Application of a documentary letter of credit in international payments. Letter of credit payment form

1. The concept of a documentary letter of credit

A documentary letter of credit as a form of international payments, along with collection, is regulated by both domestic law and international customs. Currently, the Uniform ICC Rules and Customs for Documentary Letters of Credit, as amended, apply to this form of payment. 2006, effective July 1, 2007 (ICC Publication No. 600). These rules contain international norms of a dispositive nature, which requires, in order to apply these rules, a direct reference to them in the text of the international commercial contract. According to the ICC Uniform Customs and Practice, a documentary letter of credit means a transaction carried out by the issuing bank (the executing bank), which, acting at the request and on the instructions of the client, is required to make payment at sight or in installments to a third party, or to pay or accept drafts, issued by a third party, or negotiate (purchase or discount) drafts against the stipulated documents, if all the conditions of the letter of credit are met (Article 7).
The subjects of a letter of credit transaction are named as follows: 1) the porter, who gives instructions to the bank servicing him to issue a letter of credit in favor of the exporter, is called the applicant; 2) the importer’s bank issuing the letter of credit - the issuing bank; 3) the exporter in whose favor the letter of credit is issued is the beneficiary; 4) the exporter’s bank, which directly carries out settlements with the beneficiary under the letter of credit (advises the letter of credit, i.e. notifies the beneficiary of its opening, receives and verifies documents, as well as pays the amount from the letter of credit) - the executing bank. The letter of credit operation itself looks like this:

The importer approaches the bank of his country with a request to open a letter of credit. The importer's bank notifies its correspondent - the exporter's bank that it requests to open a letter of credit in the name of the exporter indicating the term, amount, terms of the letter of credit, and the list of documents that must be presented for payment under the letter of credit. The exporter's bank notifies the exporter of this. The latter ships the goods, submits documents to the executing bank within the specified time frame and receives the amount specified in the letter of credit, which is credited to his bank account.

According to the Unified Rules and Customs of the ICC, the participants in international payments using a letter of credit are:
. letter of credit applicant (applicant, opener, accreditor) - a person who instructs the bank to issue a letter of credit (as a rule, this is the buyer of goods, the customer of work or the consumer of services under the contract);
. issuing bank - a bank that issues a letter of credit on its own behalf or at the request of the applicant of the letter of credit;
. beneficiary - a person in whose favor a letter of credit is opened and who is obliged to submit to the issuing bank or advising bank documents confirming the fulfillment of the conditions stipulated by the letter of credit (as a rule, this is the seller of the goods, the provider of services or the contractor for the performance of work);
. advising bank - a bank that, in accordance with the instructions of the issuing bank, informs the beneficiary about the letter of credit in his favor and executes the letter of credit. In the latter case, it acts as an executing bank;
. nominated bank - a bank that, in accordance with the instructions of the issuing bank, makes payment under the letter of credit;
. confirming bank - a bank to which the issuing bank transfers its powers or which, at the request of the issuing bank, confirms an irrevocable letter of credit and thereby becomes obligated under the letter of credit along with the issuing bank.
The legal nature of a letter of credit has been the subject of research in many scientific works. Summarizing the different approaches to determining the legal nature of a letter of credit, we can highlight the following points of view, according to which a letter of credit is:
1) type of commission agreement;
2) type of agency agreement;
3) type of surety agreement;
4) a type of agreement in favor of a third party;
5) type of security;
6) type of assignment agreement;
7) independent payment agreement (sui generis agreement).
International banking practice has developed the basic principles of settlements in the form of a letter of credit, which are closely related to its legal nature. They are reflected both in international documents and in the national legislation of different states. The domestic doctrine identifies two fundamental principles of legal regulation of the letter of credit form of payment:
1) the principle of autonomy of the letter of credit;
2) the principle of strict compliance.
The principle of autonomy (independence) of a letter of credit is manifested in the fact that a letter of credit transaction with the participation of banks is independent of the main agreement in connection with which settlements under the letter of credit are made. According to the position of L. A. Novoselova, the principle of autonomy of a letter of credit means that:
. the bank (executing bank) is not obliged to verify the fulfillment of the main agreement underlying the letter of credit;
. the executing bank that has paid the amount of the letter of credit to the beneficiary against the documents provided for in the letter of credit will be considered to have duly fulfilled its obligation, even if it turns out that the recipient of the funds violated the terms of the main agreement, and therefore his right to receive payment was limited or terminated;
. the executing bank is not liable to the issuing bank, and the issuing bank to the payer in the event of payment of the amount of the letter of credit to the beneficiary against the documents provided for in the letter of credit, if it turns out that the recipient of the funds violated the terms of the main agreement, and therefore his right to receive payment has been limited or stopped.
In Russian law there are no clear indications of the independent nature of a letter of credit, therefore the recognition of its independent nature is of a doctrinal nature. At the same time, judicial practice confirms the principle of autonomy of the letter of credit, although not consistently in all cases. The Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated January 15, 1999 No. 39 “Review of the practice of considering disputes related to the use of letter of credit and collection forms of payment” contains several provisions indicating the recognition by Russian judicial practice of the principle of independence of the letter of credit. They boil down to the following:
. the issuing bank is not obliged to check the compliance of the terms of applications for letters of credit with the agreement between the payer and the recipient of funds. Responsibility for the discrepancy between the instructions given to the bank and the agreement with the recipient of funds lies with the counterparty to the agreement - the payer;
. the invalidity of the agreement for which a letter of credit was opened does not entail the invalidity of the banks' obligations under the letter of credit;
. when making payments using a letter of credit, the bank is not responsible for checking the actual execution of the purchase and sale agreement (main agreement);
. the bank is liable to the recipient of funds only on the terms of the letter of credit opened by it (clauses 8-10).
The principle of strict compliance means that the bank makes payments under the letter of credit only if the documents submitted by the beneficiary (recipient of funds) strictly comply with the terms of the letter of credit. In essence, a letter of credit is a formal obligation, and in this context, Art. 5 of the UCC rightly states that banks deal with documents and not with the goods, services, or performance of obligations to which such documents may relate. In the scientific literature, this principle is called the “strict compliance doctrine”. The essence of this principle is that the bank is obliged to make a payment to the beneficiary only when the latter presents documents that appear to comply with the terms of the letter of credit.
Only the presentation of documents that confirm the fulfillment of obligations under the main agreement and are indicated in the letter of credit itself serves as the basis for the bank to fulfill its payment obligation. If the obligations under the main agreement are fulfilled, but the recipient of the funds (beneficiary) cannot provide the necessary documents, then in this case the banks apply the ancient Roman principle “quod non est in cambio, non est in mundo” (“what is not in the document, is not in the world"). Based on this, we can conclude that the principle of strict compliance complements the principle of autonomy (independence) of the letter of credit, since the fulfillment of obligations under the main agreement does not affect the letter of credit in the event of failure to provide the documents specified in it.

2. Types of letters of credit

Based on the Uniform Rules and Customs, as well as established international banking practice, letters of credit, depending on the conditions they contain, can be divided into the following main types:
1) revocable and irrevocable (revocable/irrevocable). A revocable letter of credit is a letter of credit that can be amended or revoked by the issuing bank on behalf of the applicant without prior notice to the beneficiary. Revocation or modification of a letter of credit does not create any obligations of the issuing bank to the beneficiary. The advising (executing) bank is obliged to carry out payment and other operations under a revocable letter of credit if, by the time they are completed, notification of a change or revocation of the letter of credit has not been received. An irrevocable letter of credit is a letter of credit that cannot be amended or revoked without the consent of the beneficiary. Article 3 of the Uniform Customs and Practice establishes the presumption of irrevocability of a letter of credit. It should be noted that revocable letters of credit are quite rare in practice, since they do not provide the beneficiary with guarantees of receiving funds;
2) confirmed and unconfirmed (confirmed/unconfirmed). The advising (executing) bank or another bank (confirming bank) may additionally guarantee performance under an irrevocable letter of credit (confirmed letter of credit) or not guarantee such performance (unconfirmed letter of credit). If the letter of credit does not state that it is confirmed, it is considered unconfirmed. The bank that confirmed the letter of credit assumes the obligation to pay for documents corresponding to the terms of the letter of credit if the issuing bank refuses to make payment. The obligation of the confirming bank to reimburse another nominated bank for amounts paid under the letter of credit does not depend on the obligation of the confirming bank to the beneficiary (Article 8);
3) covered and uncovered (covered/uncovered). A covered letter of credit is a letter of credit, according to which the issuing bank, upon its opening, is obliged to transfer funds to the disposal of the advising (executing) bank for the entire period of validity of the letter of credit. An uncovered letter of credit is a letter of credit, according to which the issuing bank grants the advising (executing) bank the right to write off the entire amount of the letter of credit from the account of the issuing bank;
4) transferable and non-transferable (transferable/non-transferable). A transferable letter of credit is a letter of credit, the beneficiary of which (the first beneficiary) has the right to instruct the advising (executing) bank to transfer the letter of credit in whole or in part to another person (the second beneficiary) while maintaining the terms of this letter of credit. The letter of credit can only be transferred once. A transferable letter of credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary cannot be considered as a subsequent beneficiary (Article 38). Therefore, the transfer of the letter of credit by the second beneficiary to the name of the first is permissible. A non-transferable letter of credit means a letter of credit, the execution of which is carried out only to the beneficiary specified in it;
5) renewable (revolving) and non-renewable (revolving/non-revolving). A revolving letter of credit is a letter of credit under which the applicant undertakes to replenish the amount of money under the letter of credit to the original amount within a certain period after making payments from it. A revolving letter of credit is renewable within a period determined by the parties and (or) a certain number of times. A non-renewable letter of credit is a letter of credit that is terminated by execution. A revolving letter of credit should not be confused with a letter of credit containing a so-called evergreen clause, which provides for the automatic extension of the letter of credit for another specified period, calculated from the expiration date, unless the bank notifies the beneficiary to the contrary;
6) cumulative and non-cumulative (cumulative/incumulative). A revolving letter of credit can be cumulative or non-cumulative. A cumulative letter of credit is a letter of credit under which the unused amounts of the current letter of credit can be added to the next letter of credit. Non-cumulative means a letter of credit for which the addition of unused amounts is not made;
7) divisible and indivisible (divisible/indivisible). A divisible letter of credit is one in which the beneficiary has the right to partial fulfillment of the letter of credit upon provision of documents confirming the partial fulfillment of the beneficiary’s obligations to the applicant. An indivisible letter of credit is understood as a letter of credit, execution of which is carried out only if documents are provided indicating the full fulfillment of the obligations of the beneficiary to the applicant.
Along with commercial letters of credit, the varieties of which were discussed above, standby letters of credit are distinguished. A standby letter of credit represents the bank's obligation to make payment in the event of failure to fulfill obligations by the applicant of the letter of credit and is essentially nothing more than a bank guarantee. The appearance of the term “standby letter of credit” is due to the fact that the law of some US states prohibits banks from issuing guarantees, and therefore they use a form such as a standby letter of credit, to which the rules of the Uniform Customs and Practice of the ICC apply (Article 1). At the same time, there are so-called letters of credit with a red clause (red clause letter of credit), or letters of credit opened ahead of schedule. The essence of a letter of credit with a red clause is that it is executed partially against the provision of documents other than shipping documents (for example, a warehouse receipt or warrant), and when shipping documents are provided it is executed in full.

