COMMERCIAL LETTERS OF CREDIT Basic Commercial LC Program International Credit Executives Group May 17, 2018

LETTERS OF CREDIT

Objectives Objective of this presentation: Understanding the W’s of a Letter of Credit (LC) Defining Discrepancies in an LC Process used by Briggs & Stratton to minimize Discrepancies Inco Terms – The Who, What, Where, When & How Example of an LC & Walk through Overview of LC Documentation

The WHAT of Letters of Credit WHAT is a letter of credit? Definition: Letter of Credit also known as L/C, LC, LOC. A letter of credit (LC), also known as a documentary credit, is a written commitment by a bank on behalf of a buyer that payment be made to a seller provided that the terms and conditions stated therein have been met. Thank you Wikipedia! OR A contract between the buyer and the seller with negotiated terms and conditions that need to be met in order for payment to be made. https://en.wikipedia.org/wiki/Letter_of_credit

The WHY of LC’s WHY should LC’s be used? It protects the seller by having the ability to maintain the control of goods until payment is made Reduces the risk of non-payment Governed by Standard Rules (UCP 600)

The WHO of LC’s WHO are the parties involved in using LC’s? Representing your Organization: Exporter/Seller Beneficiary Advising Bank/Beneficiary’s (sellers) bank Representing your Customer: Importer/Buyer/Applicant Issuing Bank – Customer’s bank

The WHEN and WHERE of LC’s WHEN should an LC be used? When dealing with international trade. As a letter of credit is an important payment method in international trade because it can assist in dealing with differing international laws and can reassure payment. SPEAKERS NOTES: THIS WILL PLAY MORE OF ROLL AS WE WALK THROUGH OUR EXAMPLE

DISCREPANCY = RISK OF NON-PAYMENT WHAT is an LC Discrepancy: It is an LC that does not comply with the terms and conditions under which it was established and can result in non-payment. The issuing bank of the discrepancy is not obligated to pay the beneficiary or the confirming bank. http://www.businessdictionary.com/definition/discrepancy-letter-of-credit-L-C.html DISCREPANCY = RISK OF NON-PAYMENT

Briggs & Stratton’s LC Process Briggs’s & Stratton strategy to avoid discrepancies when using Letter of Credit: Work closely with sales who works with the customer on opening an LC. Opening “Guidelines”: Follows a SWIFT format Details fields of importance to you Can be customized for each individual transaction Draft copies 3 Step LC checklist process (Experts Advice): Sales Logistic/Forwarder Credit Grey is Good is good. The more Black & White the more complicated the LC can be. Vague can leaves open to interpretation

Let’s walk through an LC…. W’s +H of LC’s Inco Terms.. Inco Terms… Inco Terms.. SPEAKER NOTES: Incoterms are: “An incoterm represents a universal term that defines a transaction between importer and exporter. Here's what you should know about incoterms.” Incoterms - a.k.a. Trade Terms are key elements of international contracts of sale. They tell the parties what to do with respect to carriage of the goods from buyer to seller, and export & import clearance. They also explain the division of costs and risks between the parties. KNOW AND UNDERSTAND YOUR INCO TERMS. They are a key part in payment assurance when using letters of credits. Let’s walk through an LC….

Example of a Letters of Credit EXAMPLE OF LC.pdf SPEAKER NOTES: PARTICIPANTS WILL HAVE COPIES OF EXAMPLES & CHECKLIST PROVIDED IN THE PACKETS.

LC Field Examples WHO & WHERE 50: Applicant NINGBO ABC COMPANY,LTD NINGBO CHINA DETAILED ADD SEE 47A 59: Beneficiary BRIGGS AND STRATTON CORPORATION 12301 W. WIRTH STREET WAUWATOSA WI USA 44E: Port of Loading/Airport of Departure ANY AMERICAN SEAPORT 44F: Port of Discharge/Airport of Destination NINGBO CHINA SPEAKER NOTES: WHO: FOCUS THAT THE APPLICANTS NAME & COUNTRY MATCH WHERE YOU ARE SHIPPING… You are correctly identified as the beneficiary so you can obtain payment!!! When it come to LC VAGUE IS GOOD!! Example USA Port or North American Sea port. Snow storm & Longshoremen Strike.

