Trade Finance and

Operations

Submitted To;
Mr. Mehmood Afzal Khan
Submitted By;
Muhammad Umar Gul
MBA(Banking & Finance)
MBK-E-14-57

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Contents
Executive Summary...............................................................................................................................7
Business;................................................................................................................................................8
Definition of Business;...........................................................................................................................8
Characteristic of Business......................................................................................................................8
Entrepreneur;....................................................................................................................................8
Economic Activity;.............................................................................................................................8
Deals in Goods and Services;.............................................................................................................8
Risk;...................................................................................................................................................9
Profit;.................................................................................................................................................9
Production;........................................................................................................................................9
Sales;.................................................................................................................................................9
Finance;.............................................................................................................................................9
Management;....................................................................................................................................9
Regularity;.........................................................................................................................................9
Creation of Utility;.............................................................................................................................9
Consumer Satisfaction;......................................................................................................................9
Islamic Process;................................................................................................................................10
Planning;..........................................................................................................................................10
Objectives of Business.........................................................................................................................10
Profit Earning;..................................................................................................................................10
Production of Goods;.......................................................................................................................10
Creating Market;..............................................................................................................................10
Technological Improvement;...........................................................................................................10
Human Objectives;..........................................................................................................................10
Buyer/Importer;..................................................................................................................................10
Importer Risk/Concerns.......................................................................................................................11
Economic Sense;..............................................................................................................................11
Fewer Intermediaries;......................................................................................................................11
Reduced Overhead;.........................................................................................................................11
Control Over Manufacturing Process;..............................................................................................11
Stock Complete Product Line;..........................................................................................................11
Benefit From Special Offers;............................................................................................................11
Settlement Term;.............................................................................................................................11

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 Know Your Customer;......................................................................................................................11
Market Intelligence;.........................................................................................................................12
Close Monitoring;............................................................................................................................12
Delay in delivery of goods and settlement funds;............................................................................12
Currency Risk;..................................................................................................................................12
Political or sovereign risk;................................................................................................................12
Seller performance risk;...................................................................................................................12
Economic risk;..................................................................................................................................12
Risk Mitigation of Buyer;......................................................................................................................12
Seller/Exporter;...................................................................................................................................13
Risk/concerns of Exporter....................................................................................................................13
Close Monitoring;............................................................................................................................13
Political Risks;..................................................................................................................................13
Legal Risk;........................................................................................................................................13
Language;........................................................................................................................................13
Buyers insolvency/Credit Risk;.........................................................................................................13
Buyer Acceptance Risk;....................................................................................................................13
Manufacturing Risk;.........................................................................................................................13
Economic Risk;.................................................................................................................................14
Currency Risk;..................................................................................................................................14
Interest Rate Risk;............................................................................................................................14
Political/Sovereign Risk;...................................................................................................................14
Transit Risk;......................................................................................................................................14
Exporter Risk/Mitigations;...................................................................................................................14
International Commercial Terms (Inco-terms);....................................................................................15
CFR (Cost and Freight);....................................................................................................................15
FOB (Free On Board);.......................................................................................................................15
FCA (Free Carrier);...........................................................................................................................15
CIF (Cost, Insurance, Freight);..........................................................................................................15
FAS (Free Alongside Ship);...............................................................................................................15
CIP (Carriage and Insurance Paid);...................................................................................................15
CPT (Carriage Paid To);.....................................................................................................................16
DDP (Delivered Duty Paid);..............................................................................................................16
DAP (Delivered At Place);.................................................................................................................16
DAT (Delivered At Terminal);............................................................................................................16
EXW (Ex-works);...............................................................................................................................16

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Methods of Payment in International Trade Settlement......................................................................16
Advance Payment;...........................................................................................................................16
Open Account;.................................................................................................................................16
Consignment;...................................................................................................................................17
Documentary Collection;.....................................................................................................................17
Types of Documentary Collection;.......................................................................................................17
Clean Collection;..............................................................................................................................18
Documentary;..................................................................................................................................18
Risk of Documentary Collection;.........................................................................................................18
Benefits of Documentary Collection;...................................................................................................18
Simplicity;........................................................................................................................................18
Convenience;...................................................................................................................................18
Security;...........................................................................................................................................18
Guarantee of Payment;....................................................................................................................19
D/P Documents Against Payment;....................................................................................................19
D/A Documents Against Acceptance;................................................................................................19
Documentary Credit (Letter of Credit).................................................................................................19
Advantages of LC.................................................................................................................................20
Insurance of Payment......................................................................................................................20
Readily Negotiability........................................................................................................................20
Compliance with Resolution............................................................................................................20
Pre-shipment Advance.....................................................................................................................20
Disadvantages of LC.............................................................................................................................20
Discrepancies in documents............................................................................................................20
Difficult terms and conditions of LC.................................................................................................20
Different Language..........................................................................................................................20
Competitive terms...........................................................................................................................20
Delay in Documents.........................................................................................................................20
Delay in Goods.................................................................................................................................20
Types of Letter of Credit......................................................................................................................20
Sight LC............................................................................................................................................20
Useance LC (30,60,90,120,180).......................................................................................................21
Confirmed Credit.............................................................................................................................21
Transferable LC................................................................................................................................21
Deferred Payment LC.......................................................................................................................21
Red Clause Credit.............................................................................................................................21

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 Green Clause Credit.........................................................................................................................21
Revolving LC.....................................................................................................................................21
Back To Back LC................................................................................................................................21
LC Under Suppliers Credit................................................................................................................21
PAYE LC............................................................................................................................................21
Documentary Credit and Modes of Availability...................................................................................22
By Payment;.....................................................................................................................................22
By Negotiation;................................................................................................................................22
By Deferred Payment;......................................................................................................................22
By Acceptance;................................................................................................................................22
Advantages of LC to the Importer........................................................................................................22
Finance Facility by the Bank;............................................................................................................22
Assured Quality of Goods;...............................................................................................................22
Assured Delivery of Goods;..............................................................................................................22
Disadvantages of LC to Importer..........................................................................................................23
Fraudulent Documentation;.............................................................................................................23
Expensive;........................................................................................................................................23
Credit Line Issue;.............................................................................................................................23
Cash Flow;........................................................................................................................................23
Parties Involve in LC.............................................................................................................................23
Importer/Applicant/Buyer;..............................................................................................................23
LC Opening Bank;.............................................................................................................................23
LC Advising Bank;.............................................................................................................................23
Negotiating Bank;............................................................................................................................23
Conforming Bank;............................................................................................................................23
Nominated Bank;.............................................................................................................................24
Professional Companies Involve in LC..................................................................................................24
Transporters;....................................................................................................................................24
Ship owner;......................................................................................................................................24
Ship Master and Crew;.....................................................................................................................24
Charter;............................................................................................................................................24
Custom Clearing Agent;...................................................................................................................24
Freight Forwarder;...........................................................................................................................24
Insurance company;.........................................................................................................................24
Port Authority for Exporter/Importer;.............................................................................................25
Finances Available to the Exporter......................................................................................................25