3. Stages of a letter of credit transaction. Forms of execution of a letter of credit. Closing a letter of credit

The process of carrying out a letter of credit transaction can be divided into several stages.
1. Instruction from the applicant to the issuing bank to open a letter of credit. The issue of an order to open a letter of credit is carried out by the applicant by issuing an order (instruction) to the issuing bank to open a letter of credit. As a rule, when providing an order, the applicant places at the disposal of the issuing bank funds in the amount of the letter of credit or determines another way to cover the issuing bank’s expenses in connection with the execution of the letter of credit. In this case, the letter of credit instruction must contain comprehensive information necessary for its execution; a clear indication of the type of letter of credit, its validity period, the form of payment for it, as well as the documents subject to the provision of which payment is made. The instructions for the letter of credit, in turn, must contain information that allows the executing bank to determine by external signs that the documents presented by the beneficiary comply with the terms of the letter of credit. A necessary condition for a letter of credit is to indicate the period of its opening and validity (Articles 2, 6).
The validity period of a letter of credit depends on the nature and quantity of the goods and is usually 30-180 days. At the same time, both the procedure for opening a letter of credit and its validity period are the subject of an agreement between the exporter and the importer, fixed in the international commercial contract. This stage ends with the issuing bank accepting the letter of credit instruction for execution. At the same time, in accordance with Art. 7 of the Uniform Customs and Practice for an irrevocable letter of credit, the presentation of a proper instruction entails a firm obligation of the issuing bank to honor the letter of credit, in particular, to make payment against the documents presented. It should be borne in mind that all costs associated with the opening and execution of a letter of credit are borne by the applicant.
2. Instruction from the issuing bank to the advising bank to execute the letter of credit. The advising bank is determined by the issuing bank in accordance with the instructions of the applicant or independently. If the advising bank is determined in accordance with the instructions of the applicant, all costs and risks associated with the involvement of the advising bank are borne by the applicant. In the event that the advising bank has been chosen by the issuing bank, the latter does not bear any responsibility for the execution of the instructions of the advising bank. If the advising bank is unable for any reason to comply with the instructions contained in the letter of credit instruction, that bank must promptly notify the issuing bank. If the advising bank cannot establish the authenticity of the letter of credit, then it must immediately inform the bank from which the order was received (Article 9). The issuing bank, in addition to transferring the received instruction under the letter of credit to the advising bank with a covered letter of credit, is obliged to transfer the applicant's funds to the disposal of the advising bank. This stage ends with the advising bank accepting the order of the issuing bank.
3. Confirmation of the letter of credit. The issuing bank, transferring authority under a letter of credit, may ask another bank to confirm its irrevocable nature. Thus, if agreed, the confirming bank, in addition to the obligations of the issuing bank, assumes the obligation to execute the letter of credit. Both the advising bank and any other bank can act as a confirming bank. By their legal nature, the obligations of the confirming bank are subsidiary in nature in relation to the obligations of the issuing bank and are similar to a guarantee agreement.
4. Execution by the advising bank of the letter of credit. Upon receipt of an instruction for a letter of credit, the advising bank notifies the beneficiary of the letter of credit, including its confirmation of the letter of credit (if it has accepted such an obligation). If the letter of credit does not comply with the terms of the main agreement (contract), the beneficiary (exporter) has the right to refuse to accept the letter of credit, which will actually mean the failure of the applicant (importer) to fulfill its obligations under the contract. To execute the letter of credit, the beneficiary is obliged to submit the documents specified in the instructions to the executing bank. The executing bank has the right to reject documents that do not exactly comply with the terms of the letter of credit. According to Art. 14 of the Uniform Customs and Practice, banks must examine all documents with reasonable care to ensure that they appear to comply with the terms of the letter of credit. The instructions for a letter of credit usually indicate who should issue the documents and what data they should contain.
A letter of credit, by its legal nature, is a transaction separate from the international commercial contract on which it is based, and banks must not deal in any way with such contracts, even if the letter of credit makes any reference to such a contract (Article 4). Because of this, in transactions with letters of credit, all interested parties deal only with documents, but not with goods, services or other types of fulfillment of obligations to which the documents may relate (Article 5). It is no coincidence that the Uniform Rules and Customs pay serious attention to the characteristics of those documents that are used in a letter of credit transaction, which is expressed in a large number of rules that describe in detail all types of documents used (Articles 18-28).
Such documents include: commercial invoice, which is issued by the exporter to obtain the cost of the delivered goods from the importer and contains a detailed description of the goods indicating its price, quantity, quality and other properties, labeling, shipping details, etc. ( Art. 18); shipping (title) documents indicating the shipment of goods to the importer, including bills of lading, waybills, courier and postal receipts (Articles 20-25); an insurance policy, which is confirmation that the goods are insured (Article 28); other documents (Article 17).
Banks must examine all documents specified in a letter of credit with reasonable care to ensure that they appear to comply with the terms of the letter of credit. The conformity of the specified documents, in terms of external features, with the terms of the letter of credit is determined by the international standard of banking practice. Documents that appear to contradict each other by appearance will be considered as not complying with the terms of the letter of credit. Documents not specified in the letter of credit will not be verified by the bank. If the bank receives such documents, it will return them to the presenting person. The issuing bank, confirming bank or nominated bank acting on behalf of the above-mentioned banks shall have a period of not more than five banking days from the date of receipt of the documents to examine these documents and decide whether to accept or refuse them and accordingly inform the party from which the documents are received, about your decision. If the letter of credit contains a condition according to which documents that do not meet the terms of the letter of credit can be presented, then the bank will consider such a condition unforeseen and will ignore it (Article 14).
The letter of credit is terminated upon execution. There are the following forms of execution of a letter of credit (Article 6):
. in the case of a letter of credit with payment against presented documents - payment by the executing bank (advising bank, issuing bank or authorized third bank) upon presentation by the beneficiary to the executing bank of the documents stipulated in the letter of credit. The letter of credit in this case terminates after the amount specified in the letter of credit is transferred to the recipient’s account and the documents are transferred to the issuing bank, and subsequently to the applicant;
. in the case of a letter of credit with installment payment - payment in installments by the executing bank (advising bank, issuing bank or authorized third bank) within the terms specified in the letter of credit. The letter of credit in this case terminates after the transfer of the last amount specified in the letter of credit to the recipient’s account and the transfer of documents to the issuing bank, and subsequently to the applicant;
. in a letter of credit with negotiation of a bill of exchange (draft) against the presented documents - negotiation (accounting or purchase) by the executing bank (advising bank, another bank, but not the issuing bank) of drafts issued by the beneficiary to the applicant of the letter of credit, the issuing bank or another bank specified by the issuing bank, due at sight or at another payment deadline. The letter of credit in this case ceases to be valid from the moment the draft is taken into account and the payment is made to the beneficiary or the beneficiary's bank and the documents are transferred to the issuing bank, and subsequently to the applicant;
. in case of a letter of credit with acceptance of a bill of exchange (draft) against the presented documents - acceptance of urgent drafts issued by the beneficiary to the executing bank (issuing bank or another bank authorized by the issuing bank). The letter of credit in this case terminates from the moment the beneficiary's draft is accepted and the documents are transferred to the issuing bank, and subsequently to the applicant.
The letter of credit is closed by the executing bank upon expiration of the letter of credit. A letter of credit may also be closed upon the request of the beneficiary to refuse to use the letter of credit before its expiration, if the possibility of such refusal is provided for by the terms of the letter of credit. If a revocable letter of credit is issued, the applicant may also require early full or partial revocation of the letter of credit. The executing bank must notify the issuing bank of the closure of the letter of credit. The unused amount of a covered letter of credit must be returned to the issuing bank immediately, simultaneously with the closure of the letter of credit.

