Have you ever closely analysed the Letter of Credit tariffs charged by a range of local banks?
Whilst the standard 'transaction' charges (advising, examination, discrepancy fees etc) are fairly consistent, the ways in which Letter of Credit confirmation 'risk' fees are taken can vary greatly between banks.
Questions to consider are:
1. Does the confirming bank charge a minimum fee (eg: £200)?
2. How is the charge calculated? Letter of Credit Confirmation fees are 'market driven' and will depend on the bank's view of the issuing bank and country concerned. The basis for charging will be an annual risk percentage (eg: 2% p.a*), with many banks charging on a 'per quarter or part thereof' basis. Thus if you have a credit valid for 4 months, in our example you would be charged a full two quarters (ie: 1% of the Letter of Credit value). Some banks will be more flexible, offering to charge on a 'monthly basis or part thereof'. In the case of one client, receiving Letters of Credit for values in the multi-millions I even came across a bank willing to charge on a daily basis!
Shop around - it may save you considerable costs!
(*example cost is for illustrative purposes. Fees will vary significantly depending on bank view of risk).
3. Is the confirming bank likely to offer an estimated cost in advance of receipt of the Letter of Credit, thus giving you an opportunity to more accurately factor in the cost into your price?
4. When dealing in more 'difficult' markets, it may prove challenging to find a major bank willing to add confirmation Letter of Credit. This doesn't mean to say that no bank will do so - you may have to lower your sights slightly in terms of the 'grade' of a potential confirming bank, but this may offer you more security than merely relying solely on the strength of the issuing bank / country concerned. We work with associates who may be able to assist with laying off risk to willing banks, so feel free to contact us on 0800 043 4052 or email: info@mjhayward.co.uk for information.
5. As an alternative to 'up-front' confirmation, have you considered requesting an unconfirmed Letter of Credit available with 'any bank by negotiation'? There are major banks out there happy to consider offering a 'Commitment To Negotiate' conforming documents presented under unconfirmed Letters of Credit. This is a great option where credits are advised by a bank that is unacceptable / unfamiliar to you.
Letter of Credit Training for Exporters
Wednesday 8 December 2010
Monday 11 October 2010
Taking Control of your Letters of Credit
Who do you currently present your Letter of Credit documents to?
Your own bank?
Another preferred UK bank?
Or…… are you being forced to deal with the Issuing Bank’s London office or their preferred UK correspondent?
Consider completing and sending to your customer a Letter of Credit Request Template prior to the issuance of the L/C, thus taking more control by stipulating your preferred advising / confirming bank(s).
By obtaining L/Cs advised regularly through the same bank(s), you will stand a greater chance of developing a strong relationship with document checkers who will become more understanding of your business and work with you to minimise costly discrepancies.
In the event that the Issuing Bank is unable to advise the L/C through one of your chosen banks, you could request that the credit is stated to be ‘available with any bank by negotiation’, thus giving you the flexibility to approach a bank of your choosing when presenting documents.*
(*Please note that you should try to establish the willingness of your preferred bank to check and potentially negotiate documents beforehand. If the L/C is not ‘confirmed’, the UK nominated bank has no obligation to negotiate and may refuse to do so, particularly if there is a perceived bank or country risk. Article 12a. UCP600 refers).
A specimen L/C Request Template is available in word format from the resources page of our website:
www.mjhayward.co.uk/resources.php
Please feel free to adapt to your own requirements.
Your own bank?
Another preferred UK bank?
Or…… are you being forced to deal with the Issuing Bank’s London office or their preferred UK correspondent?
Consider completing and sending to your customer a Letter of Credit Request Template prior to the issuance of the L/C, thus taking more control by stipulating your preferred advising / confirming bank(s).
By obtaining L/Cs advised regularly through the same bank(s), you will stand a greater chance of developing a strong relationship with document checkers who will become more understanding of your business and work with you to minimise costly discrepancies.