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 FAPC (Finance Against Packing Credit);............................................................................................25
FBP (Foreign Bill Purchase);.............................................................................................................25
FAFB (Finance Against Foreign Bill);.................................................................................................25
Stand By LC;.........................................................................................................................................26
Bid Bond;.............................................................................................................................................26
Advance Payment Bond;......................................................................................................................26
Financial Guarantee;............................................................................................................................26
URC 522...............................................................................................................................................26
ARTICLE 1; Application.....................................................................................................................26
ARTICLE 2; Definition of Collection..................................................................................................27
ARTICLE 3; Parties to a Collection....................................................................................................27
ARTICLE 6; Sight/Acceptance...........................................................................................................28
ARTICLE 9; Good faith and Reasonable care....................................................................................28
ARTICLE 13; Disclaimer on Effectiveness of Documents..................................................................28
ARTICLE 15; Force Majeure..............................................................................................................28
ARTICLE 22; Acceptance..................................................................................................................28
ARTICLE 23; Promissory Notes and Other Instruments....................................................................28
ARTICLE 24; Protest.........................................................................................................................28
UCP 600...............................................................................................................................................28
Article 1; Application of UCP............................................................................................................28
Article 2; Definitions........................................................................................................................29
Article 5; Documents v. Goods, Services or Performance................................................................30
Article 6; Availability, Expiry Date and Place for Presentation..........................................................30
Article 15; Complying Presentation.................................................................................................30
Article 29.........................................................................................................................................30
Article 30; Tolerance in Credit Amount, Quantity and Unit Prices...................................................30
Article 33; Hours of Presentation.....................................................................................................31
Article 34; Disclaimer on Effectiveness of Documents.....................................................................31

Executive Summary
This report explain the Business meaning, characteristic and objectives of business,
buyer/importer risk concerns and mitigations in International Trade, seller/exporter risk
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concerns and mitigations of International Trade, International commercial terms, Methods
of International settlement (Advance payment, Open account, Consignment), Documentary
Collection meaning, parties and types of documentary collection, Documentary Credit
meaning, parties and advantages and disadvantages of importer and exporter, Different types
of LC, Professional companies involve in international trade, Finance to exporter, Finance to
importer, Bill Bond, Financial Guarantee, advance payment, stand by LC, foreign exchange
rate and types, Documents required opening LC, Document required to exporter, URC 522,
URC 600.

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Business;
A person regular occupation, profession or trade work, line of work carrier. The word
business technically means a state of being busy. Every person is engaged in some kind of
business,
A former works in the field,
A worker works in the factory,
A cleric does his office work in an office,
A teacher teaches a class,
A salesman busy in selling of Goods,
An entrepreneur busy to run his factory,
The primary aim of all these persons is to earn their likelihood while doing some
work.

Definition of Business;
All creating human activities relating to the production of goods or services for
satisfying human wants are known as business, it is also a gainful procedure through which
individuals and groups exchange the goods and services.
Simple Meaning
Business includes all those legal activities which are related with earning profit.
Business include all the economic activities which are related with earning wealth.
James Stephenson
Every human activity which engaged in for the purpose of earning profit.
L. H. Haney
Human activity directed towards producing and acquiring wealth through buying and
selling goods.

Characteristic of Business
Entrepreneur;
There must be someone to take initiative for establishing a business. The person who
recognized, the need for a product or services is known as entrepreneur. The
entrepreneur is a key figure in the process of economic growth.
Economic Activity;
The activity must be of economic purpose, profit earning.
Deals in Goods and Services;
Business always deal in goods and services. The goods includes to both the customer
goods like shoes, cloths, toothpaste and industrial goods like raw material, tools and
machinery etc.

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Risk;
The business involves a greater element of risk and uncertainty. In fact, a businessman
tries to forces the future uncertainty and plan his business activities accordingly.
Profit;
Profit is the most important character of the business. Business is started for the
purpose of earning profit. Profit is driving force of every business. The incentive of
earning profits keeps a person in business and is also necessary for the continuity of
business. This does not mean that there will be no chance of losses in business.
Production;
Business always deal on production of goods and services. The object of business is
to provide goods and services to society for the purpose of earning profit. The goods
must be produced or manufactured, so that these can be sold in market.
Sales;
Sales are related with the transfer of value. The production of personal use does not
come under the scope of business. E.g.
If a shoe maker makes a pair of shoes and wear himself, his act is not treated as
business. If a person makes a pair of shoes for the purpose of selling, now his act is
treated as business.
Finance;
No businessman can start business without finance, finance is the life blood of every
business organization.
Management;
Every enterprise needs an organization for its successful working. Various business
activities are divided into department, sections and jobs and organization creates the
frame work of managerial performance and helps in coordinating various business
activities.
Regularity;
In business, only those transactions are include which have regularity and continuity
and isolated transaction will not be called business, even if the person earns profit
from that deal. A person build house for himself, but later on sell it on profit.
Creation of Utility;
The goods are provided to the consumer as per their liking and requirements. Business
creates various types of utility in goods so that consumer may use them.
Consumer Satisfaction;
The ultimate aim of business is to supply goods to the consumer, the goods are
produce for the consumers. If a consumer is satisfied then he will purchase the same
thing again, otherwise he will go for an alternative commodity.
Islamic Process;
It is a sayings of the Holly Prophet (PBUH) that 9/10 of the risqu lies in business. In
this sense business as an Islamic way to earn livelihood income from business is
known as profit which is also called risqu-e-halal.

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Planning;
Planning is related with all the activities of business. Planning is always based on past
experience.

Objectives of Business
Profit Earning;
It cannot be denied that business is started for earning profit. Profit is basic incentive to
business pursuits. Profits are needed to face different/various uncertainty;
Trade cycle.
Change in demand pattern.
Fluctuations in money market.
A business needs profit not only for it existence but also for expansion and
diversification.
The investors want an adequate return on their investments.
Production of Goods;
The profit can be earned only when some exchange of goods and services takes place.
So the next objective is to produce more goods and sell them to the consumer.
Creating Market;
The aim of the businessman is to sell products. Marketing consist of those efforts
which effects transfer in ownership of goods and care for their physical distribution.
Technological Improvement;
A businessman should always strive to use latest method of production. In the world
of competition everybody tries to sell his products by offering goods quality products at
lower prices.
Human Objectives;
Human objectives of business requires that a workable balance should be maintained
among the claims of various interested groups like employees, shareholders and consumers.