4. Responsibility of banks when executing instructions under a letter of credit

In case of improper performance by the issuing bank or the advising bank of obligations under the letter of credit, the issuing bank and the advising bank shall compensate the applicant or the issuing bank for the losses incurred, respectively. Banks do not bear any responsibility:
. for the consequences of delay and (or) loss of any messages or documents, as well as for delays, distortions or other errors occurring during the transmission of telecommunication messages;
. for errors in translation or interpretation of technical terms and reserve the right to transfer the terms of the letter of credit without their translation;
. for the form, validity, accuracy, authenticity or legal effect of any document;
. for the description, quantity, quality, weight, condition, packaging, value or actual availability of the goods represented by any document, as well as for the good faith, acts, omissions, solvency, commercial reputation of the shipper, carrier, forwarder, consignee, insurer of the goods or any other persons ;
. for the consequences of delay, loss in transit, damage, errors in the transmission of any messages or sending of letters and documents, if such messages, letters and documents are transmitted or sent in accordance with the requirements of the letter of credit or if the banks took the initiative in choosing a delivery service in the absence of instructions to do so invoice in letter of credit;
. for the consequences caused by the suspension of their activities due to natural disasters, riots, civil disturbances, insurrections, wars, acts of terrorism, strikes, lockouts or any other circumstances beyond their control. Banks, after resuming their activities, do not pay, accept or negotiate letters of credit that expired during the existence of force majeure (Articles 34-36 of the Uniform Customs and Practice).
Thus, analyzing international banking practice and its regulation by international norms and national legislation, we can distinguish two main types of legal liability for settlements in letter of credit form:
1) the responsibility of the applicant to the beneficiary. This type of liability is established by the main agreement between the applicant and the beneficiary and, from the position of the letter of credit, implies liability for violating the deadlines for issuing the letter of credit, issuing the letter of credit for a smaller amount than specified in the main agreement, failure to issue the letter of credit, etc.;
2) responsibility of banks to the applicant and beneficiary. This liability arises in cases of non-payment or late payment under a letter of credit due to the fault of banks. If the issuing bank or the advising bank fails to properly fulfill its obligations under the letter of credit, the issuing bank and the advising bank shall compensate the applicant or beneficiary, respectively, for the losses incurred.
In conclusion, it should be noted that the letter of credit form of international payments takes into account the interests of both the exporter and the importer to the greatest extent and minimizes the time gap between the time of shipment of the goods and the time of receipt of payment. It can be argued that it is precisely because of this specificity that the documentary letter of credit as a form of settlement relationship is most widely used in international commercial and banking practice.

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Ministry of Education and Science of the Russian Federation

Federal State Budgetary Educational Institution of Higher Professional Education

"Tula State University"

Department of World Economy

Course work

State regulation of foreign trade activities

Letter of credit as a form of international payments

Completed Art. gr. 730493 Vanina K.S.

Checked by Assoc. department “ME” Filatova Yu.M.

Introduction

Chapter 1. Theoretical foundations of a letter of credit as a form of international payments

2.1 Forms of letter of credit

Conclusion

letter of credit international imported

Introduction

With the development of integration of countries in the world community, with the establishment and strengthening of world economic ties, methods and forms of international payments have become increasingly relevant, since countries, entering into market relations with each other, exporting and importing goods and services, need developed forms of mutual settlements to avoid misunderstandings and conflicts at the global level.

Changes and improvements in international payments are associated with the development and internationalization of commodity production and circulation. They reflect a relatively isolated form of movement of value in international circulation, the forces of discrepancy between the periods of production and sale of goods, and the remoteness of sales markets. International settlements cover settlements for foreign trade in goods and services, as well as for non-profit organizations, loans and capital flows between countries, including those related to the construction of a facility abroad and assistance to developing countries.

It is in the sphere of foreign economic activity that enterprises come into contact with market methods of management, with such instruments of the global foreign exchange market as foreign currencies, exchange rates, transfers, discount rates, factoring, exchange rate risks, etc.

The market economy has created ample opportunities for enterprises to carry out foreign economic activities, which in turn required an expansion in the number of commercial banks engaged in foreign exchange services to clients.

The topic of the course work is very relevant, since the development of relations between countries leads to an increasing role of international payments, such as letters of credit, as well as the improvement of their forms and types.

The use of the letter of credit form of payment in international practice is regulated by the Uniform Customs and Practice for Documentary Credits, which were developed by the International Chamber of Commerce. On January 1, 1994, ICC No. 500 (UCP No. 500) - 1993 edition - came into force.

The first unified rules (UCP) were adopted at the Vienna Congress of the International Chamber of Commerce (ICC) in 1933. Then they were revised several times (in 1951, 1962, 1974, 1993). The UCP is the result of a private codification carried out by the ICC, so their revision and accession to them is carried out without special formalities. It is not countries (states) who join the UCP, but banks or banking associations, which in written notifications to the ICC confirm that they will use UCP in letter of credit practice, which are revised approximately every ten years. This is not a tradition, but rather a necessity dictated by the rapid development of scientific and technological progress: new technologies and means of communication, the emergence of innovations in international transportation, etc., which entails significant changes in international trade and cannot but influence the banking industry. practice of international payments.

In foreign trade, documentary letters of credit are mainly used.

The object of the study is legal relations related to the use of a letter of credit in goods exchange transactions and foreign economic activity.

The subject of the study is regulations governing the specifics of processing letter of credit transactions.

The purpose of this course work is to study the letter of credit as a form of international payments.

Based on the goal, the following tasks are defined in the work:

1. Define the concept and principles of operation of letter of credit payments;

2.Study the forms and types of letters of credit;

3.Study the legal aspects of using letters of credit.

Chapter 1. The concept of international payments; letter of credit as a form of international payments

1.1 International payments: concept and essence

A significant part of transactions in foreign currency carried out by authorized banks is related to servicing international trade turnover, i.e., with payments for goods and services.

International settlements are the regulation of payments for monetary claims and obligations arising in connection with economic, political, and cultural relations between legal entities and individuals of different countries.

The procedure for making payments for imported and exported goods is regulated by the legislation of the country, and is also subject to international rules for the documentation and payment of payment documents.

International payments include, on the one hand, the conditions and procedure for making payments, developed by practice and enshrined in international documents and customs, and on the other hand, the daily practical activities of banks in making them. The vast majority of settlements are carried out non-cash through entries in bank accounts. At the same time, the largest banks play a leading role in international payments. The degree of their influence in international payments depends on the scale of foreign economic relations of the home country, the use of its national currency, specialization, financial position of business reputation, and the network of correspondent banks. To carry out settlements, banks use their foreign branches and correspondent relations with foreign banks, which are accompanied by the opening of “loro” (foreign banks in a given bank) and “nostro” (of a given bank in foreign) accounts. Correspondent relationships determine the procedure for settlements, the size of the commission, and methods for replenishing spent funds. For the timely and efficient implementation of international payments, banks usually maintain the necessary foreign exchange positions in various currencies in accordance with the structure and timing of upcoming payments and pursue a policy of diversifying their foreign exchange reserves. In order to obtain higher profits, banks strive to maintain minimum balances in nostro accounts, preferring to place their assets on the global loan capital market, including the European market.

The activities of banks in the field of international payments, on the one hand, are regulated by their national legislation, on the other hand, they are determined by established practice, which exists in the form of established rules and customs or is enshrined in separate documents.

Intergovernmental agreements establish general principles of settlements, and detailed conditions are clearly formulated in foreign trade contracts.

General provisions of a foreign trade contract.

Foreign trade contracts usually contain the following main clauses, including monetary and financial terms, which are agreed upon between the exporter and the importer:

Currency and method of determining the price;

Payment currency;

Clauses protecting the parties from the risk of currency losses (as a result of changes in exchange rates);

Measures against unjustified delays in payment, non-payments, bank guarantees, acceptances, etc.;

Payment form (letter of credit, collection, bank transfer, open account);

Means of payment (bill, check, etc.).

The specific terms of the contract depend on the existence and content of intergovernmental payment agreements. They record:

Type of currencies, prices and payments - freely convertible, clearing, closed;

Payment terms, including the possibility of using a commercial loan;

Preferred form of payment.

When determining the terms of the contract, customs characteristic of international banking and commercial practice, the business reputation of the partners, and the state of the balance of payments of the partner countries are also taken into account.

1.2 The concept of a letter of credit and its essence

Documentary Letter of Credit (and Stand-by Letter of Credit) (hereinafter referred to as “letter of credit”) means any agreement, however named or designated, by virtue of which the bank (issuing bank), acting at the request and on the basis of the instructions of the client (the applicant of the letter of credit) or on his behalf:

Must make payment to a third party or his order (the beneficiary) or pay or accept bills of exchange (drafts) drawn by the beneficiary, or

Gives authority to another bank to make such payment, pay and accept bills of exchange (drafts);

Gives the authority to negotiate (purchase or discount) to another bank against specified documents if all conditions of the letter of credit are met. For purposes of the UCP, branches of such a bank in other countries will be considered a different bank.

Payments in the form of documentary letters of credit are more typical for transactions involving payment against the presentation of documents by the exporter (cash payment) or the provision of a short-term (up to 1 year) commercial loan to the buyer. The use of a letter of credit to pay the full cost of goods when making payments against a medium-term (and even more so long-term) commercial loan is extremely rare - only in the trade of certain groups of goods. When providing a loan to the buyer for a sufficiently long period, a letter of credit can be used in combination with other forms of payment and covers that part of the cost of goods that is paid against the presentation of commercial documents to the bank, i.e. in cash. When making payments on a commercial loan, letters of credit may also be opened for the acceptance of time drafts (bills of exchange) of the beneficiary (exporter), issued to the bank executing the letter of credit, or to the importer. In this case, the executing bank accepts (or accepts and pays the draft). Through acceptance, the bank fulfills its obligations under the letter of credit. Subsequently, the parties enter into legal relations regulated by the norms of bill of exchange law (which is also convenient for the exporter, since bill of exchange legislation is unified in many countries).

Dwelling on the nature of the relationship between purchase and sale agreements and letters of credit, it should be noted that a letter of credit is a transaction separate from the purchase and sale agreement (contract) or other agreement on which it may be based, and the banks are in no way associated and are not obliged to deal with such contracts, even if the letter of credit contains a reference to such a contract. Likewise, the customer, as a result of its relationship between the issuing bank and the beneficiary, cannot make a claim under the bank's obligations to make payment, pay or accept a bill of exchange (draft) or negotiate and/or fulfill any other obligations under the letter of credit. In no case may the beneficiary of a letter of credit take advantage of the contractual relationship existing between banks or between the applicant of the letter of credit and the issuing bank. In transactions with letters of credit, interested parties deal only with documents, and not with goods, services and/or other types of fulfillment of obligations to which the documents may relate.

