EXPORT LETTER OF CREDIT PROCESS AND DOCUMENTATION LARR & ASSOCIATES LLC LARR & ASSOCIATES LLC EXPORT LETTER OF CREDIT PROCESS AND DOCUMENTATION Deborah Montgomery, President Larr & Associates LLC WWW.LARRLCDOCS.COM Good afternoon and welcome everyone. Today we are going to unpack ways to reduce trade financing through the EXPORT LETTER OF CREDIT PROCESS. I am Deborah Montgomery president of L&A . Just to give you a bit of background about us, I opened the business 22 years ago after I saw a great need for export companies to better understand and streamline the LC process. So I sat down with bankers from several major banks to discuss what exactly they were looking for in LC documentation and ever since then we have been helping to get the word out to better improve the letter of credit process for many companies. Our customers are referred to us through bankers and freight forwarders but the majority or our customers base we have met through are involvement with several international groups. During the presentation please feel free to stop and ask any questions.

Payment Term Considerations – Credit and Other Risks LARR & ASSOCIATES LLC Payment Term Considerations – Credit and Other Risks Country (Political Risks) Customer (Commercial Risks) Foreign Bank Risks Currency Risks Shipping The world of exporting is very exciting and never a dull moment! Next step is to recognize how to make these ventures a success. Most important is understanding the issues that surround you receiving payment. These are the Payment Term Considerations – Credit and Other Risks that may impact your decision to ship internationally. Country (political risks), Customer (Commercial Risks), Foreign Bank Risks, Currency Risks, Shipping

Most Commonly Used Methods LARR & ASSOCIATES LLC International Payment Methods Most Commonly Used Methods Next we move onto Intl Payment Methods – these are the most commonly used methods We start from the bottom the lowest risk for you the exporter begins with: CIA – cash in advance. Payment is made prior to goods shipping Confirmed LC – bank has added a layer of protection as long as LC terms are met and docs are presented clean and on time Unconfirmed LC – payment is made based on terms of the LC and docs submitted Sight Collection – also known as Cash Against Docs, Docs against payment, Draft Collections. U.S. and foreign banks are still involved in transation but have limited Abilities to help you collect. Term Collection – same idea as Sight Collection only there are terms of payment such as 30, 60, 90 days from shipment date Finally Open Account – the least protection where you ship goods and invoice your customer and hope they pay

What is a Letter of Credit? LARR & ASSOCIATES LLC What is a Letter of Credit? An L/C is a contractual agreement whereby a bank in the buyer’s country, known as the issuing bank, acting on behalf of its customer (the buyer or importer), authorizes a bank in the seller’s country, known as the advising bank, to make payment to the beneficiary (the seller or exporter) against the receipt of stipulated documents.

LARR & ASSOCIATES LLC A Letter of Credit is....... The L/C is a separate contract from the sales contract on which it is based and, therefore, the bank is not concerned whether each party fulfills the terms of the sales contract. The bank’s obligation to pay is solely conditional upon the seller’s compliance with the terms and conditions of the L/C. In L/C transactions, banks deal in documents only, not goods.

COMMERCIAL LETTERS OF CREDIT LARR & ASSOCIATES LLC COMMERCIAL LETTERS OF CREDIT A Commercial Letter of Credit is a sales transaction taking place It is an exchange of goods or services for a payment Usually a shipment of goods takes place and documents are required to prove the shipment

COMMERCIAL LETTERS OF CREDIT LARR & ASSOCIATES LLC COMMERCIAL LETTERS OF CREDIT “Letters of Credit” (L/C, LOC) are issued for all kinds of different reasons When the seller feels insecure with the buyer and his abilities to make payment The buyer may want the L/C so he can finance against it The country may control movement of funds with letters of credit May be the standard way of doing business in that country

Commercial Letters of Credit Advantages for the Seller LARR & ASSOCIATES LLC Commercial Letters of Credit Advantages for the Seller Provides an independent credit backing with a clear cut promise to pay upon certain conditions Substitutes the banks credit standing for the applicant’s Payment is assured if the terms of the L/C are met Protection from order cancellation

Commercial Letters of Credit Advantages for the Buyer LARR & ASSOCIATES LLC Commercial Letters of Credit Advantages for the Buyer Assures that shipment was made according to the terms in the L/C and on time Assures that the documents requested in the L/C are provided, otherwise the seller is not in compliance with the L/C Payment is not made until goods are shipped and compliant documents are presented or the buyer approves the discrepancies

