What is a letter of credit?
The Letter of Credit is a contingent payment guarantee and there are four parties in its operation: Supervisor (importer), Supervisor Bank (importer’s bank), Beneficiary (exporter), and Beneficiary Bank (exporter’s bank).
Buyers and sellers use this form of payment in order to make their agreements with the desired quality and under suitable conditions through intermediary banks.
When appropriate documents are submitted, the seller knows that he will receive his money and the buyer will receive the desired quality.
What are the Major Types of Letters of Credit?
Irrevocable (irrevocable) Letter of Credit: It undertakes to make the documents in accordance with the letter of credit conditions of the issuing bank in a timely and manner suitable for the letter of credit conditions,
Recourse (reversible) Letter of Credit: The issuing bank can change the terms of the letter of credit at any time and the parties do not need to be notified in advance of this change. If this change is made after the appropriate documents are submitted to the bank, it is not valid.
Payment Letter of Credit in Submission of Documents: It is the type of letter of credit in which the payment will be made if the documents that comply with the terms of the letter of credit are presented to the beneficiary bank by the exporter within the period of the letter of credit.
In this case, the amount paid to the correspondent bank, which determines the compliance of the documents with the conditions, will be requested from the issuing bank.
Transferable Letter of Credit: If it is written that the letter of credit is transferable within the terms of the letter of credit, the beneficiary may transfer his / her rights and responsibilities to one or more beneficiaries.
What are the Delivery Methods in Export?
Delivery at Work (where indicated as…) EXW :
It means that the exported goods are left at the disposal of the buyer in their own place or in a place designated by another name (for example, in the workplace, factory, warehouse and similar) without customs clearance and not loaded on any carrier.
This term represents the seller’s minimum obligations and the buyer must bear all damages and expenses associated with the receipt of the goods from the seller’s location.
Along the Ship Without Cost (at the loading port specified as ..) FAS :
When the goods are placed in the direction of the ship at the specified loading port, it means that the seller delivers the goods.
From this moment on, the buyer undertakes all costs, losses, deficiencies and damage risks related to the goods. Customs clearance of the goods belongs to the seller.
Free on board (at the loading port specified as…) FOB:
It means that the seller delivers the goods when the goods cross the rail at the specified loading port. From this point on, the buyer bears all costs, losses, defects and damages related to the goods.
FCA at No Cost to Carrier (where indicated as ..):
It means that the seller delivers the goods to the carrier designated by the buyer at the specified location, as customs clearance for export.
The chosen delivery location has an impact on the loading or unloading of the goods at this location.
If the delivery takes place at the seller’s site, the seller is responsible for the loading. If the delivery took place elsewhere, then the seller is not responsible for unloading the goods.
Cost and Freight (by indicating the destination port) CFR:
It refers to the delivery of the goods by the seller when the goods pass the rail at the loading port. The seller bears the costs and freight costs required for the transportation of the goods to the specified destination.
However, the loss-deficiencies and damage of the goods and the additional costs arising from the events that occur after the delivery time pass from the seller to the buyer.
This term requires the seller to clear the goods for export.
Cost, Insurance and Freight (by specifying the destination port as…) CIF:
This term means that the seller delivers the goods when the goods cross the rail at the loading port. The seller must pay the costs and freight costs required for the transportation of the goods to the specified destination.
However, the loss-missing and damage of the goods and the additional costs arising from the events occurring after the delivery, pass from the seller to the buyer.
In the CIF term, the seller must also provide maritime insurance against the buyer’s risk of loss-missing and damage to the goods during the journey.
Carriage Paid To (indicating as destination) CPT:
The term “carriage paid …” means that the goods will be delivered to a carrier chosen by the seller himself, the seller must pay the transport costs that must be brought to the specified destination. Thus, the buyer also bears the risks and other costs that may arise after the goods are delivered in this way.
The term “carrier” refers to any person who undertakes or undertakes to carry the goods under a contract of carriage by means of rail, road, seaway, airway, inland waters or some of these routes.
Transport and Insurance Paid (by indicating destination as…) CIP:
The term “Transport and insurance paid …” means that the goods will be delivered personally to a carrier chosen by the seller, the seller has to pay the transportation costs that must be brought to the specified destination.
Thus, the buyer also bears the risks and other costs that may arise after the goods are delivered in this way.
However, in the CIP term, the seller must also provide insurance against the buyer’s risk of loss-missing and damage to the goods during the journey. In this case, the seller contracts for insurance and pays the insurance premiums.
Delivery at Border (where indicated as…) DAF:
The term “border delivery” means that the seller fulfills the delivery obligation by leaving the goods not unloaded from the incoming transport vehicle, cleared for export but not cleared for import at the border, before the customs border of the neighboring country, at the designated delivery place or point at the buyer’s disposal.
The term “border” can be used to describe any border, including the border of the country of export. It is therefore vital that the “boundary” in question is strictly always by name as a place or point within the term.
This term can be used for any form of transport if the delivery is made at the land border.
Delivered at Dock (by specifying destination port as…) DEQ:
The term “delivery at the pier” means that the seller delivers the goods at the dock (pier) at the designated destination port by leaving the goods at the disposal of the buyer without performing the necessary customs clearance procedures for import.
The seller must bear all damages and costs related to the transportation of the goods to the designated destination port and discharge to the dock (pier).
The term EDQ stipulates that the buyer assumes the obligation to clear the goods for importation and pay all related transactions, taxes, duties and other charges.
Delivery with Customs Duty Paid (by specifying the destination as…) DDP:
The seller bears all damages and costs related to the transportation of the goods to the destination, except for any “customs duty” (the responsibility and risk to carry out customs procedures and the payments, customs duties, taxes and other charges for these transactions) for import in the destination country.