Letters of credit are issued by banks on the basis of an order or application from the importer (the applicant for the letter of credit), which actually repeats all the terms of the section of the contract regarding the payment procedure. The contracts stipulate, in particular, the following:

Name of the bank in which the letter of credit will be opened (preference is given to banks that are correspondents of the authorized bank);

Type of letter of credit;

Name of the advising and executing banks;

Terms of payment (on presentation, payment in installments, by acceptance or negotiation, etc.);

List of documents against which payment must be made;

Validity period of the letter of credit;

Procedure for charging bank commissions;

Shipping times, etc.

After concluding a contract (purchase and sale agreement - see the diagram of a documentary letter of credit) and determining the main payment instructions, which directly indicate the method of payment through a documentary letter of credit between counterparties, the exporter prepares the goods for shipment, which he notifies (for example, by telex or fax - depending on the agreement between the parties) of the importer. Having received such a notice, the buyer sends an order (application) to his bank to open a letter of credit, in which he indicates all its necessary conditions.

The importer who gives instructions to open a letter of credit is called the applicant.

The bank opening the letter of credit (issuing bank) acts on the basis of the instructions of the applicant.

The exporter is a beneficiary because it benefits him.

If there is a special agreement between the parties to the contract, the importer may instruct the opening of a letter of credit after a certain time from the date of conclusion of the contract. The issuing bank, by issuing a letter of credit, guarantees payment to the beneficiary on the condition that he adheres to certain terms and conditions.

After opening a letter of credit, in which the issuing bank usually specifies how funds will be credited, it is sent to the exporter in whose favor it is opened; the issuing bank issues the letter of credit to the beneficiary. As a rule, through the bank serving the latter, whose task is to advise (notify) the letter of credit to the exporter. Such a bank is called an advising bank.

A letter of credit received from the issuer may be advised through an advising bank without obligation on its part, but that bank, if it decides to act as an advising bank under the letter of credit, must, with reasonable care, check the appearance of the letter of credit it is advising with reasonable care. He does not undertake any obligation to guarantee payment to the exporter. The terms of the guarantee come from the advising bank in the form of its letter of credit.

The issuing bank may ask the advising bank (in the exporting country) to confirm this letter of credit, i.e. add your own conditional payment guarantee to the guarantee already provided by the issuing bank. If the advising bank confirms this letter of credit, then it is called the confirming bank (advising/confirming bank). Thus, a confirmed letter of credit contains conditional guarantees from two banks, one of which is usually located in the exporter's country (the confirming bank) and the other in the buyer's country (the issuing bank).

Next, the letter of credit is subject to transfer to the beneficiary. The advising bank also receives a copy of the letter of credit or telex, since it usually receives documents under the letter of credit from the beneficiary, checks them and sends them to the issuing bank, and in some cases appoints the issuer as the executing bank of the letter of credit, i.e. is authorized to pay, negotiate (purchase) or accept drafts of the exporter.

Banks charge higher fees for letter of credit payments because they are complex and costly.

Advantages of using a letter of credit for the importer (buyer):

Reducing the risks associated with prepayment;

The ability to accurately determine the delivery date of the product, as well as its price;

Possibility of obtaining goods on credit;

The ability to confirm your solvency, which is especially beneficial when establishing new trade relations;

The ability to achieve more favorable terms of delivery and payment for goods;

The buyer will not have to pay the seller until the latter has fulfilled all contractual obligations;

Possibility of obtaining a trade loan when using a letter of credit with deferred payment.

Advantages of using a letter of credit for the exporter (seller):

Reducing risks associated with the buyer’s solvency;

Reducing risks associated with the supply of goods;

Possibility of reducing risks associated with the political situation in the buyer’s country;

Flexible cash flow planning;

Reliability of payment regardless of the buyer, provided that the seller delivers the goods and submits shipping documents in accordance with the terms of the letter of credit;

A documentary credit provides a guarantee that the rules in force in the importer's country at the time the letter of credit is opened will not interfere with the receipt of payment.

So, the use of a letter of credit in calculations is most beneficial for the exporter, who receives an unconditional guarantee of payment before the start of shipment of the goods. At the same time, receipt of payment under a letter of credit (subject to the exporter fulfilling the terms of the letter of credit and submitting the documents specified in it to the bank) is not associated with the buyer’s consent to payment.

However, for exporters, a letter of credit is the most complex form of payment: receiving payment from a letter of credit is associated with strict compliance with its terms, correct execution and timely submission to the bank of the documents specified in the letter of credit. By monitoring compliance with the terms of the letter of credit and the submitted documents, banks protect the interests of the buyer, acting on the basis of his instructions.

The disadvantage of the letter of credit form of payment is the complex workflow and delays in the movement of documents associated with the control of documents in banks and their transfer between banks.

From a practical point of view, all letters of credit are divided into two large groups:

Cash letters of credit

Commercial letters of credit.

A letter of credit is a personal document issued by a bank to a person who has deposited a certain amount to receive it in another bank, city or country within a certain period. A commercial letter of credit is an order from the bank serving the buyer to the supplier's bank to pay the supplier's invoices for shipped inventory items on the terms provided by the buyer and specified in the letter of credit.

Chapter 2. Forms and types of letters of credit

2.1 Forms of letters of credit

Forms of letters of credit differ in the agreement on the amount of collateral and the moment of risk assumption.

Revocable letter of credit. (Revocable L/C).

A revocable letter of credit can be amended or canceled at any time by the issuing bank at the direction of the applicant of the letter of credit, even without prior notice to the beneficiary. A revocable letter of credit does not create any legal payment obligation for the bank. Only when the issuing bank or its correspondent bank has made payment according to the documents, the revocation of the letter of credit remains without legal force. Therefore, a revocable letter of credit usually does not provide sufficient security to the beneficiary. It is never confirmed by the correspondent bank and can be used in business relationships between partners who are known to each other to be mutually trustworthy. Today, revocable letters of credit are used extremely rarely. Therefore, you should pay attention to the fact that the opening order clearly indicates the form of the letter of credit, since if there is no corresponding designation, such a letter of credit is always considered irrevocable.

The Uniform Rules do provide for two cases where the issuing bank of a revocable letter of credit “shall reimburse the bank authorized by it to make payment upon sight, acceptance or negotiation under the revocable letter of credit for any payment, acceptance or negotiation made by that bank upon receipt of the notice amendment or cancellation, against documents that appear to comply with the terms of the letter of credit" and will also provide reimbursement to another bank "authorized by it to make payment in installments under a revocable letter of credit" if that bank made payment against documents that comply with the terms of the letter of credit (or accepted such documents under the letter of credit) before receiving notification from the issuer of the change/cancellation of the letter of credit.

Irrevocable letter of credit. (Irrevocable L/C).

An irrevocable letter of credit gives the beneficiary a high degree of confidence that his supplies or services will be paid for as soon as he has complied with the terms of the letter of credit, which, when all the required documents are presented and all its conditions are met, constitutes a firm commitment of payment by the issuing bank. The benefits of using an irrevocable letter of credit for the beneficiary are undeniable, since the exporter receives a commitment from the bank, and not just a promise from the counterparty under the contract. The seller is well aware that he will receive payment on his demand only if he fulfills the terms of the letter of credit, in particular, submits the documents listed in it within the validity period of the latter. The bank, for its part, is ultimately bound - this means that even if its client fails to fulfill its obligations on time and is unable for one reason or another to make payment on time, the bank is not released from these obligations to the foreign seller.

To change or cancel the terms of a letter of credit under an irrevocable letter of credit, the consent of both the beneficiary and the responsible banks is required. If the seller wishes to change or cancel certain terms of the letter of credit, he must require the buyer to issue a corresponding order to the issuing bank. Partial acceptance of changes contained in the same change notice is not permitted and will therefore not be valid.

The beneficiary is informed about the opening of an irrevocable letter of credit through the correspondent bank. The latter issuing bank executing the letter of credit can only instruct the beneficiary to advise the letter of credit or confirm it. From the point of view of additional obligations, irrevocable letters of credit are divided into confirmed (Confirmed) and unconfirmed (Unconfirmed).

Irrevocable unconfirmed letter of credit.

With an irrevocable unconfirmed letter of credit, the correspondent bank only advises the beneficiary to open the letter of credit. In this case, he does not accept any obligation to pay and is therefore not obliged to make it according to the documents provided by the beneficiary.

Since the beneficiary can rely solely on the issuing bank abroad, an irrevocable unconfirmed letter of credit is appropriate only when political and funds transfer risk are negligible. If the correspondent bank can rely on a good relationship with the bank that issued the letter of credit, as well as a stable political and economic situation, then it will usually make payment according to documents in order to quickly process transactions in the interests of the client.

Irrevocable confirmed letter of credit.

If the correspondent bank confirms the letter of credit to the beneficiary, then it thereby undertakes to make payment according to the documents corresponding to the letter of credit and submitted on time. Consequently, in this case, the beneficiary, along with the obligation of the bank that opened the letter of credit, has a legally equivalent and independent obligation of the correspondent bank to make payment. Therefore, the degree of security for it increases significantly - in most cases, such a letter of credit is confirmed by a bank in the exporter’s country.

In settlements for foreign trade transactions of Russian organizations, this is not very acceptable, since in most cases, confirmation by Russian banks of letters of credit opened by foreign banks in favor of Russian organizations and private firms does not provide the beneficiaries with additional guarantees of payment. Russian banks make payments under letters of credit from exporting clients, as a rule, only after receiving appropriate compensation from foreign issuing banks. In some cases, exporters can still, by agreement with their banks, use their loans, but to a limited extent. Therefore, sometimes it seems quite right for Russian exporters to seek confirmation of export letters of credit by third banks, large foreign correspondents of a Russian bank, although this is not always profitable, since it leads to the freezing of the funds of the issuing bank (importing bank) and thereby causes additional costs.

The correspondent bank can always find many reasons for rejecting an order to confirm a letter of credit. Therefore, Russian exporters can be recommended, before concluding a transaction and final signing a contract, to consult with the bank on the question of whether the latter will confirm a letter of credit of a particular country emanating from a particular bank, and on what conditions.

