Credit and applications-1

In our previous article, we talked about what Export Practices are. In order to be able to carry out the Export Practices transactions properly and accurately, the following headings must first be well known;
– Ways of Delivering in Foreign Trade
– Ways of Payment in Foreign Trade
– Documents Used in Foreign Trade
In this article, we will talk about the Credit under the heading "Payment Forms in Foreign Trade".
The major forms of payment commonly used in foreign trade are:
– Payment in advance
– Payment of Goods
– Vesaik Muqabili Payment
– Letter of Credit
– Bank Committed Payment BPO
– Accepted Credit Payment
The most complex of these forms of payment is the payment by credit. This method of payment, which is quite simple to understand in theory, seems complicated due to the fact that there are too many details in practice and the different interpretation of the rules from bank to bank.
In simple terms, the letter sent by the recipient's bank through the correspondent bank to the seller firm in the form of an acknowledgment of credit says: "We hereby inform your firm of the cost of delivering the written documents to our bank in a timely manner." When we look at the rules set out in ICC's (International Chamber of Commerce) UCP 600 publication on credit payment, it is understood that we have done the above. In this definition, 3 concepts attract our attention;
1- Correct Documents
2- Condition
3- Commitment
Thus, we can say that the credit is a TERMINAL PAYMENT that the opening bank has given to the seller firm. In this case, if the receiving company fulfills the written terms in the credit, the bank that opens the credit will also fulfill its payment commitment. Once we have briefly defined the credit in this way, let's look again at the requirement that the bank must be able to receive the payment, i.e. to fulfill its commitment.
Correctly handing out requested documents to the bank
By looking at the experiences we have had in the seminars we have given for more than 15 years and the questions that listeners have asked; For those who are new to Foreign Trade, we can point out that it is the most overlooked and overlooked place. When we read the above definition carefully, it is understood that; There is only one requirement for the bank opening the credit to carry out the payment.
Also, some of the most frequently asked questions and misconceptions about this subject are;
– "If the credit is unconfirmed, how do we get our money if the customer who opened the credit doesn't pay the bank?"
– "How do we get our money if the customer who opened the credit doesn't pay the bank?"
– "If the creditor makes late payments to the opening customer bank, our money will be late"
– "If the credit is unconfirmed, how do we get our money if the customer who opened the credit stops buying the goods?"
– "If the credit is unconfirmed, we will not be able to receive our money if the customer who opened the credit goes bankrupt or fails to pay."
– "We can't get our money if the customer who opened the credit goes bankrupt or fails to pay"
These questions and hesitations all have one answer.
In an unconfirmed credit, the Seller prepares the documents correctly under the obligation of the credit, if the bank delivers the credit to the opening bank on time, the bank will fulfill the payment commitment, the reason the buyer will give up receiving the goods, will not pay, or the buyer will not be able to provide the reason for the bank's failure to fulfill the payment commitment if the documents are correct. The relationship of the recipient with the bank that opened the credit is outside the terms of the commitment.
If the credit is confirmed, it is only in the assurance of the bank which has opened the credit if the bank that opened the credit refrains from paying against the correct documents or falls short of payment, or if the country in which the credit has been opened stops foreign payments.

The last word; In the credit payment, the counterpart of the seller's (credit beneficiary) is not the receiving firm (the firm that opens the credit), but the bank that opens the credit.

Hüseyin TEKGÜÇ
www.inovakademi.com

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