Buyer/Importer;
The context of trade the buyer is one who purchase goods or services and can also we
called the customer.
A person/firm who purchases goods or services form seller/exporter residing abroad.

Importer Risk/Concerns
Economic Sense;
Purchase of raw-material or finished goods which are in short supply or unavailable in
domestic market is the key stone of any transaction as it ensure quick sales and good
margin.
Fewer Intermediaries;
If possible source direct from manufacture in a foreign country as opposed to buying
from a medal party. In this way a buyer can have better control over quality and

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 reduce pilferage and delays as the supplier is not likely to act in a manner which could
be detrimental to its business reputation.
Reduced Overhead;
A low cost by eliminating additional parties and there by maximize the profit margin.
International trade is complicated process and very often the involvement of medal
man and other intermediaries erodes the buyer profit margin, hence fewer the players
higher the margin.
Control Over Manufacturing Process;
This is usually done in case where goods are manufactured and supplied under supply
chain management (SCM). This persons entails the over sight of material information
and finances as they move in process from supplier to manufacturer to whole seller to
retailor to consumer.
Supply chain management involves coordinating and integrating these flows both
within and among companies. Ultimate goal of effective supply chain management is
to reduce an inventory.
Stock Complete Product Line;
As oppose to selling product of different brand qualities, a buyer stands to gain more
by operating as a specialities that sell as a complete range of renowned product and
services.
Benefit From Special Offers;
If a purchase order is placed well before the start of the high age sale season, such as
new year or religious festival, a buyer is right of negotiation and get better pricing, as
compare to the middle of the peak season.
Settlement Term;
Prudent buyer would prefer to part with the payment only once the quantity and
quality of goods received are insured.
Know Your Customer;
A buyer will aspire to deal with only with a seller that is trust worthy and able to
produce/deliver to the required goods and services in a trade transaction, there is
always an element of doubt about the performance of the seller.
Market Intelligence;
At accurate and dependable information regarding the business and financial standing
of the counterpart. This measure, to a large extent mitigates the fears stated in the
previous heading.
Close Monitoring;
Control the transaction by making settlement process contingent upon a certain event
i.e. receipt of goods at least proof of its delivery idly this is done by involving the
bank channels in the process.
Delay in delivery of goods and settlement funds;
The time taken for goods to pass from the seller to the buyers in generally longer for
exporters, then goods for sold to buyer at home. This process a problem because

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 buyer prefer not to pay until the goods have been inspected while supplier wants
payment on or before the shipment but actually happen is often a compromise
resulting from the bargaining power of the two parties to trade.
Currency Risk;
Export trade involves a financial transaction to a foreign currency risk either to the
buyer or to the seller or some times to both hence and entails exchange risk.
Political or sovereign risk;
Political or sovereign risk refers to the complications that the seller may be exposed
due to unfavourable political decision or political changes that may vary the accepted
outcome of an outstanding contract. i. e. political sovereign risk are changes in
physical/monetary policies, war riots, terrisum and trade embargoes.
Seller performance risk;
A seller may fail to carry out his obligations in a sales contract due to one or more
reasons. Such non-performance by the seller may have adverse consequential impact
on the buyers business. It could be expensive for the buyer to take legal action against
the seller in his country.
Economic risk;
Economic risk refer to unfavourable economic condition in the sellers country which
may affect the exporter in fulfilling it obligation as the seller may experience
difficulty in producing of shipping the goods etc.

Risk Mitigation of Buyer;

1. Deal with seller with sound reputation or establish track record.
2. If possible seek a performance guarantee to avoid non-performance risk.
3. Agree on more secure methods of payment such as documentary credit or open
account.
4. Acknowledge and respect cultural differences with the seller.
5. Buy and sell in same currency to minimize foreign exchange risk. Alternative, the
buyer can hedge against foreign exchange risk by entering a forward or option foreign
exchange contract with a bank.
6. If financing is needed, enter into a fixed interest rate loan or interest rate swap
agreement to mitigate the interest rate risk.
7. Ensure sufficient insurance coverage against transit risk, if arranged by the buyer.
8. Always have a contingency plan against unfavourable events.

Seller/Exporter;
In simple terms the seller is a person or entity that conveys the ownership and position of a
property and article or goods, services or merchandise owned and held by him, to another
person or entity in exchange for a consideration in money value.

Risk/concerns of Exporter
Close Monitoring;
Monitor the transaction by linking the settlement process to certain events i. e. EID,
Christmas, etc.

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Political Risks;
The exported goods are sold to buyers who, for geographical reasons, are likely to be
less well known to the sellers own country.

Legal Risk;
Legal risk is the potential threat of financial loss arising from uncertainty of legal
proceedings or a change in legislation, such as a foreign exchange control policy. A
sale contract could be frustrated due to changes in laws and regulations.
Language;
The language of the exporters and importers may be different, thus there would be
need to translate the basic text and its related implications.
Buyers insolvency/Credit Risk;
Buyers insolvency or credit risk refers to the inability of the buyer to honour full
payment for goods or services rendered on the due date. This is the risk for seller,
associated with selling or suppling a product or services without collecting full
payment or experiencing late payment.
Buyer Acceptance Risk;
Buyers acceptance risk refers to the buyers non-acceptance of goods delivered or
services rendered. Unaccepted goods or services may create difficulty for the seller in
disposing of the goods to another buyer or encountering working capital problems.
Manufacturing Risk;
The buyer may cancel or modify the order unilaterally. In such a case the exporter has
to find an alternative buyer who is willing to buy the goods. The exporter might be
forced to accept a substantially lower price.
Economic Risk;
Economic risk refers to the unfavourable economic conditions in the buyers country
which might prevent fulfilment of his obligations and, in a worst case scenario, may
result in the buyers insolvency or inability to accept the goods or services.
Currency Risk;
When dealing in the foreign currency, the exporter may be exposed to fluctuations in
the foreign exchange market which may result in receiving less in terms of local
currency.
Interest Rate Risk;
Interest rate risk is the risk borne by an interest bearing asset, and in the case of a
floating rate loan or suppliers credit facility by the exporter favouring the importer,
any increase in the interest rate resulting in the seller receiving less in interest for their
facility to the buyer.