According to international practice, an irrevocable letter of credit confirmed by the “home bank” provides the greatest guarantees for the exporter. The remaining currency risk after this can be insured by foreign exchange futures contracts, if the deadline (period) for receipt of payment can be foreseen. Although even if the payment date is not determined from the very beginning, the banks involved in the foreign exchange transaction can in most cases offer a favorable solution.

Thus, the bank that confirmed the letter of credit becomes obligated to the beneficiary to promptly make payments stipulated by the letter of credit. The confirming bank assumes the same obligations as the issuing bank. That is, if the letter of credit is confirmed by another bank, the exporter has confidence that he can be covered for those risks that are not covered by the issuing bank.

2.2 Covered and uncovered letters of credit

Quite often, confirming banks, insuring themselves against various risks, require upon confirmation the immediate transfer of funds to cover upcoming payments under the letter of credit. Such letters of credit are called covered letters of credit.

Covered letters of credit are considered to be those, upon opening of which the issuing bank first places at the disposal of the executing bank foreign currency funds (coverage) in the amount of the letter of credit for the duration of the obligations of the issuing bank, subject to the possibility of using them for payments under the letter of credit. Coverage can be provided in several ways:

By crediting the correspondent account of the executing bank with the issuing bank or another bank with the amount of the letter of credit;

By granting the executing bank the right to debit the entire amount of the letter of credit from the account of the issuing bank maintained by it at the time of receipt of the letter of credit for execution;

Through the opening by the issuing bank of insurance deposits or coverage deposits with the nominated bank.

Often in practice, Russian banks try to get away from covered letters of credit and (instead of coverage) issue a confirmed reimbursement obligation, although, unlike coverage, it is necessary to pay a commission for it.

The use of coverage results in the actual freezing of the importer's funds for the period from the opening of the letter of credit until the payment of funds under it. When opening a covered irrevocable letter of credit, the importer's bank debits its client's current account for the amount of the letter of credit and reserves it in a special account from the moment the letter of credit is opened until its expiration date. After this period, the unused part or all of the unused amount of the letter of credit is restored to the client's account. The importer incurs almost double costs for the letter of credit, since he is forced to pay commission costs to banks when paying for the goods, not to mention freezing funds for the duration of the entire operation. In such a situation, the importer tries to avoid confirming letters of credit, and under normal conditions of foreign trade relations, exporters require confirmation only if they do not trust the issuing bank.

Consequently, letters of credit are also divided according to the method of ensuring payment into covered and uncovered. Therefore, each letter of credit must clearly indicate how it is executed.

2.2 Types of letters of credit and methods of their execution

Letter of credit with payment at sight (against documents). Immediate receipt of the amount specified in the documents upon presentation of documents. Cash payment agreed.

A letter of credit providing for the acceptance of beneficiary's drafts. Receipt of the amount specified in the documents upon the due date of payment. The payment term for the bill has been agreed upon. It is possible to receive the amount minus the discount interest (discount) on the bill after the documents are issued.

Letter of credit with installment payment. Receipt of the amount specified in the documents upon the due date of payment. The payment term (without a bill) has been agreed upon. It is possible to receive the amount minus the accounting percentage after submitting documents.

A letter of credit providing for the negotiation of beneficiary's drafts. Receiving the amount from any bank, i.e. not only in the advising or specifically designated negotiating bank (for letters of credit in which the issuing bank has identified the negotiating bank; non-free negotiation.

Letter of credit with final payment. Transfer of funds for products supplied and services provided minus a pre-agreed percentage, paid separately, over time, upon receipt by the issuing bank from the importer of documents confirming payment or acceptance for payment.

Letter of credit using proforma invoice. Involves settlement against previously agreed and drawn up documents (seller's guarantee of shipment), confirming that the goods will be shipped.

Letter of credit with a “red clause”. Involves receiving an advance.

Revolving letter of credit. Use within established shares, which are renewed.

Stand-by letter of credit (standby letter of credit). Use as an instrument similar to a warranty.

Transferable letter of credit (transferable). Providing your own suppliers for the purpose of completing a transaction with limited use of their own funds. It is possible for several second beneficiaries to use the letter of credit at once.

Transit letter of credit. Receipt by the issuing bank from the intermediary bank of an advice note or confirmation of a letter of credit.

Transfer letter of credit. Contains reimbursement instructions or a mandate through a third bank to advise the beneficiary directly or through a named bank for transfer without obligation (the advice specifically states that the role of the third bank is limited to this).

2.3 Participants in letter of credit transactions

Participants in letter of credit transactions - importer, letter of credit bank, advising authority, payment authority, payee.

The importer is the holder of the letter of credit. He opens a letter of credit in his bank in favor of the exporter.

Letter of credit bank - the importer's bank in which a letter of credit is opened in favor of the exporter. The letter of credit bank, on behalf of its client, gives an obligation to pay.

The advising authority is the bank that informs the exporter about the opening of a letter of credit. This could be, for example, the exporter's bank or any third bank.

The payment authority is a credit institution that accepts documents from the exporter and pays the appropriate amount to the payee. This is usually the exporter's bank.

The recipient of the payment is the exporter. The bank that opens the letter of credit undertakes to make payment to it under the letter of credit.

The following legal relationships exist between the participants in the letter of credit transaction:

1. The letter of credit issuer and the recipient of the letter of credit enter into a purchase and sale contract, taking into account the basic conditions of the transaction.

2. The letter of credit issuer and the letter of credit bank sign an agreement of authorization to open a letter of credit.

3. The letter of credit bank and the advising/confirming bank enter into an agency agreement to carry out letter of credit transactions.

4. The letter of credit bank and the recipient under the letter of credit under an irrevocable letter of credit give a conditional abstract payment obligation, meaning that when the recipient of the payment fulfills the letter of credit obligations, the bank that opened the letter of credit is obliged in any case to make payment in its favor.

5. Advising bank and the bank selected by the issuing bank to advise the documentary letter of credit to the beneficiary (exporter). The advising bank does not undertake any payment obligations under a documentary letter of credit. The only obligation of the advising bank, if it agrees with the order of the issuing bank, is to check the authenticity of the letter of credit by external signs and advise it to the beneficiary.

Chapter 3. Legal aspects and specifics of letters of credit

3.1 Legal aspects of using letters of credit

Article 867 of the Civil Code of the Russian Federation interprets the term “letter of credit” in two ways: on the one hand, it is a payment obligation of the bank (guarantee), and on the other, it is a settlement transaction carried out by the bank at the direction and at the expense of the client. It is easy to see that in essence these are two sides of the same process and the settlement operation (second value) is performed within the framework of the guarantee (first value). However, such duality allows the use of one term in contracts. As already mentioned, the specifics of using letters of credit lead to the fact that they are used mainly for foreign trade transactions. Therefore, the legal content of the letter of credit is described in the “Unified Rules and Customs of Documentary Letters of Credit” approved by the International Chamber of Commerce on January 1, 1993 (No. 500). At the same time, it should be understood that agreements on the use of letters of credit are concluded on the territory of specific states, the legislation of which does not always coincide with international legislation and has primacy over it. (For letters of credit, the law on income tax and the law on VAT are of greatest importance, but discrepancies in the form and composition of documents are also possible).

Therefore, despite the existence of “unified requirements”, it is customary to describe in detail the conditions for its conclusion in contracts for opening a letter of credit.

It is possible to add “...in accordance with the “unified requirements” (to the extent that they do not contradict current legislation) (hereinafter the state in whose territory the agreement was concluded is indicated).

But although “requirements” almost always cannot be used directly, the standard they provide makes the work of lawyers easier and makes it possible to avoid ambiguities when entering into a contract.

Please note that the possibility of making payments for the transaction using a letter of credit must be mentioned in the “settlement procedure” section of the purchase and sale agreement.

From the point of view of tax accounting, the main issue when using a letter of credit is the timing of the tax consequences (primarily VAT and income tax) of the transaction.

According to the law of the Russian Federation “on value added tax”, tax consequences occur either after funds are credited to the balance account or after goods are shipped (according to the first event rule). Similar conditions are mentioned in the income tax law.

It follows from this that in the area of application of the legislation of the Russian Federation, tax obligations for the supplier (beneficiary) arise upon shipment of the goods (he receives the money after), and for the buyer (applicant for the letter of credit) - after payment of the letter of credit.

In this case, “payment” does not mean booking funds for an operation (it cannot be considered an action, since the letter of credit can still be canceled or revoked), but directly debiting them from the account.

Of course, other jurisdictions may have different rules.

The application form (form) for issuing a letter of credit (form 0401063-Appendix 1) is regulated by Appendix 3 to the Instructions on the procedure for performing banking documentary operations.

Mandatory details are:

application number;

date of its submission;

full name and legal address of the applicant;

name of the issuing bank;

letter of credit form;

expiry date;

place of presentation of documents;

full name and address of the beneficiary;

a note about permission/prohibition of partial shipments;

mark on permission/prohibition of overloads;

who executes the letter of credit (executing bank);

a note about who pays for the insurance;

list of documents against which the letter of credit is paid;

place of shipment (Article 46 of the “uniform rules”);

deadline for shipment (Article 46 of the “uniform rules”);

a brief and accurate description of the product;

delivery conditions;

deadlines for submitting documents;

signature of the manager, chief accountant and seal of the enterprise.

According to the same Appendix, the following documents are required to obtain a letter of credit:

commercial invoice (original and several copies);

transport document (sea bill of lading, air waybill or other);

insurance document (policy, certificate or declaration under an open policy);

packing list.

In addition, the Appendix contains a number of recommendations.

As you can see, transactions using letters of credit require extremely accurate execution of a large number of documents. An error in any of them can lead (and almost always leads) to the bank’s refusal to pay the letter of credit.

Moreover, it is the exporter’s task to prepare these documents and subsequently submit them to the bank. Naturally, additional risk reduces the attractiveness of the scheme and increases its cost.

