Standard Terms for Export Letters of Credit (North America)
A Letter of Credit (L/C) is an instrument issued
by a bank in favor of a Beneficiary (in this case Elo), which substitutes
the bank's credit for that of our customer. This reduces the risk that
payment might be delayed or otherwise jeopardized by political or foreign
exchange problems in the customer's country, or by the customer's refusal
or inability to pay us for any reason. However, the documents we submit
to the bank for payment must conform exactly, in every detail, to the
terms and conditions of the L/C to ensure payment. Any discrepancy, including
document dates and word spellings, causes the letter of credit to lose
its value to Elo. Payment to Elo can then only be made upon approval
of the customer.
Type
Irrevocable/Freely negotiable/Subject to UCP 500
Explanation: An L/C must be irrevocable in order to protect Elo from
the unilateral cancellation of the L/C by the customer or its bank.
Freely negotiable means that Elo can choose the bank through which
it negotiates the L/C. If we are required to negotiate an L/C at a
specific bank, especially in the customer's country, it could create
significant delays in collection of the receivable. UCP 500 (Uniform
Customs and Practice for Documentary Credits, ICC Publication No. 500)
is the standard international framework which specifies the rights
and obligations of all parties to an L/C.
Method of Delivery
Teletransmission or S.W.I.F.T.
Explanation: Teletransmission or S.W.I.F.T. is encouraged because
these electronic methods are much faster and more reliable than mail
delivery.
Advising Bank
Bank One International
777 South Figueroa Street, 4th Floor
Los Angeles, CA 90017-5800, USA
Telex: 4720381 SWIFT ID: FNBCUS44CLAX
Explanation: All L/C's should be advised through our standard bank
in order to take advantage of economies of scale, the bank's familiarity
with Elo, and established electronic interfaces.
Beneficiary
Elo
TouchSystems
A Tyco Electronics Corporation Business
301 Constitution Drive
Menlo Park, CA 94025
Explanation: This is the correct Elo name and address to use for all
Menlo Park exports.
Currency
US Dollars
Explanation: The preferred currency for all U.S. sales is the U.S.
dollar.
Amount
Full invoice value plus transportation costs
Explanation: Credit protection is limited to the amount of the L/C,
so it is important that the full invoice value be covered, including
transportation and other costs.
Drawee Bank
Drafts drawn on Bank One International
Explanation: Should be the same as the Advising Bank, for the reasons
given above.
Reimbursement Charges
Reimbursement must be against Bank
One International's Los Angeles office; if this is not possible, reimbursement must against another major bank in the U.S., and associated reimbursement charges are for account of Applicant
Explanation: We would like our
Advising/Negotiating Bank to be able to pay us directly under the L/C,
after examining the draft and documents and finding them to be in order.
If our bank has to wait for approval from the issuing bank or to seek
payment from the issuing bank's U.S. branch or correspondent, then our
customer must pay the additional reimbursement charges that this
entails.
Tenor/Payment Terms
At sight
Explanation: At sight means that payment is received immediately after
the L/C has been successfully negotiated.
Presentation
State that documents must be presented no later than 45 days from Bill of Lading (or other transport document) date
Explanation: Unless otherwise specified, it is standard in UCP 500
to require that documents be presented no later than 21 days after
the transport document date, which is a deadline that can be difficult
for Elo to meet. A missed deadline means that Elo is no longer protected
under the L/C. This risk can be reduced by asking the customer to specify
a 45 day document presentation deadline.
Partial Shipments, Transshipment
Permitted
Explanation: When these are permitted, Elo retains flexibility to
ship products in several lots or to ship from another site. Even if
both the customer and Elo intend only one shipment, it is best to permit
this flexibility in case the customer's needs change.
Port of Departure
US Port or US airport (do not state a specific city)
No explanatory notes.
Covering Shipment of
Use only brief general descriptions of goods. If quantity has a tolerance, then quantity and value must include "about"
No explanatory notes.
Accompanying Documents
Signed Commercial Invoice
Packing List
Transport Document (if on ocean bill of lading, a full set of on board ocean bills of lading, made to order of shipper, blank endorsed; if an airway bill, consigned to the L/C issuing bank)
Explanation: Although it is not always possible to limit the accompanying
documents to the three listed, fewer documents leads to fewer discrepancies
and less time required to assemble the specified documents, and hence
less risk and faster collection of our funds from the bank. It is also
important that the customer or his agent not obtain title to, or control
of, the goods until payment has been made under the L/C. For this reason,
all three originals of an ocean bill of lading, which is a title document
to the goods, should be sent through the banking system. The customer
receives the bill of lading and can claim the goods only when payment
under the L/C has been made. An airway bill, by contrast, is not a
title document. Here we can ensure that the customer does not obtain
control of the goods before payment under the L/C has been made by
consigning the airway bill to the customer's bank. The bank will have
to issue an air release before the airline will then allow the goods
to be given to the customer or his agent. The bank will not issue such
a release until payment has been made under the L/C.
Charges
Bank charges in the U.S. are for account of Beneficiary (excluding reimbursement charges-see above); all other charges are for account of Applicant
Explanation: The customer should pay all L/C charges except those
incurred by Elo at its bank in the U.S. This ensures that each party
handles the L/C process in the most cost-effective manner possible.
Special Instructions
State that this L/C is payable in the U.S. (not at the counters of an overseas bank)
Explanation: Payment in the United States, not at the counters of
the issuing bank, puts control of the payment in the hands of our Advising/Negotiating
Bank (after examination of the draft and documents).
Prohibited Instructions
No statement that penalties will be assessed for late shipment
Explanation: We will not pay penalties for delays in the shipment
of products; we must ship by the "latest ship date" specified
in the L/C, of course, or lose the protection of the L/C, as explained
above.
Exceptions
Any deviation from the standard L/C terms stated here must be approved
in writing by the Menlo Park Credit Management Group. This should be
done before the customer has his bank issue the L/C. Failure to do
so will result in shipping delays and in increased amendment charges
for the customer.
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