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Political/Sovereign Risk;
From an exporters view point, political/sovereign risk can affect the buyer who could
be exposed to unfavourable political decisions or political changes which may alter
the expected outcome of an outstanding contract.
Transit Risk;
Transit risk is the risk that goods may be stolen or damaged during shipment from the
place of origin to the place of destination. Failure in addressing transit risk may result
in heavy replacement cost or performance risk.

Exporter Risk/Mitigations;
1. Deal with buyers with sound reputation or established track records.
2. Engage a reputable credit agency or credit insurer to minimize buyers insolvency or
credit risk.
3. Engage in more secure methods of payment such ass documentary credit or advance
payment.
4. Avoid granting an excessive credit period or limit to the buyer.
5. Ensure that the sales contract or documented credit does not contain ambiguous or
erroneous terms and conditions that could be subject to future disputes.
6. Acquire sufficient knowledge in document preparation to mitigate against
documentation risk.
7. Acknowledge and respect cultural differences of the buyer.
8. Buy and sell in the same currency to minimize foreign exchange risk. Alternatively,
the buyer can hedge against foreign exchange risk by entering a forward or option
foreign exchange contract with a bank.
9. If financing is needed, enter into a fixed interest rate loan or interest rate swap
agreement to mitigate interest rate risk.
10. Ensure sufficient insurance coverage against transit risk, if arranged by the seller.
11. Engage a representative in the buyers country to deal with the goods or relevant
parties in case of non-payment or non-acceptance by the buyer.
12. Always have a contingency plan against unfavourable event.

International Commercial Terms (Inco-terms);

Inco-terms are trade terms and these are key element of international contract of sale.
They tell the parties what to do with respect to carriage of the goods from buyer to seller and
export and import clearance.
They also explain the division of costs and risks between the parties. The difference
between the 2000 and the 2010 version is the number of Inco-terms has been reduced from 13
to 11.
CFR (Cost and Freight);
This term means the seller delivers when the goods pass the ships rail in the port of
shipment. Seller must pay the costs and freight necessary to bring the goods to the named
port of destination, but the risk of loss or damage, as well any additional costs due to events

14
occurring after the time of delivering are transferred from seller to buyer. Seller must clear
the goods for export. This term can only be used for sea transport.
FOB (Free On Board);
This term means that the seller delivers when the goods pass the ships rail at the
named port of shipment. This means the buyer has to bear all costs and risks to the goods
from that point. The seller must clear the goods for export. This term can only be used for sea
transport. If the parties do not intend to deliver the goods across the ships rail, the FCA term
should be used.

FCA (Free Carrier);

The seller delivers the goods, cleared for export, to the carrier nominated by the buyer
at the named place. Seller pays for carriage to the named place.
CIF (Cost, Insurance, Freight);
The seller delivers when the goods pass the ships rail in the port of shipment. Seller
must pay the cost and freight necessary to bring goods to named port of destination. Risk of
loss and damage same as CFR. Seller also has to procure marine insurance against buyers risk
of loss/damage during the carriage. Seller must clear the goods for export. This term only be
used for sea transport.
FAS (Free Alongside Ship);
The seller delivers when the goods are placed alongside the vessel at the named port
of shipment. The seller is required to clear the goods for export. The buyer has to bear all
costs and risks of loss or damage to the goods from that movement. This term can be used for
sea transport only.
CIP (Carriage and Insurance Paid);
This term is the same as CPT with the exception that the seller also has to procure
insurance against the buyers risk of loss or damage to the goods during carriage. This term
can be used for any mode of transportation.
CPT (Carriage Paid To);
The seller delivers the goods to the carrier nominated by him but the seller must in
addition pay the cost of carriage necessary to bring the goods to the named destination. The
buyer bears all costs occurring after the goods have been so delivered. The seller must clear
the goods for export. This tern may be used irrespective of the mode of transport.
DDP (Delivered Duty Paid);
This term represents maximum obligation to the seller. This term should not be used if
the seller is unable to directly or indirectly to obtain the import license. This term means the
same as the DDU term (Deliver Duty Unpaid) with the exception that seller also will bear all
costs and risks of carrying out customs formalities including the payment of duties, taxes and
customs fees.

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DAP (Delivered At Place);
Seller pays for carriage to the named place, except for costs related to import
clearance, and assumes all risks prior to the point that the goods are ready for unloading by
the buyer.
DAT (Delivered At Terminal);
Seller pays for carriage to the terminal, except for cost related to import clearance,
and assumes all risks up to the point that the goods are uploaded at the terminal.
EXW (Ex-works);
This term represents the sellers minimum obligation, since he only has to place the
goods at the disposal of buyer. The buyer must carry out all tasks of export and import
clearance. Carriage and insurance is to be arranged by buyer.

Methods of Payment in International Trade Settlement

Advance Payment;
1. With cash in advance payment term, an exporter can avoid credit risk because
payment is received before the ownership of the goods is transferred.
2. For international sales, wire transfers and credit cards are the most commonly used
cash in advance options available to exporters. With the advancement of the internet,
escrow services are becoming another cash in advance option for small export
transactions.
3. However, requiring payment in advance is the least attractive option for the buyer,
because it creates unfavourable cash flow.
4. Foreign buyers are also concerned that the goods may not be sent if payment is made
in advance.
5. Thus, exporters who insist on this payment method as their sole manner of doing
business may lose to competitors who offer more attractive payment terms.
Open Account;
1. An open account transaction is sale value where goods are shipped and delivered
before payment is due which in international trade in 30, 60, or 90 days.
2. This is one of the most advantages options to the importer in terms of cash flow and
cost, but it is consequently one of the highest risk options for an exporter.
3. Because of intense competition in export markets, foreign buyers often press
exporters for open account terms since the extension of credit by the seller to the
buyer is more common abroad.
4. Therefore, exporters who are reluctant to extend credit may lose a sale to their
competitors.
5. Exporter can offer competitive open account terms while substantially mitigate the
risk of non-payment by using one or more of the appropriate trade finance techniques.
Consignment;
Consignment in international trade is a variation of open account in which payment is
sent to the exporter only after the goods have been sold by the foreign distributer to the end
customer.