In the event that the Issuing Bank is unable to advise the L/C through one of your chosen banks, you could request that the credit is stated to be ‘available with any bank by negotiation’, thus giving you the flexibility to approach a bank of your choosing when presenting documents.*
(*Please note that you should try to establish the willingness of your preferred bank to check and potentially negotiate documents beforehand. If the L/C is not ‘confirmed’, the UK nominated bank has no obligation to negotiate and may refuse to do so, particularly if there is a perceived bank or country risk. Article 12a. UCP600 refers).
A specimen L/C Request Template is available in word format from the resources page of our website:
www.mjhayward.co.uk/resources.php
Please feel free to adapt to your own requirements.
Wednesday 25 August 2010
The 'Doris' or 'Albert' Effect
How reliant is your business on the skills of one or two experienced individuals?
We are all familiar with Doris or Albert, the 'font of all knowledge' in the export department. They have been processing export documentation for 30 years or more and what they don't know about certificates of origin, EUR1 forms or Bills of Exchange can be written on the back of a very small postage stamp.
The question to be asked is..... what happens when Doris or Albert decide to go on holiday, fall ill or even (when the time is right for them or the business....) retire?
Are you absolutely confident that you know where to look for examples of those previous Letters of Credit? How to fill in the paperwork? Who to speak to at the bank, freight forwarder or customs?
If not, it may make perfect business sense to invest in training for your key people to spread the knowledge.
Call us on 0800 043 4052 to see how MJ Hayward Associates Ltd can increase the international trade skills of your key people. Visit our website for further information:
http://www.mjhayward.co.uk
We are all familiar with Doris or Albert, the 'font of all knowledge' in the export department. They have been processing export documentation for 30 years or more and what they don't know about certificates of origin, EUR1 forms or Bills of Exchange can be written on the back of a very small postage stamp.
The question to be asked is..... what happens when Doris or Albert decide to go on holiday, fall ill or even (when the time is right for them or the business....) retire?
Are you absolutely confident that you know where to look for examples of those previous Letters of Credit? How to fill in the paperwork? Who to speak to at the bank, freight forwarder or customs?
If not, it may make perfect business sense to invest in training for your key people to spread the knowledge.
Call us on 0800 043 4052 to see how MJ Hayward Associates Ltd can increase the international trade skills of your key people. Visit our website for further information:
http://www.mjhayward.co.uk
Monday 17 May 2010
How to Avoid Costly Discrepancies
We are currently enjoying a decent spell of warm weather here in the Midlands.
The sense of well being brought on by pleasant weather can soon be spoiled by one phone call from the bank advising that your latest Letter of Credit presentation contains discrepancies. If you are unable to rectify, your business could be exposed to delays, interest costs, high bank charges and ultimately the risk of non-payment.
Here is a list of 5 common discrepancies and how to avoid them:
1. Late presentation of documents. Always check the credit upon receipt (field 48 of the SWIFT MT700 advice) for the period of presentation. According to UCP 600 (Article 14c), unless otherwise specified the accepted period is not later than 21 days after shipment, however the applicant may specify a reduced period, such as 10 or 14 days. Do ensure that this period provides you with sufficient time, particularly if you need to present third party or certified / legalised documents.
2. Goods description on invoice differs to the L/C. Article 18c of UCP 600 states that the goods description appearing on an invoice must correspond with that appearing in the credit. Ensure that you quote the description exactly as contained in the SWIFT MT700 advice (field 45a) and that you do not list any items that may be construed as not being covered by the credit.
3. Capacity of signatory on transport document is missing / incomplete / incorrect. This is an issue arising from the failure of the carrier or freight forwarder to sign a Bill of Lading, Air Waybill or other transport document in accordance with the provisions of the relevant article under UCP 600 (Articles 19 - 25). A transport document must always indicate the name of the carrier (or master) and be signed by the carrier (or master) or a named agent on behalf of the carrier (or master). It is therefore vital that your freight agent is aware that the related documents are linked to a Letter of Credit and that they are skilled and trained in preparing such documents.