3.2 Specifics of letters of credit in foreign economic activity

All of the above can apply to both letters of credit used domestically and letters of credit for foreign trade. However, letters of credit are rarely used for domestic transactions. The particularly high level of security guaranteed by such transactions is of little demand on the domestic market, and the high price requires large transactions, which again are quite rare.

There are several payment options in international trade - bank transfer, documentary collection, documentary letter of credit, open account settlement, settlement using bills or checks. The parties make their choice based on the capabilities of banks, the solvency and reputation of the counterparty, the availability of credit agreements, terms, type of goods and much more. However, it is the documentary letter of credit that is most beneficial to the exporter - it allows you to be guaranteed to receive payment almost instantly after shipment. A letter of credit is less beneficial for the importer, since he becomes the applicant and bears all the costs associated with its execution. However, the high risk of default is a more serious problem, and a letter of credit addresses it.

Also, when using letters of credit in foreign economic activity, the scheme may change somewhat. New aspects may appear in it:

Negotiating bank. A bank to which the issuing bank grants the authority to purchase and/or discount bills of exchange.

Confirming bank. As already mentioned, it adds its obligation to that of the issuing or nominated bank.

Reimbursing bank - a bank named in a documentary letter of credit from which the executing, accepting or negotiating bank may request reimbursement after it has fulfilled its payment obligations under the letter of credit. The reimbursement bank is not obliged to pay or justify the refusal to pay, unless it has issued its own reimbursement undertaking.

In foreign trade transactions, special forms of letter of credit can also be used - import, export, standby, and so on. However, they do not have any fundamental differences.

Finally, the following difficulties may arise in foreign trade transactions:

* The shipment schedule specified in the contract cannot be fulfilled;

* Conditions regarding the cost of transportation are unacceptable;

* The price for the product is insufficient due to changes in the exchange rate;

* The quantity of goods ordered does not correspond to what was previously expected;

* The description of the shipped goods is insufficient or excessively detailed;

* The documents listed in the Letter of Credit are difficult or impossible to obtain.

Above all else, it is worth noting that in Europe and America, a special type of standby letter of credit is most often used - the so-called “stand by”. Such a letter of credit is not an indirect guarantee of payment and is implemented only in the event of complete failure of one of the parties to fulfill its obligations. The reason for this practice is the current ban in most American states on banks issuing guarantees that are common in Russia.

Conclusion

Letters of credit are used as a form of payment in a trade transaction, along with advance payment, collection and open account (or payment upon delivery). In addition, in international trade, in contrast to domestic Russian practice, a letter of credit is used as a means of financing a transaction, similar to a bank guarantee.

The main disadvantages of the letter of credit form of payment for counterparties are, firstly, certain delays in the passage of documents through banks and, secondly, the high cost of the letter of credit. For carrying out operations (opening, advising, confirmation, acceptance and verification of documents under a letter of credit, etc.), banks charge a commission depending on the amount of the letter of credit. The commission is collected by banks based on current banking tariffs. When opening a letter of credit, the applicant must clearly and specifically indicate at whose expense the costs of the letter of credit (postal and telegraphic costs, opening commission, advice, confirmation of the letter of credit, payment commission, etc.) should be paid: at the expense of the applicant of the letter of credit or the beneficiary. This is necessary so that the bank employee, when calculating the commission, has the opportunity to attribute it to the account of the party that must pay it according to the terms of the contract and letter of credit. In international practice, there has been a custom to divide banking expenses between counterparties, each of whom pays banking commissions in their own country. For Russian organizations carrying out settlements under letters of credit, it is advisable, if possible, to ensure that all banking expenses are charged to foreign clients.

Having studied the topic “Letter of Credit as a form of international payments”, the following conclusions can be drawn:

¦ A letter of credit reliably insures many risks that an enterprise faces when carrying out foreign economic activity.

¦ A letter of credit is a fairly flexible settlement instrument that can be used for settlements on a wide variety of transactions.

¦ A letter of credit is an instrument whose rules for use are determined by a reputable international organization and are recognized almost throughout the world. This is beneficial for both clients and banks, since each participant in the transaction has a clear understanding of their rights, obligations and standard requirements for all participants in the transaction.

¦ A letter of credit can be used as a short-term financing instrument.

The letter of credit form of payment is widely used in international trade.

In international banking practice, this unique instrument, which combines settlement and guarantee functions, has been actively used for centuries and is still relevant. Of course, it costs more than a regular advance payment, but the cost/risk ratio is quite justified.

List of sources used

Regulations:

1. Constitution of the Russian Federation of December 12, 1993 // Russian newspaper No. 237, December 25, 1993

3. Federal Law of the Russian Federation dated December 8, 2003 N 164-FZ (as amended on July 11, 2011) “On the fundamentals of state regulation of foreign trade activities” // Russian newspaper No. 3368, December 18, 2003

4. Federal Law of the Russian Federation dated December 10, 2003 No. 173-FZ “On Currency Regulation and Currency Control” // Russian newspaper No. 3367, December 17, 2003 (as amended on December 6, 2011)

5. Resolution of the Board of the National Bank of the Republic of Belarus dated March 29, 2001 N 67 “On approval of the Instructions on the procedure for performing banking documentary operations”

6. “Civil Code of the Russian Federation (Part Two)” dated January 26, 1996 N 14-FZ (as amended on November 30, 2011) (with amendments and additions coming into force on January 1, 2012)

Literature:

6. Antonov V.A. World monetary system and international payments. - M.: TEIS, 2007. - 193 p.

7. Degtyareva O. I. Organization and technology of foreign trade operations. M: 2006

8. International monetary relations and financial relations. - Textbook / Ed. L.N. Krasavina. - 2nd ed., revised. and additional - M.: Finance and Statistics, 2007.-608p.

9. International economic relations. - Textbook / Ed. V.E. Rybalkin - 2nd ed. M.: Business school 2007 - 368s.

10. Foreign economic activity of the enterprise. Fundamentals: Textbook. for universities / G. D. Gordeev, L. Ya. Ivanova, S. K. Kazantsev and others; Ed. L. E. Storovsky. M: 2008.

11. Fundamentals of foreign economic knowledge: Textbook for economic education / edited by I. P. Faminsky - M.: International relations, 2007. - 376 p.

12. Melkumov Y.S. Bill of exchange and its use in economic circulation.

13. International monetary, credit and financial relations: Textbook/

Ed. Krasavina L.N. - M.: Finance and Statistics, 2008.

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International letters of credit: types

In international practice, the following types of letters of credit can be used: :

Irrevocable. Implies the obligation of the issuing financial institution not to change or nullify the agreement without agreement between the parties.

Revocable. Such an agreement is adjusted or canceled by the credit institution at any time. In this case, prior notification of the parties is not required. This type of international letter of credit is practically not used.

Spare. A special feature is the presence of a bank guarantee, designed in case of failure by the parties to the contract to fulfill their obligations. If the backup document type is subject to UCP600, all rules regarding document type instruments apply to it.

Translated. The use of this type of instrument allows other beneficiaries to use the letter of credit (if there is a corresponding request from the main client).

There are also other types of agreements (revolving, compensatory), but they are not regulated by the current rules.

What operations are carried out with letters of credit?

In modern practice, a letter of credit is used when performing the following operations :

Opening a foreign letter of credit participating in international payments.
Advising. This means informing about the opening, adjustment or cancellation of an agreement issued by a credit institution of another country in relation to the exporter.
Execution. Studying the received documents provided by the supplier, as well as making payments taking into account the agreements under the international letter of credit.

When are international letters of credit useful?

When working with companies from other countries, entrepreneurs face a high level of risk, requiring additional insurance from banking institutions. The emerging danger has a number of features:

Problems in resolving disputes that may arise between participants. The reason is that starting and conducting an arbitration process is expensive. In addition, a court decision in one country may not be valid in another.
Lack of ability to assess risks due to the territorial removal of the partner, as well as problems associated with obtaining the necessary data about the other party to the agreement. Here there are difficulties associated with analyzing the situation in the state.
High risk of changes in external market conditions, as well as competition.
Increased level of losses due to failure of the counterparty to fulfill obligations due to the use of fines from government agencies.

International letter of credit- a tool that is designed to minimize the considered risks.

According to the regulation “On non-cash payments in the Russian Federation” letter of credit - this is a conditional monetary obligation accepted by a bank (issuing bank) on behalf of its client (payer under the contract) to make payments in favor of the supplier (recipient of funds) upon presentation by the latter of documents that comply with the terms of the letter of credit, or to authorize another bank (executing bank) to make such payments.

For settlements under a letter of credit it is typical that withdrawal of money from the payer's account precedes the dispatch of goods to his address. This distinguishes the letter of credit form from other forms of payment, in particular from collection payments. Payments are made by the payer's bank (recipient of the goods) in accordance with his instructions and at the expense of his funds or the loan received by him against the documents named in the letter of credit and subject to other conditions of the order, which the bank brings to the attention of the party authorized to receive payment. In this case, the money listed on the letter of credit continues to belong to the recipient of the goods and is withdrawn from the letter of credit only after the seller sends the specified goods and submits the relevant documents to the bank.

The use of a letter of credit is most favorable to the seller of goods (payee). Settlements under a letter of credit are made at its location, which brings the payment closer in time to the time of shipment of goods, helping to accelerate the turnover of the seller’s funds. In turn, the untimely opening of a letter of credit by the payer allows him to delay delivery or even refuse to fulfill the concluded contract, citing the insolvency of the counterparty. Opening a letter of credit will give him confidence that the goods delivered will be paid for.

Parties involved in carrying out transactions under a letter of credit:

orderer- importer, buyer, payer;
beneficiary- exporter, seller, supplier;
issuing bank- a bank that opens a letter of credit in accordance with the orderer’s application and is obligated to execute this letter of credit in accordance with its terms;
advising bank- a bank authorized by the issuing bank to transfer a letter of credit and/or amendments to it to the beneficiary, without obligations on its part;
Executing bank- a bank authorized by the issuing bank to accept, verify documents and execute a letter of credit in accordance with its terms;
confirming bank- a bank that assumes an obligation, in addition to the obligation of the issuing bank, to execute the letter of credit in accordance with its terms;
bank drawer- the bank indicated in the bill of exchange as the payer.