16
 An international consignment transaction is based on a contractual arrangement in
which the foreign distributor, who
1. Receives,
2. Manages,
3. Sells the goods for the exporter who retains title to the goods until they are
sold.
4. Exporting on consignment is very risky as the exporter is not guarantee any
payment and its goods are in a foreign country in the hands of an independent
distributor or agent.
5. Consignment helps exporters become more competitive on the basis of better
availability and faster delivery of goods.
6. Selling on consignment can also help exporters reduce the direct costs of
storing and managing inventory.
7. They key to success in exporting on consignment is to partner, with a
reputable and trustworthy foreign distributor or a third party logistics provider.
8. Appropriate insurance should be in place to cover consigned goods in transit
or in possession of a foreign distributor as well as to mitigate the risk of non-
payment.

Documentary Collection;
Definition;
A documentary collection is an instance where only the financial document ( draft or bill of
exchange) is sent via the bank without any transaction-related document, e.g. bill of landing,
commercial invoice, etc.

Documentary Collection offers far greater security than selling on open account, but not as
much as a documentary credit. Credit, political and transfer risks, for instance, are not covered, but
documentary collection costs less and involves less time and effort for settlement.

Types of Documentary Collection;

Generally, two types of documentary collections are in vogue,

1. Clean.
2. Documentary.
Clean Collection;
Financial bill as a collection voucher (bank draft, cheque, cashier`s cheque) to the bank of
place of export (remitting bank) calling upon the bank to collect payment through its agency bank
( collecting bank).

If the bill of exchange or draft is sent without any attached documents it is known as a clean
collection. Unlike a documentary credit, there is no guarantee of payment when the bill is presented
for payment.

17
Documentary;
When handing documentary collections, the remitting bank generaly does not audit the bill
but only checks whether the bill type and copies conform to the content listed on the collection
schedule.

Similar to clean collection, the final payment of documentary collection depands on the
credit situation of the overseas customer, and the collecting and paying bank generaly does not have
any obligation to this effect. After receiving payment from the importer, the collecting bank remits
the funds to the exporters bank for credit to his account accordingly.

Risk of Documentary Collection;

There are a number of risks inherent in cross-border trade under documentary collection,
such as;

a) Normally payment is not guarantee as credit, political and transfer risks are not covered.
b) The payment date is uncertain.
c) If the importer refuses to accept the documents or the drafts on the due date, the exporter
is exposed to potential losses as it may be extremely costly or even impossible to find an
alternative buyer or have the goods shipped back.

Benefits of Documentary Collection;

1. Simplicity.
2. Convenience.
3. Security.
4. Guarantee of Payment.
Simplicity;
The simplicity of the operation makes documentary collections a convenient way to receive
payment from an importer, because not only is the documentation process less complicated, it is also
cost efficient.

Convenience;
With the remitting bank acting as agent, the exporter is relieved of the administrative burden
of collecting the proceeds, handling correspondence and any follow-up action.

Security;
The exporter`s control over the goods is maintained until the importer pays or accepts the
financial instrument.

Guarantee of Payment;
The exporter has the choice of asking the collecting bank to sign as surety on the financial
instrument, thereby obtaining a guarantee of payment independently of the import er.

D/P Documents Against Payment;

The D/P transaction utilizes a sight draft. Payment is on demand. After the goods are
shipped, the exporter sends the sight draft to the clearing bank, along with documents
necessary for the importer/buyer to obtain the goods from customs. The buyer has to settle
the payment with the bank before the documents are released and he can take delivery of
the goods. If the buyer fails or refuses to pay, the exporter has the right to recover the goods
and resell them. On the surface, D/P transactions seem fairly safe from the sellers

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 perspective. However, in practice there are risks involved.
The buyer can refuse to honor payment on any grounds. When the goods are shipped long
distances, say from Hong Kong to the United States, it is usually impractical and too
expensive for the seller to ship them back home. Thus, the seller is forced to sell the goods in
the original country of destination at what is usually a heavy discount.

In cases of shipments by air freight, it is possible that the buyer will actually receive the
goods before going to the bank and paying for them.

D/A Documents Against Acceptance;

The D/A transaction utilizes a term or time draft. In this case, the documents required to take
possession of the goods are released by the clearing bank only after the buyer accepts a time
draft drawn upon him. In essence, this is a deferred payment or credit arrangement. The
buyers assent is referred to as a trade acceptance.
D/A terms are usually after sight, for instance at 90 days sight, or after a specific date, such
as at 150 days bill of lading date.
As with open account terms, there are some inherent risks in selling on D/A: As with a D/P,
the importer can refuse to accept the goods for any reason, even if they are in good
condition.

The buyer can default on the payment of a trade acceptance. Unless it has been guaranteed
by the clearing bank, the seller will need to institute collection procedures and/or legal
action.

Documentary Credit (Letter of Credit)

An LC is a written undertaking of a bank on behalf of importer in favour of exporter
through another bank in exporter country advising them that if term & conditions are
compiled will please pay the amount to beneficiary or exporter or seller.
An LC is a committed by a bank on behalf of the buyer that payment will be made
exporter providing that terms & conditions stated in LC have been meet as verified to be
presentation of all required documents.
LC are one of the most secure instrument available tool of international trade. The
buyer established its credit and pay his/her bank for render his services. An LC is useful when
reliable credit information about a foreign buyer is difficult to obtain but the exporter is
satisfied with credit worthiness of the buyer foreign bank.
An LC also protect the buyer since no payment obligation arise until the goods have
been shipped as promised.

Advantages of LC
Insurance of Payment
The beneficiary is assured of payment as the issued bank is bound to honour the
document drown under LC.
Readily Negotiability
If the exporter needs money immediately, he can secure the payment by having document
drown under LC discounted. (Post-shipment advance) FBP (Foreign Bill Purchase)
Compliance with Resolution
LC is an assurance that all conditions related to the sales contract, including the exchange
contract regulation, if applicable have been complied with.

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Pre-shipment Advance
The exporter can secure his finance or advance from his bank against an LC/contract for
export of goods. FAPC (Finance Against Packing Credit)

Disadvantages of LC
Discrepancies in documents
If exporter is not familiar with the proper procedure for processing document, it could
be discrepancies and the negotiation bank is less likely to negotiate them treating the
document at collection basis this means cash flow problems for the exporter.
Difficult terms and conditions of LC
Terms and Conditions relating to certain document may not be easy to fulfil or the
document may be difficult to obtain.
Different Language
LC of many call for document issued in language of importing country and may not
be understood by the exporter it will be costly to have the document transcript.
Competitive terms
LC payment terms are so restrictive that seller may losses sales to competitor who
count less restrictive term.
Delay in Documents
At times the document of title to goods do not reach the importer in time because
documents are to be proceeded by different bank located in more than one country or state.