4. Copy documents presented. Unless otherwise allowed in a credit, at least one original of each specified document must be presented. Often, when multiples of a document are presented and are identical (eg: invoice in triplicate) a bank document checker may be unable to determine if an original is included. If in doubt, simply stamp or mark at least one of the items as 'original'.
5. Draft not presented / not drawn correctly. Letters of Credit often require a draft (bill of exchange) to be presented. A draft will be drawn on one of the banks at sight or tenor (30 days, 60 days from..... etc). Check the requirements under field 42c of the SWIFT MT700 advice.
To assist you, we have produced a guide to completing a Bill of Exchange / Draft. This can be downloaded for free from the Resources and Links page of our website:
www.mjhayward.co.uk/resources.php
The sense of well being brought on by pleasant weather can soon be spoiled by one phone call from the bank advising that your latest Letter of Credit presentation contains discrepancies. If you are unable to rectify, your business could be exposed to delays, interest costs, high bank charges and ultimately the risk of non-payment.
Here is a list of 5 common discrepancies and how to avoid them:
1. Late presentation of documents. Always check the credit upon receipt (field 48 of the SWIFT MT700 advice) for the period of presentation. According to UCP 600 (Article 14c), unless otherwise specified the accepted period is not later than 21 days after shipment, however the applicant may specify a reduced period, such as 10 or 14 days. Do ensure that this period provides you with sufficient time, particularly if you need to present third party or certified / legalised documents.
2. Goods description on invoice differs to the L/C. Article 18c of UCP 600 states that the goods description appearing on an invoice must correspond with that appearing in the credit. Ensure that you quote the description exactly as contained in the SWIFT MT700 advice (field 45a) and that you do not list any items that may be construed as not being covered by the credit.
3. Capacity of signatory on transport document is missing / incomplete / incorrect. This is an issue arising from the failure of the carrier or freight forwarder to sign a Bill of Lading, Air Waybill or other transport document in accordance with the provisions of the relevant article under UCP 600 (Articles 19 - 25). A transport document must always indicate the name of the carrier (or master) and be signed by the carrier (or master) or a named agent on behalf of the carrier (or master). It is therefore vital that your freight agent is aware that the related documents are linked to a Letter of Credit and that they are skilled and trained in preparing such documents.
4. Copy documents presented. Unless otherwise allowed in a credit, at least one original of each specified document must be presented. Often, when multiples of a document are presented and are identical (eg: invoice in triplicate) a bank document checker may be unable to determine if an original is included. If in doubt, simply stamp or mark at least one of the items as 'original'.
5. Draft not presented / not drawn correctly. Letters of Credit often require a draft (bill of exchange) to be presented. A draft will be drawn on one of the banks at sight or tenor (30 days, 60 days from..... etc). Check the requirements under field 42c of the SWIFT MT700 advice.
To assist you, we have produced a guide to completing a Bill of Exchange / Draft. This can be downloaded for free from the Resources and Links page of our website:
www.mjhayward.co.uk/resources.php
Letter of Credit Charges - A Guide
(Updated January 2012)
In the current global financial climate, many internationally trading companies are turning to Letters of Credit as a means of securing payment from buyers in new or difficult markets.
We are hearing from an increasing number of clients who are being subjected to sudden hikes in the level of Letter of Credit charges being deducted by UK based advising or confirming banks.
When negotiating terms with buyers it is always advisable to factor bank charges into your pricing. To help you anticipate these costs, we have drawn up the following list of typical transaction fees taken by the major UK banks:
Advising commission: £75.00 - £95.00
Document Examination (per presentation): 0.125% of the drawing value, min. £100.00
Advice of amendments*: £50.00 per advice (*see below re 'confirmed credits')
Discrepancy fee (per presentation): £50.00 - £115.00 (note: the overseas issuing bank will also deduct their own fee in the event that documents are forwarded on this basis).
NB: We are hearing that some banks are charging a fee PER INDIVIDUAL DISCREPANCY. This will have a significant cost impact in the event that you present documents containing multiple discrepancies.