Payments using letters of credit are carried out according to a certain scheme (Fig. 1).

The exporter and importer enter into a contract between themselves (/), in which they indicate that payments for the delivered goods will be made in the form of a documentary letter of credit. The contract must specify the payment procedure, i.e. the terms of the future letter of credit are clearly and fully formulated. The contract also specifies the bank in which the letter of credit will be opened, the type of letter of credit, the name of the advising and executing bank, the terms of payment, the list of documents against which payment will be made, the validity period of the letter of credit, the procedure for paying bank commissions, etc. Terms of payment contained in contract must be contained in the importer’s order to the bank to open a letter of credit.

Rice. 1.

After concluding the contract, the exporter prepares the goods for shipment and notifies the importer (2). Having received the exporter's notice, the buyer sends an application to his bank to open a letter of credit, which specifies the terms of payment contained in the contract (2). After opening a letter of credit, the issuing bank sends the letter of credit to a foreign bank, usually the bank serving the exporter (4) - to the advising bank. The advising bank, having verified the authenticity of the received letter of credit, notifies the exporter about the opening and conditions of the letter of credit (5).

The exporter checks the compliance of the terms of the letter of credit with the payment terms of the concluded contract. In case of discrepancy, the exporter notifies the advising bank of non-acceptance of the terms of the letter of credit and the requirement to change them. If the exporter accepts the terms of the letter of credit opened in his favor, he ships the goods within the time period established by the contract (6). Having received transport documents (7) from the transport organization, the exporter submits them, along with other documents provided for by the terms of the letter of credit, to his bank (8).

The bank checks whether the submitted documents comply with the terms of the letter of credit, the completeness of the documents, the correctness of their preparation and execution, and the consistency of the details contained in them. After checking the documents, the exporter’s bank sends them to the issuing bank (9) for payment or acceptance. The covering letter specifies the procedure for crediting the proceeds to the exporter.

Having received the documents, the issuing bank carefully checks them and then transfers the payment amount to the bank serving the exporter (10). The importer's account is debited for the payment amount (11). The exporter's bank credits the proceeds to the exporter's account (12).

The importer, having received commercial documents from the issuing bank ( 13), takes possession of the goods.

Main types of letter of credit:

1. Irrevocable - the letter of credit cannot be canceled without the consent of the issuing bank, the confirming bank and the beneficiary (exporter).
2. Revocable - the letter of credit may be cancelled.

All letters of credit must clearly state whether

whether they are revocable or irrevocable. In the absence of such an indication, the letter of credit is considered irrevocable. In practice, irrevocable letters of credit are most often used.

3. Confirmed - with an additional guarantee of payment from a third bank, which is not the issuing bank.

A confirmed letter of credit is used in cases where there is a political, economic risk of the importing country and the risk of insolvency of the importing bank.

4. Unconfirmed- without additional guarantee of payment.
5. Transferable (transferable)- letter of credit with the possibility of its use in whole or in part by other persons (second beneficiaries). A transferable letter of credit allows a reseller to transfer its right to receive funds from a customer's letter of credit to a supplier and thereby allows it to complete transactions with limited use of its own funds.
6. Depending on the availability of currency coverage, there may be covered letters of credit, in which the issuing bank transfers currency in the amount of the letter of credit to the executing bank for the duration of its obligations with the condition that this money can be used for payments under the letter of credit.
7. Uncovered letters of credit, in which the issuing bank transfers currency in the amount of the letter of credit to the executing bank after receiving the full set of documents required by the letter of credit.
8. Revolving (renewable)- opens for part of the contract value and is constantly renewed against a set of documents. A revolving letter of credit is used in cases of partial delivery of goods within a certain period of time with subsequent payment for each shipment.
9. Non-renewable- a letter of credit that terminates upon its execution.

The procedure for settlements under a letter of credit in the legislation of the Russian Federation is currently determined

Civil Code of the Russian Federation (Chapter 46 § 3 “Settlements under a letter of credit”). In the field of foreign trade, settlements under letters of credit are also carried out in accordance with the instruction of the USSR Vneshtorgbank No. 1 of December 25, 1985 “On the procedure for performing banking operations for international settlements.”

In international trade, the Uniform Customs and Practice for Documentary Credits (1993 edition), International Chamber of Commerce Publication No. 500, has been developed and widely used, the result of many years of efforts to systematize international trading and banking practices. These Rules represent a private (unofficial) codification and, to a certain extent, unification of business practices that have developed in practice.

Despite the fact that a letter of credit is a fairly reliable form of international payments, it has some flaws. The use of a letter of credit in settlements is most beneficial for the exporter, who receives an unconditional guarantee of payment before the start of shipment of the goods. At the same time, receipt of payment under a letter of credit (subject to the exporter fulfilling the terms of the letter of credit and submitting the documents specified in it to the bank) is not associated with the buyer’s consent to payment.

Settlements by payment orders, claims and collections are relatively unreliable, since their implementation often depends on the financial condition of the payers. Therefore, such payment methods with partners whose financial condition is unknown or there is no confidence in their reliability usually require the provision of additional bank guarantees.

A letter of credit form of payment can practically eliminate the risk of insolvency or dishonesty of a partner, since payment is guaranteed by a separate written document issued by the bank (letter of credit), which represents a letter duly executed and signed by the bank’s management. In this letter, the bank assumes the obligation to pay the amount specified in it, or to accept bills of exchange (drafts) with their subsequent payment or early redemption (negotiation), against provision by the seller, supplier, contractor, lessee, etc. commercial documents confirming the fulfillment of either their obligations or the events that have occurred. At the same time, the bank guarantees payments regardless of the financial condition of the payer.

The letter of credit is issued (opened) by the bank upon request and at the expense of the payer. Its cost depends on the amount for which it is opened, the method of payment, the validity period, the financial condition of the payer, whether the payer has the necessary funds or whether the payer is provided with a loan (letter of credit coverage). Thus, a letter of credit is a transaction separate from other contracts, the parties to which deal not with goods and services, but only with documents.

This section will focus mainly on documentary letters of credit, payments from which are made against the provision by recipients of funds of sets of commercial documents confirming the fulfillment of their obligations under contracts.

Payments using letters of credit in international trade

The procedure for international payments by letters of credit is regulated by the “International Rules and Customs for Documentary Letters of Credit”. International Chamber of Commerce (ICC) Publication No. 500, 1993 edition.

To understand the principles of payment by letters of credit, a simplified Scheme No. 3 is given.

This section will discuss settlement using documentary letters of credit against goods deliveries. Settlement with acceptance of bills and drafts will be discussed in the subsection devoted to settlements for commercial loans with installment payments.

Within the period established in the contract, the buyer applies to his bank with a request to open a letter of credit in favor of the seller, who is the recipient of the money. The bank that issues the letter of credit, called issuing bank , agrees with the buyer on the terms of the future letter of credit, including the cost of services of banks involved in settlements. The contents of the letter of credit must strictly comply with the terms contained in the sales contract or other agreement signed by the parties.

The contract may provide for the opening revocable, which is extremely rare, or irrevocable letter of credit If there is no such indication in the letter of credit, in international practice it is considered irrevocable.

All types of letters of credit must clearly indicate whether they are executed by cash payment (wire transfer), or installment payment with or without interest, with acceptance and negotiation of drafts.

If the letter of credit does not stipulate that it will be executed by the issuing bank, then it must indicate the designated executing bank.

The issuing bank sends a letter of credit to the seller or recipient of funds (beneficiary), usually through an advising bank, and, if this bank has assumed such functions, it checks with reasonable care the authenticity of the letter of credit, advises it (confirms its participation in the settlement transaction), making an appropriate note on it and sending it to the seller or recipient of the money (beneficiary). If a bank for any reason cannot advise a letter of credit, it must immediately inform the issuing bank about this.

It should be borne in mind that the beneficiaries may be not only the seller himself, but also other companies indicated by him.

Scheme No. 1

The seller, in turn, carefully checks the contents of the letter of credit for compliance with the terms of the signed contract and, having ensured such compliance, delivers the goods and sends documents confirming the fulfillment of contractual obligations to the advising bank.*

The advising bank checks the external compliance of the documents received from the seller with the terms of the letter of credit and transfers them to the issuing bank.

The issuing bank, for its part, checks the received documents and, making sure that they comply with the terms of the letter of credit, makes a payment, notifies the advising bank about the payment made, which, in turn, informs the seller (beneficiary) that the amount for the delivery has been credited to his account goods.

The seller and buyer may choose a slightly different payment option when the issuing bank appoints another correspondent bank as the executing bank. This condition of the contract must be reflected in the application sent by the buyer to the issuing bank to open a letter of credit.

In this case, the issuing bank and the nominated bank must agree on the method of covering the letter of credit by debiting the correspondent account of the issuing bank with the nominated bank or crediting the correspondent account of the nominated bank with the issuing bank.

With this option, the executing bank checks the compliance of the documents received from the seller with the terms of the letter of credit, credits the funds to the seller’s (beneficiary’s) account and debits the corresponding amount from the buyer’s bank account.

All banks involved in settlements using letters of credit use the most modern means of fast communication.

Irrevocable letters of credit

In commercial practice, in the vast majority of cases, they are used " irrevocable letters of credit " , which cannot be canceled by the buyer before the end of the validity period specified in them. They combine the obligation of the issuing bank to make payment and guarantee it regardless of the financial condition of the buyer.

Confirmed letters of credit

Sellers exporting to countries with unstable economic systems, where even large bank failures are common, or with unstable political systems, in which circumstances related to ethnic conflicts and difficult to predict government policies may arise, fear the insolvency of the issuing banks of irrevocable letters of credit. Therefore, they include in the terms of contracts a requirement that buyers open " irrevocable and confirmed letters of credit " . Such letters of credit are confirmed by other banks, which undertake obligations to make payments in the event of insolvency of the issuing banks or in the event of unforeseen circumstances of a political and economic nature.