Delay in Goods
Sometime goods are delayed in transit because of various reason if the exporter has
committed by issuing a performance bound etc in favour of importer to supply these goods on
or before a predetermined date, the delay may cause a damage or financial loss. If a claim is
made by the importer.

Types of Letter of Credit

Sight LC
Sight LC is the LC in which payment is to be made by the LC opening bank
immediately/at sight. Sight credit implies that payment will be made by issuing bank at sight
on demand or on presentation up to the amount as defined in LC.
Useance LC (30,60,90,120,180)
This is an undertaking by issuing bank favouring the beneficiary to make payment at a
specified date or after a certain period of time in the future. The credit indicates whether the
uses draft is to be drown on the issuing bank or in case of conform credit on the conforming
bank.
Confirmed Credit
This is a normal sight or usance credit, but in this case at the request of the applicant or
beneficiary another bank adds its promise to pay upon due presentation.
Transferable LC
Under a transferable credit a beneficiary (1st) can ask the issuing bank/advising bank/
conforming bank to transfer the LC in whole or in part to another party(ies). A transferable
credit is usually used when the beneficiary is not the manufacturer or supplier of
goods/services.

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Deferred Payment LC
A type of credit which provides for payment sometimes in the future after presentation of
the shipping documents by the exporter. Normally a deferred payment credit does not call for
a draft.
Red Clause Credit
This is a credit where by a buyer extends and unsecured loan to a seller allowing the
credit beneficiary to receive funds for any merchandise outline in the credit. These letters are
commonly used by beneficiary to act as purchasing agent for buyers in another country.
Green Clause Credit
This is allows advance payment by the correspondence bank to the beneficiary in
accordance with the terms defined in the credit. This is basically intended to finance the
production or purchase and where housing of the goods which are to be delivered under
credit.
Revolving LC
Revolving LC is a total created to allow companies conducting regular business to
overall a credit, this business flow to continue without interruption as long as the terms and
conditions quantities & other transaction details do not change.
Back To Back LC
A credit is known as back to back LC is opened with security of another LC. A back to
back credit can also be referred to as counter credit and is actually a method of financing both
sides of a transactions in which a medal-man buys goods from one customer and sell to
another.
LC Under Suppliers Credit
LC under suppliers credit is the LC which established usually for import of big
plants/machinery on the basis of credit allowed by the supplier. Usually payment of this LC
which includes principal account and amount of interest paid on half yearly basis by the
importer to the exporter.
PAYE LC
PAYE LC is the LC in which credit is allowed for a specific commodity or machinery and
amount is paid by the importer to the exporter after making the sale.

Documentary Credit and Modes of Availability

By Payment;
Payment under sight credit are available by payment which means that the exporters
bank in foreign country must sent the documents to issuing bank for examination and
payment. A credit available by sight payment does not required a sight draft for presentation
and normally the payment is effected as the counter of the issuing bank or the nominated
paying bank upon receipt of competent documents. This is done by the issuing bank to have
better control over payment under the credit. In such cases the LC the reimbursement clause
states, Upon receipt of document compelling the terms of credit, we will remit the proceeds
as per your instruction.
By Negotiation;
Globally this is the most common method of availability offered by issuing banks,
which implies that a credit can be negotiated by any bank. An LC available by negotiate

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allows the beneficiary to receive payment by negotiating the sight draft and document at a
nominated negotiating bank which is normally located in his country.
By Deferred Payment;
When credit is available by deferred payment, the beneficiary does not get paid when
document are submitted, but at a later date as provided for in the credit facility to the buyer,
in this case since no draft is issued and only the issuing bank is liable to the exporter, there is
no provision for the buyer to get financing against such receivables.
By Acceptance;
Credit is available by acceptance and this also falls under the category of useanse LC
as its beneficiary also gets payment at a date in future, except that in this case the importer is
required to accept the draft before taking delivery of shipping documents. If required the
beneficiary can obtain financing against the accepted draft.

Advantages of LC to the Importer

Finance Facility by the Bank;
Credit facility if the importer cannot avail any credit facility by the exporter, issuing
bank may extant a credit facility to its customer to finance the importation of goods under the
LC.
Assured Quality of Goods;
Since the exporter is obelized to supply goods in accordance with LC terms, the
importer can be confident about receiving the correct quality and quantity there off.
Assured Delivery of Goods;
Since the issuing bank owners the document drown under a LC only when all terms
and conditions of the credit have been complied with, the importer this has assure not only
obtaining the goods, but also the quality.

Disadvantages of LC to Importer
Fraudulent Documentation;
The beneficiary wants to sell goods against a LC against certain terms and conditions
regarding payment for the goods that are suitable for him. Although the LC binds the exporter
to provide certain document evidencing shipment of goods. It has been observed that
sometimes exporter present the fraudulent document.
Expensive;
Issuing bank charges commission and fees for issuing of an LC and other related
services it offers which are not applicable in the case of an open account system.
Credit Line Issue;
A certain amount/portion of the importer/applicants credit line with their bank gets
tide on against outstanding LC and sometimes the available cushion under the LC credit line
with not cover any more present credit needs.

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Cash Flow;
In some instances, the importer may have tide-up his cash as collateral security
against LC which will cause a dent in the business cash flows.

Parties Involve in LC
Importer/Applicant/Buyer;
Applicant is the person or firm that make request to the bank along with all required
document for opening of LC.
LC Opening Bank;
LC opening bank is the bank that establish an LC in favour of exporter after receiving
all required documents along with bank charges.
LC Advising Bank;
LC advising bank is the bank that receives LC from the LC opening bank, establish its
ethnicity and advise/deliver to the beneficiary/exporter/seller.
Negotiating Bank;
Negotiating bank is the bank that makes security of document against LC and make
payment to the beneficiary and claim reimbursing bank.
Conforming Bank;
Conforming bank is the bank that add conformation to the LC on the request of LC
opening bank.
In case of non-payment by LC opening bank, LC conforming is responsible to make
payment to negotiating bank.
Nominated Bank;
Nominated bank is the bank which is nominated by LC opening bank for negotiating
purpose and exporter or beneficiary is required to submit document to nominated bank for
negotiating purpose.

Professional Companies Involve in LC

Transporters;
Generally a transporter could be a shipping lineman, air line or trucking company.
Just like the importer and exporter the role of the transporter is equally cur shall particularly
where shipment is made by sea, because a bill of lending is the document for transfer of
goods title and if due care is not exercise there is possible of misuse by fraudulent elements.
Ship owner;
A charter party arrangement involves leasing of vessel by a party other than the actual
owner of the vessel for a voyage or period. Often transportation of certain commodity is
made in bulb e.g. cement, steel billets, chemical fertilizer, sugar, wheat etc. It is a high risk
option which requires detailed information about charter party agreement, parties to be
agreement and there possible link.