COMMON DOCUMENTS TO A COMMERCIAL LETTER OF CREDIT LARR & ASSOCIATES LLC COMMON DOCUMENTS TO A COMMERCIAL LETTER OF CREDIT Draft Commercial Invoice Transport Document Packing List Insurance Certificate Certificate of Origin Beneficiary’s Certificate Copy of Advice detailing shipping information Other documents as needed for the specific industry or the individual transaction

KEYS TO SIMPLIFYING THE LETTER OF CREDIT PROCESS LARR & ASSOCIATES LLC KEYS TO SIMPLIFYING THE LETTER OF CREDIT PROCESS DEVELOPING CORPORATE WIDE LETTER OF CREDIT REQUIREMENTS COMPANY’S TERMS AND CONDITIONS FOR OPENING A LETTER OF CREDIT BENEFICIARY LETTER OF CREDIT REQUIREMENTS FORWARDED TO CUSTOMER WITH P.O. CUSTOMER SUBMITS LC REQUIREMENTS TO ISSUING BANK TO OPEN THE LETTER OF CREDIT

OPERATIONAL PROCEDURES For Letters of Credit (1) Larr & Associates LLC (L&A) receives following documents from Beneficiary via courier service / Email: A. original letter of credit B. copy of commercial invoice C. product related material required in L/C. D. Larr cover letter identifying forwarder contact & phone no. (2) Beneficiary sends forwarder the following documentation with shipment: A. Forwarder cover letter B. photo copy of L/C plus any amendments C. copy of commercial invoice, packing list

(3) OCEAN SHIPMENTS: L&A will contact forwarder to email master bill of lading per L/C. Forwarder will email L&A copy to proof before sending originals by courier service to L&A. (4) AIR SHIPMENTS: Forwarder will email copy of airway bill to L&A in order for L&A to create the airway bill on computer system per L/C. (5) L&A re-creates all Beneficiary documents on computer system to keep documents consistent.

(6) L&A will date all documents with the actual ship date/on board date (7) L&A will process documents needing consulate work (8) All bank inquiries regarding discrepancies and clarification on documentation will be directed to L&A. (9) One full set of documents will be emailed to each division for their files and follow up. (10) Any discrepancies created by L&A will be corrected immediately.

LARR & ASSOCIATES LLC COUNTRIES Larr & Associates HAS PROCESSED LETTERS OF CREDIT THROUGH Argentina Jordan Thailand Australia Kazakstan Turkey Bangladesh Kuwait United Arab Emirates Bahrain Luxembourg United States Bolivia Malaysia Venezuela Bulgaria Mexico Vietnam China Nigeria Croatia Oman Ecuador Pakistan Egypt Paraguay Germany Philippines Ghana Qatar Greece Russia Hong Kong Saudi Arabia India Singapore Indonesia South Afica Israel South Korea Italy Taiwan

HOW TO OVERCOME THE RISKS LARR & ASSOCIATES LLC HOW TO OVERCOME THE RISKS Request to advise L/C through your bank who has an L/C department Work with a freight forwarder who has experience with L/C shipments Use a GOOD document preparation service (LARR)

HOW TO OVERCOME THE RISKS Cont…. LARR & ASSOCIATES LLC HOW TO OVERCOME THE RISKS Cont…. Refuse any document that is issued by or signed by applicant Avoid steamship company certificates that need to be issued by carrier of vessel Watch out for boycott language this includes any document requesting a negative shipping statement (Ex: We certify the goods will not pass through Israeli waters).

Take Advantage of What Letters of Credit Can Offer LARR & ASSOCIATES LLC Take Advantage of What Letters of Credit Can Offer Security of payment by or through a bank If the buyer can obtain a Letter of Credit, they must have some “credit” with the bank Discounted or Usance credits can offer “win/win” payment terms for both the buyer and the seller - provide financing for the buyer Confirmed L/Cs mean document examination and payment from a U.S. bank (or bank in your country)

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Deborah Montgomery Larr & Associates LLC Contact Information Deborah Montgomery Larr & Associates LLC DMONTGOMERY@LARRLCDOCS.COM WWW.LARRLCDOCS.COM