(Field 44C) LSD 12/12 + (Field 48)15 DAYS = 12/27 LC Field Examples WHEN 42C: Drafts at ... DRAFT AT 90 DAYS FROM INVOICE DATE FOR 100 PCT OF INVOICE VALUE 31D: Date and Place of Expiry 2017/12/27USA 44C: Latest Date of Shipment (LSD) 2017/12/12 48: Period for Presentation DOCUMENTS MUST BE PRESENTED TO THE PLACE OF EXPIRATION WITHIN 015 DAYS AFTER THE SHIPMENT DATE BUT WITHIN THE VALIDITY OF THIS CREDIT. Field 44C LSD + Field 48 Period of Presentation = Field 31D Date of Exp. or more (Field 44C) LSD 12/12 + (Field 48)15 DAYS = 12/27 Expiry is 12/27/2017 Remember this Equation! This is to assure date validity.

LC Field Examples WHAT 32B: Currency Code, Amount USD 100,000.00 45A: Description of Goods and/or Services GASOLINE ENGINES AS PER CONTRACT NO.:12345 TOTAL QTY:1441PCS TOTAL VALUE:USD100,000.00 PRICE TERMS:CIP NINGBO CHINA SPEAKER NOTES: DESCRIPTIONS ARE BEST GOOD VAGUE..

LC Field Examples WHAT (cont’d) 46A: Documents Required +SIGNED COMMERCIAL INVOICE IN 3 FOLDS INDICATING L/C NO.AND CONTRACT NO. 12345. +FULL SET OF CLEAN ON BOARD OCEAN BILLS OF LADING MADE OUT TO ORDER AND BLANK ENDORSED MARKED 'FREIGHT PREPAID' NOTIFYING THE APPLICANT +PACKING LIST / WEIGHT MEMO IN 3 FOLDS SHOWING QUANTITY, GROSS AND NET WEIGHT OF EACH PACKAGE. +INSURANCE POLICY/CERTIFICATE IN DUPLICATE FOR 110 PERCENT OF THE INVOICE VALUE,SHOWING CLAIMS PAYABLE IN CHINA IN CURRENCY OF THE INVOICE, BLANK ENDORSED, COVERING OCEAN MARINE TRANSPORTATION ALL RISKS(CCIC)AND WAR RISK. +DECLARATION OF NO-WOOD PACKING MATERIAL OR CERTIFICATE OF HEAT TREATMENT FOR WOOD PACKING.

LC Field Examples WHAT (cont’d) 47A: Additional Conditions +ALL DOCUMENTS ARE TO BE PRESENTED TO US IN ONE LOT BY COURIER/SPEED POST. OUR ADDRESS IS NINGBO CHINA ATTN: INTERNATIONAL BANKING +A DISCREPANCY FEE FOR USD60.00 OR EQUIVALENT WILL BE DEDUCTED FROM THE PAYMENT FOR EACH SET OF DOCUMENTS CONTAINING DISCREPANCY(IES). +ANY OF OUR PAYMENT EFFECTED AGAINST DISCREPANT DOCUMENTS DOES NOT CONSTITUTE AN AMENDMENT TO THIS CREDIT NOR OUR AUTHORIZATION TO NEGOTIATE/PAY/ACCEPT WITH SPECIFIC DISCREPANT DOCUMENTS APPLY TO FUTURE DRAWINGS. +ONE ADDITIONAL COPY OF ORIGINAL INVOICE AND TRANSPORTATION DOCUMENT SHOULD BE PRESENTED FOR ISSUING BANK'S FILE, OTHERWISE USD10.00 OR EQUIVALENT WILL BE DEDUCTED FROM PAYMENT. +ALL DOCUMENTS MUST BE ISSUED IN ENGLISH. SPEAKER NOTES: READ EVERY LINE.. EXPRES OVER AND OVER! READ EVERY LINE..

QUESTIONS? Objectives Objectives covered in this presentation: Understanding the W’s of a Letter of Credit (LC) Defining Discrepancies in an LC Process used by Briggs & Stratton to minimize Discrepancies Inco Terms – The Who, What, Where, When & How Example of an LC & Walk through Overview of LC Documentation QUESTIONS?

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Contact Information Thank you!! Leila Arafat Wiencek Briggs & Stratton Corp. Arafat.leila@basco.com ph. 414-259-5357