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Ship Master and Crew;
For a particular voyage, the ship master and crew may not be relevant to the
transaction, however they conduct and performance during the voyage may have an impact
on the tab of the merchandise in question, as causes or in efficient handing of cargo or the
ship can potentially can give rise to insurance dispute.
Charter;
A charter can be an individual or an entity. A charter party arrangement is a high risk
option as it is not easy to defined the owners masters reputation and experience of handing a
chartered ship and its crew.
Custom Clearing Agent;
Custom clearing is the responsibility of a professional agent that involves the clearing
of goods through custom barriers. This involves preparation of relevant documents.
Freight Forwarder;
A freight to firm specializes in storage and shipping of merchandise on behalf of
shipper client. A few range of services is usually provided including ticking, inland
transportation, preparation of shipping and export documents, where housing, booking cargo
space negotiating freight charges, freight consolidation, cargo insurance and filling of
insurance claims. Freight forwarders usually ship under their own bill of landing. This is
called as house bill of landing or house air bill.
Insurance company;
An insurance company under a contract with the insured importer, undertakes to
indemnify the insured in respect of possible loss of or damage to vessel or to cargo during
transportation of goods from one location to another. The insure is known as the under writer
and the document in which the contract is incorporated is called Marine Policy. Under this
arrangement, the insured pays a specific services charges that is.
Port Authority for Exporter/Importer;
An entity of state or local government that owns, operates or otherwise provide, dock
or other marine car facilitates at the port. The authority also has specified powers including
the right to act with respect to a defined area of responsibility, for example managing the
traffic of vessel, maintenance services etc. A prof authority is the back bone of countries
import and export trade globally. Almost 70% of the total volume of trade is channelled
through ports.

Finances Available to the Exporter

FAPC (Finance Against Packing Credit);
a) Nature of Facility;
Pre-shipment finance
b) Security;
Lien on LC or firm contract
c) Approval;
Yes approval is required from competent authority
d) Disbursement;
This finance is disbursed before the shipment is made to the exporter

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 e) Adjustment;
From the exporter proceeds, either by
purchasing/negotiating/discounting/realization of export bill on collection
basis.
FBP (Foreign Bill Purchase);
a) Nature of facility;
Post-shipment finance
b) Security;
Security is document sent to LC opening bank after
negotiation/purchase/discounting.
c) Approval;
Yes, approval is required
d) Disbursement;
In the documents are in order or as per terms of LC (which is under lien with
bank) finance is allowed named as FBP
e) Adjustment;
From export proceeds of export bill
f) Bank Income;
On the day of FBP created income is created to bank account
FAFB (Finance Against Foreign Bill);
a) Nature of Facility;
Post-shipment finance
b) Security;
Export bill
c) Approval;
Credit line approval by competent authority
d) Disbursement;
After shipment/presentation of documents by the exporter bank allows finance
e) Adjustment;
From realization of export bill
f) Bank Income;
Mark-up charge on bill to bill basis or on monthly basis keeping daily
outstanding balance

Stand By LC;
Business customers comes time require the bank to issue a letter of guarantee on their
behalf, this is generally required by the party that the customer is entering into business with.
It can be regarding delivery of goods and services by the customer to the party for example
the party require a guarantee that the customer will provide the goods and services agreed,
failing which the party will call upon the letter of guarantee.

Bid Bond;
The purpose of bid bond is to substantial the ability of a person submitting the tenders
to perform the contract when awarded such a bond is issued in connection with a tender and
its normal characteristic is an understand by the bank on behalf of the applicant to pay the

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beneficiary a fixed amount with in a stipulated period on his simple written demand. These
guarantee are also treated as performance bond.

Advance Payment Bond;

Civil engineering contracts, particularly those awarded by local government,
sometimes provide for an advance payment to be made to be contract for purpose such as
globalizing sight, plant and equipment. In order to obtain this payment the contractor is
required to produce an advance payment guarantee (APG).

Financial Guarantee;
General description of various guarantees whose main characteristic is an undertaking
to meet any claim form the beneficiary up to a fixed sum simple demand claims under such
guarantee must be made on the non-fulfilment of the term of contract which are unknown to
the issuer.

URC 522
ARTICLE 1; Application
a: The Uniform Rules for Collections, 1995 Revision, ICC Publication No 522, shall apply to
all collections as defined in ARTICLE 2 where such rules are incorporated into the text of the
collection instruction' referred to in ARTICLE 4 and are binding on all parties thereto unless
otherwise expressly agreed or contrary to the provisions of a national, state or local law
and/or regulation which cannot be departed from.
b: Banks shall have no obligation to handle either a collection or any collection instruction or
subsequent related instructions.
c: If a bank elects, for any reason, not to handle a collection or any related instructions
received by it, it must advise the party from whom it received the collection or the
instructions by telecommunication or, if that is not possible, by other expeditious means,
without delay.
ARTICLE 2; Definition of Collection
For the purposes of these ARTICLEs :
a: Collection' means the handling by banks of documents as defined in Sub-ARTICLE 2 b in
accordance with instructions received , in order to :
1. obtain payment and/or acceptance
or
2. deliver documents against payment and/or against acceptance.
or
3. deliver documents on other terms and conditions.
b:Documents' means financial documents and/or commercial documents:
1. Financial documents means bills of exchange, promissory notes, cheques, or other similar

26
instruments used for obtaining the payment of money.
2. Commercial documents means invoices, transport documents, documents of title or other
similar documents, or any other documents whatsoever, not being financial documents.
c:Clean Collection means collection of financial documents not accompanied by
commercial documents
d: 'Documentary collection means collection of :
1. Financial documents accompanied by commercial documents.
2. Commercial documents not accompanied by financial documents.
ARTICLE 3; Parties to a Collection
a: For the purposes of these ARTICLEs the parties thereto are :
1.the principal who is the party entrusting the handling of a collection to a bank;
2.the remitting bank which is the bank to which the principal has entrusted the handling of a
collection;
3.the collecting bank which is any bank, other than the remitting bank, involved in
processing the collection;
4.the presenting bank which is the collecting bank making presentation to the drawee.
b:The drawee is the one to whom presentation is to be made in accordance with the
collection instruction.
ARTICLE 6; Sight/Acceptance
In the case of documents payable at sight the presenting bank must make presentation for
payment without delay. In the case of documents payable at a tenor other than sight the
presenting bank must, where acceptance is called for, make presentation for acceptance
without delay, and where payment is called for, make presentation for payment not later than
the appropriate maturity date.
ARTICLE 9; Good faith and Reasonable care
Banks will act in good faith and exercise reasonable care
ARTICLE 13; Disclaimer on Effectiveness of Documents
Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any documents(s), or for the general and/or particular
conditions stipulated in the document(s) or superimposed thereon; nor do they assume any
liability or responsibility for the description quantity; weight , quality, conditions, packing,
delivery, value or existence of the goods represented by any document(s), or for the good
faith or acts and/or omissions, solvency, performance or standing of the consignors, the
carriers, the forwarders, the consignees or the insurers of the goods, or any other person
whomsoever.