To confirm irrevocable letters of credit, both reliable banks of exporting countries and third countries with stable regimes can be involved. Naturally, such letters of credit are more expensive than simple irrevocable letters of credit, but often the end justifies the means.

Transferable letters of credit

If the seller is interested in paying his creditors as quickly as possible, for example, with suppliers of raw materials, components, electricity, etc., he can stipulate in the contract the buyer’s obligation to open transferable (transferable) a letter of credit providing for payments of all or part of the amount of the letter of credit to different beneficiaries. Then the buyer in his application for opening a letter of credit must stipulate that the letter of credit to be opened must be transferable, indicate the details of the beneficiaries and the amounts they receive.

Standby letters of credit

They are used to guarantee payments in the event of the occurrence or non-occurrence of an event specified in it, that is, they are very similar to bank guarantees, but are more universal in that they can provide not only for the transfer of funds, but also for the acceptance of payment obligations.

Revolving letters of credit

A letter of credit is a relatively expensive method of payment. The cost of banking services depends on the type of letter of credit, the amount for which the letter of credit is opened and the validity period of the letter of credit. In cases where the contract provides for several deliveries of goods of approximately equal value, the parties usually agree to open a revolving letter of credit for the entire supply period, in an amount approximately equal to the cost of one delivery, provided that after payment for each delivery, the original amount is restored on the letter of credit.

The procedure for payments by revolving letters of credit is not provided for by the “Uniform Rules ...” (ICC No. 500 rev. 1993). Therefore, the parties, in addition to the “Uniform Rules...”, must agree with banks on special conditions for a revolving letter of credit.

Revolving letters of credit are usually irrevocable, but they can also be confirmed and transferable. The obligations of the bank issuing a revolving letter of credit may include: payment in cash (that is, by wire transfer, but immediately against commercial documents), acceptance of bills or drafts of the seller, payment of drafts within the time limits established in them or their negotiation, that is, early redemption at a discount .

The terms of a revolving letter of credit always indicate the amount to be restored after each payment and the maximum total amount of all payments. In order to avoid difficulties in paying for individual consignments of goods, the cost of which may differ due to different configurations, differences in the quantity of goods, etc., in the terms of revolving letters of credit it is usually indicated that the amount of the refundable amount may fluctuate within certain limits , for example ±10%.

General assumptions for letters of credit

ICC No. 500 “Uniform Practices and Practice for Documentary Letters of Credit” provides for the following general assumptions:

In the terms of the letter of credit, the words “about”, “approximately” and others of a similar meaning may be used in relation to the amount of the letter of credit, the quantity or price of the goods. Such reservations allow a difference of ± 10% in the listed parameters.
If the letter of credit does not contain the above expressions and does not expressly stipulate that the quantity of goods specified therein cannot be exceeded or reduced, then a deviation of ± 5% is allowed, but always on the condition that the total amount of claims under the letter of credit will not exceed its limit amount . The exact quantity of the product and its unit price cannot be reduced.
Unless otherwise stated in the letter of credit, partial shipment is permitted.
If a letter of credit provides for shipment in installments within a specified time frame, then it cannot be used to pay for other installments within a different time frame.
All letters of credit must provide a date and place of expiration for the presentation of documents for payment, acceptance, or negotiation.
If the letter of credit does not indicate the deadline for the provision of transport documents, banks will refuse to accept documents later than 21 days from the date of actual shipment of goods, taking into account bank working days. (See ICC No. 500 for more details).

Settlements using letters of credit in domestic trade

Settlements by letters of credit in domestic trade are regulated by the Regulations of the Central Bank of the Russian Federation dated September 8, 2000 No. 120-P.

Below are extracts from the above Regulations, giving a general concept of the principles of the letter of credit form of payment with comments.

Letter of credit is a bank’s obligation, accepted on behalf of the payer, to make or provide another bank with the authority to make payments in favor of the Recipient upon presentation of documents corresponding to the list given therein.

Payments under letters of credit are made only in non-cash form.

With a covered letter of credit (deposited), the Issuing Bank (see Scheme No. 3), at the expense of the payer or on account of the loan granted to him, transfers the amount to the account of the Executing Bank for the period of validity of the letter of credit.

In case of an uncovered letter of credit (guaranteed), the Issuing Bank grants the Executing Bank the right to write off payment amounts from its account in the manner agreed between the banks.

The terms of the letter of credit may provide for its acceptance by the payer or his authorized person.

Letters of credit can be revocable, which can be canceled without the consent of the recipients of funds, and irrevocable, which cannot be canceled without the consent of the recipients of funds.

If the text of a letter of credit does not indicate its irrevocability, it is considered (contrary to international rules) revocable.

The terms of the main agreements (contracts) must contain the following information regarding the use of letters of credit:

the name of the issuing Bank, the receiving Bank and the recipient of the funds;
letter of credit amount;
type of letter of credit (revocable, irrevocable, deposited, credit);
method of notifying the recipient about its opening;
method of informing the payer about the account number for depositing the account with the executing bank;
a complete list of documents provided by the recipient of funds;
validity period of the letter of credit and deadlines for providing documents confirming the supply of goods, performance of work, provision of services;
terms of payment (with acceptance, without acceptance by the payer);
liability for improper fulfillment of obligations.

The main agreement may include other terms regarding settlements.

The main agreement may provide for the right of the issuing Bank to request the executing bank to confirm an irrevocable letter of credit.

All types of letters of credit allow partial payments, that is, payments for individual consignments of goods, parts of work performed and services provided.

Payments under letters of credit (as opposed to international conditions and customs) are intended for settlements with a single recipient.

Banks (as opposed to international conditions and customs) are responsible for violations committed during the letter of credit form of payment. Thus, the executing bank is obliged to check the compliance of the payment documents presented by the recipient and, in particular, the compliance of signatures and seal impressions with the samples contained in the bank’s file cabinet.

The procedure for working with letters of credit at the Issuing Bank and the Executing Bank is not set out, since it relates to interbank transactions.

A comparison of the “Unified Conditions and Customs for Documentary Letters of Credit” developed by the Paris Chamber of Commerce No. 500c with the Regulation “On Non-Cash Payments in the Russian Federation” shows that the rules adopted by the Central Bank of the Russian Federation, on the one hand, limit the freedom of payments, on the other, increase the responsibility of banks. Obviously, in modern Russian conditions this is advisable, bearing in mind the still significant level of criminalization of our economy.

Formulation of the letter of credit payment form

The purchase and sale contract may, for example, contain one of the following most general wording of the letter of credit payment form:

" Payment for the supply of goods under this contract will be made from an irrevocable (confirmed ) revolving letter of credit , opened by the issuing bank (official name of the bank ) in favor of the buyer (official name of the buyer ) against providing them to the executing bank (official name of the nominated bank ) following documents :

main shipping document;
a clean transport document;
invoices;
transport insurance certificate;
certificate of origin of goods**).

The said letter of credit must provide for the possibility of payment for three consignments of goods , each time in the amount of about 340 thousand dollars (three hundred forty thousand US dollars ) (± 10% ) for total cost , not exceeding 1,000,000 US dollars . dollars (one million US dollars ).

The buyer is obliged to open a letter of credit 10 days before the contractual delivery date of the first shipment of goods . (Possible options : ___ days after signing the Contract ; within 10 days from the date of notification of the seller about the start of production of goods, etc. . d .).

The letter of credit must be opened for a period of 10 months . The costs for opening a letter of credit are borne by the Buyer , for renewal – Seller ".

Other terms of letters of credit*

The buyer, in his application to the issuing bank to open a letter of credit, must absolutely accurately rewrite the wording contained in the contract in the instructions. You should strive to keep payment terms reasonably short and specific, however, sellers and buyers, seeking to protect their commercial interests, usually include additional terms in the texts of contracts. Among them, for example, may be the following:

currency clause against currency depreciation;
if the contract does not refer to Incoterms 2000, it is indicated what is included in the price;
the type of product and units of measurement of its quantity are indicated;
if the letter of credit is not revolving, it is specified whether it allows partial shipment of goods.

Since the cost of a letter of credit depends on its type and is directly proportional to its validity period, special attention is paid to the timeliness of opening a letter of credit and the maximum period of its validity, which is usually 20 - 30 days covers the delivery time for the entire or last batch of goods. This is done because, in case of delay in delivery of goods, the term of the letter of credit may expire and the delivery becomes dangerous, since the recipient's payment is not guaranteed.

In such cases, the seller is forced to ask the buyer to extend the validity of the letter of credit and confirm his consent to compensation for additional costs associated with such an extension.

In addition, if any of the parties to the agreement and the Issuing Bank put forward additional or special conditions for the opening and execution of the letter of credit, they are agreed upon by the parties and included in the wording of payments.

Specific situation

At the resumed negotiations, payment terms were agreed upon, which stipulated that the customer would open an irrevocable revolving letter of credit for the cost of 3 units within 10 days from the date of notification of JSC Sever about readiness for delivery of the first three units with a validity period of 1 month.

The supplier AOZT "Sever" manufactured the installations in a timely manner, notified the customer that the first batch was ready for delivery and required the opening of a letter of credit with immediate payment. However, the customer announced a deterioration in his financial situation and, therefore, the impossibility of opening a letter of credit. Due to the fact that the special characteristics of the special equipment did not allow it to be sold to other buyers, OJSC Sever suffered significant losses, but continued to negotiate with the customer, while simultaneously preparing a claim in arbitration.

Test for a specific situation

What mistake did the OJSC company make?"North"under the terms of the letter of credit?

Possible answers:

JSC company"North"should have:

1. Insist on advance payment within 3 days after notifying the JSC"North"about readiness for delivery of each batch of installations.

2. Agree to receive an advance of 10% upon signing the contract and provide the Customer with a deferred payment of the remaining 90% for a year guaranteed by a local bank.

3. Agree to receive an advance upon signing the contract and insist on opening an irrevocable,confirmed revolving letter of credit before the start of equipment manufacturing.