Other charges:
Confirmation fee: this is a 'risk fee' taken by the confirming bank (usually located in the exporter's country). The fee is subject to arrangement and based on the following:
NB: Increases to the L/C value and extensions to the L/C validity beyond the period already charged for, will also be subject to additional confirmation charges due to the increased risk exposure of the confirming bank.
Note: There is increasing evidence that banks are introducing minimum fees for confirmation (typically £250.00), therefore it is vital that you try to establish the cost prior to issuance.
Reimbursement charges: difficult to quantify, these charges are deducted by 'third party' banks who hold the funds on behalf of the issuing bank and remit the value following the claim for settlement by the paying / negotiating bank. A typical reimbursing bank charge will be £50.00 - £100.00.
Courier charges: represent the cost of couriering / despatching the shipping documents to the issuing bank. Typical charges range from £30.00 - £60.00
Handling charges: the most vague of all L/C charges, these are often deducted by non-UK banks (usually the London based correspondent of the issuing bank). The charges are taken for a rnage of reasons, such as SWIFT messages, chasers, holding documents etc.
In summary......
..... we would advise that as far as possible, you build Letter of Credit charges into your price. In cases where the confirmation of a bank in the UK is required, you should request that such confirmation is given by a 'major UK bank or European bank based in the UK'. Such bank should be completely independent to the issuing bank (and country, where this represents a political or economic risk).
If you know which bank is to confirm prior to the Letter of Credit being issued, contact their Trade Services department to request an indication of cost.
Letter of Credit Training for Exporters
In the current global financial climate, many internationally trading companies are turning to Letters of Credit as a means of securing payment from buyers in new or difficult markets.
We are hearing from an increasing number of clients who are being subjected to sudden hikes in the level of Letter of Credit charges being deducted by UK based advising or confirming banks.
When negotiating terms with buyers it is always advisable to factor bank charges into your pricing. To help you anticipate these costs, we have drawn up the following list of typical transaction fees taken by the major UK banks:
Advising commission: £75.00 - £95.00
Document Examination (per presentation): 0.125% of the drawing value, min. £100.00
Advice of amendments*: £50.00 per advice (*see below re 'confirmed credits')
Discrepancy fee (per presentation): £50.00 - £115.00 (note: the overseas issuing bank will also deduct their own fee in the event that documents are forwarded on this basis).
NB: We are hearing that some banks are charging a fee PER INDIVIDUAL DISCREPANCY. This will have a significant cost impact in the event that you present documents containing multiple discrepancies.
Other charges:
Confirmation fee: this is a 'risk fee' taken by the confirming bank (usually located in the exporter's country). The fee is subject to arrangement and based on the following:
- Issuing Bank risk
- Country risk
- Value of the Letter of Credit
- Validity period of the Letter of Credit
NB: Increases to the L/C value and extensions to the L/C validity beyond the period already charged for, will also be subject to additional confirmation charges due to the increased risk exposure of the confirming bank.
Note: There is increasing evidence that banks are introducing minimum fees for confirmation (typically £250.00), therefore it is vital that you try to establish the cost prior to issuance.
Reimbursement charges: difficult to quantify, these charges are deducted by 'third party' banks who hold the funds on behalf of the issuing bank and remit the value following the claim for settlement by the paying / negotiating bank. A typical reimbursing bank charge will be £50.00 - £100.00.
Courier charges: represent the cost of couriering / despatching the shipping documents to the issuing bank. Typical charges range from £30.00 - £60.00
Handling charges: the most vague of all L/C charges, these are often deducted by non-UK banks (usually the London based correspondent of the issuing bank). The charges are taken for a rnage of reasons, such as SWIFT messages, chasers, holding documents etc.
In summary......
..... we would advise that as far as possible, you build Letter of Credit charges into your price. In cases where the confirmation of a bank in the UK is required, you should request that such confirmation is given by a 'major UK bank or European bank based in the UK'. Such bank should be completely independent to the issuing bank (and country, where this represents a political or economic risk).
If you know which bank is to confirm prior to the Letter of Credit being issued, contact their Trade Services department to request an indication of cost.
Letter of Credit Training for Exporters
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