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ARTICLE 15; Force Majeure
Banks assume no liability or responsibility for consequences arising out of the interruption of
their business by Acts of God, riots, civil commotions, insurrections, wars, or any other
causes beyond their control or by strikes or lockouts.
ARTICLE 22; Acceptance
The presenting bank is responsible for seeing that the form of the acceptance of a bill of
exchange appears to be complete and correct, but is not responsible for the genuineness of
any signature or for the authority of any signatory to sign the acceptance.
ARTICLE 23; Promissory Notes and Other Instruments
The presenting bank is not responsible for the genuineness of any signature or for the
authority of any signatory to sign a promissory notes, receipt, or other instruments.
ARTICLE 24; Protest
The collection instruction should give specific instructions regarding protest (or other legal
process in lieu thereof), in the event of non-payment or non- acceptance. In the absence of
such specific instructions, the banks concerned with the collection have no obligation to have
the document(s) protested (or subject to other legal process in lieu thereof) for non-payment
or non- acceptance. Any charges and/or expenses incurred by banks in connection with such
protest, or other legal process, will be for the account of the party from whom the collection
instruction was received.

UCP 600
Article 1; Application of UCP
The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC
Publication no. 600 ("UCP") are rules that apply to any documentary credit ("credit")
(including, to the extent to which they may be applicable, any standby letter of credit) when
the text of the credit expressly indicates that it is subject to these rules. They are binding on
all parties thereto unless expressly modified or excluded by the credit.
Article 2; Definitions
For the purpose of these rules:
Advising bank means the bank that advises the credit at the request of the issuing bank.
Applicant means the party on whose request the credit is issued.
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.
Beneficiary means the party in whose favour a credit is issued.
Complying presentation means a presentation that is in accordance with the terms and
conditions of the credit, the applicable provisions of these rules and international standard
banking practice.
Confirmation means a definite undertaking of the confirming bank, in addition to that of the
issuing bank, to honour or negotiate a complying presentation.

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Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank's
authorization or request.
Credit means any arrangement, however named or described, that is irrevocable and thereby
constitutes a definite undertaking of the issuing bank to honour a complying presentation.
Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if the credit is available by
deferred payment.
c. to accept a bill of exchange ("draft") drawn by the beneficiary and pay at maturity if the
credit is available by acceptance.
Issuing bank means the bank that issues a credit at the request of an applicant or on its own
behalf.
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than
the nominated bank) and/or documents under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on or before the banking day on which
reimbursement is due to the nominated bank.
Nominated Bank means the bank with which the credit is available or any bank in the case of
a credit available with any bank.
Presentation means either the delivery of documents under a credit to the issuing bank or
nominated bank or the documents so delivered.
Presenter means a beneficiary, bank or other party that makes a presentation.
Article 5; Documents v. Goods, Services or Performance
Banks deal with documents and not with goods, services or performance to which the
documents may relate.
Article 6; Availability, Expiry Date and Place for Presentation
a. A credit must state the bank with which it is available or whether it is available with any
bank. A credit available with a nominated bank is also available with the issuing bank.
b. A credit must state whether it is available by sight payment, deferred payment, acceptance
or negotiation.
c. A credit must not be issued available by a draft drawn on the applicant.
d.
i. A credit must state an expiry date for presentation. An expiry date stated for honour or
negotiation will be deemed to be an expiry date for presentation.
ii. The place of the bank with which the credit is available is the place for presentation. The
place for presentation under a credit available with any bank is that of any bank. A place for
presentation other than that of the issuing bank is in addition to the place of the issuing bank.

29
e. Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary
must be made on or before the expiry date.
Article 15; Complying Presentation
a. When an issuing bank determines that a presentation is complying, it must honour.
b. When a confirming bank determines that a presentation is complying, it must honour or
negotiate and forward the documents to the issuing bank.
c. When a nominated bank determines that a presentation is complying and honours or
negotiates, it must forward the documents to the confirming bank or issuing bank.
Article 29
a. If the expiry date of a credit or the last day for presentation falls on a day when the bank to
which presentation is to be made is closed for reasons other than those referred to in article
36, the expiry date or the last day for presentation, as the case may be, will be extended to the
first following banking day.
b. If presentation is made on the first following banking day, a nominated bank must provide
the issuing bank or confirming bank with a statement on its covering schedule that the
presentation was made within the time limits extended in accordance with sub-article 29 (a).
c. The latest date for shipment will not be extended as a result of sub-article 29 (a).
Article 30; Tolerance in Credit Amount, Quantity and Unit Prices
a. The words "about" or "approximately" used in connection with the amount of the credit or
the quantity or the unit price stated in the credit are to be construed as allowing a tolerance
not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which
they refer.
b. A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed,
provided the credit does not state the quantity in terms of a stipulated number of packing
units or individual items and the total amount of the drawings does not exceed the amount of
the credit.
c. Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the
amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit,
is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30
(b) is not applicable. This tolerance does not apply when the credit stipulates a specific
tolerance or uses the expressions referred to in sub-article 30 (a).
Article 33; Hours of Presentation
A bank has no obligation to accept a presentation outside of its banking hours.
Article 34; Disclaimer on Effectiveness of Documents
A bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any document, or for the general or particular conditions
stipulated in a document or superimposed thereon; nor does it assume any liability or
responsibility for the description, quantity, weight, quality, condition, packing, delivery, value
or existence of the goods, services or other performance represented by any document, or for

30
the good faith or acts or omissions, solvency, performance or standing of the consignor, the
carrier, the forwarder, the consignee or the insurer of the goods or any other person.
A bank assumes no liability or responsibility for the consequences arising out of the
interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts
of terrorism, or by any strikes or lockouts or any other causes beyond its control.
A bank will not, upon resumption of its business, honour or negotiate under a credit that
expired during such interruption of its business.

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