3
4 Table of Contents 1. DOCUMENTATION .......................................................................................... 5 1.1 DEFINITION 1.2 BENEFITS 1.3 IMPORTANCE 1.4 PROBLEM WHEN HANDLING 1.5 CATEGORIES 1.6 DOCUMENTATION NEEDED IN THE IMPORT 1.7 & EXPORT INDUSTRIES 1.8 THE MARINE AND CARGO INSURANCE 2. CUSTOM FORM............................................................................................. 24 2.1 DEFINITION 2.2 TYPES 2.3 SUPPORTING DOCUMENT FOR THE DECLARATION 2.4 LAYMAN’S TERM 3. EDI & EFT ...................................................................................................... 28 3.1 EDI DEFINITION EDI ADVANTAGES AND DISADVANTAGE DIFFERENCE TRADITIONAL DOCUMENT EXCHANGE AND EDI 3.2 EFT DEFINITION EFT ADVANTAGE AND DISADVANTAGE 4. BILL OF LADING ........................................................................................... 31 4.1 DEFINITION 4.2 3 MAIN FUNCTION 4.3 TYPES 4.4 SAMPLE 5. LETTER OF CREDIT ..................................................................................... 35 5.1 DEFINITION 5.2 BASIC TYPES 5.3 BENEFITS TO EXPORTER AND IMPORTER 5.4 HOW IT WOKS 6. CONCLUSION………………………………………………………………………38
5 1. DOCUMENTATION 1.1 DEFINITION an original or official paper relied on as the basis, proof, or support of something. Something (such as a photograph or a recording) that serves as evidence or proof. a writing conveying information. financial documents. 1.2 BENEFITS Documentation is a key means of conveying information from one person or company to another, and also serves as permanent proof of tasks and actions undertaken throughout the export process. Documentation is not only required for the business purposes and business partner, but also to satisfy the customs authorities in both countries and to facilitate the transportation of and payment for goods sold. 1.3 IMPORTANCE Easy for exporter / importer to check the delivery. Help exporter / importer analyse sales performance. Prepare information for the purpose of estimation. Help country control flow of import and export product. 1.4 PROBLEM WHEN HANDLING TAKES UP A LOT OF SPACE The biggest downfall to manual document filing is the amount of space it can ta ke up. While at first, the business will be small enough that it’s not a huge deal, once starts growing they are going to want to find a new way to store files. Otherwise, it might find taking up the room just to fit the files in. This also means having to go out of the way to hunt down a file or a client. It interrupts productivity levels.
6 PRONE TO DAMAGE AND BEING MISPLACED Manual document filing means placing faith in the people handling the files. There are so many ways they can be damaged, lost, or misplaced. A fire or natural disaster could mean the loss of all the clients’ important information. It will have to start over at square one getting the information back. It can also lead to losing clients who don’t appreciate the mishandling of their information. HARD TO MAKE CHANGES When working with paper documents it is much harder to make changes. Every time if we want to make a change, we will have to make a copy, so we don’t destroy the original with any edits or comments we might add. This means the editing process is more time-consuming than if we were working with digital copies. ACCESS TIME Manual document filing is very time-consuming. Not only do have to organize and store the files but hunting down the information when it is needed can take time. It can take anywhere from minutes to hours to hunt down a file, depending on how well your organization is. This can cause annoyance for clients as well as for employees. Their productivity is lowered by having to spend excessive time dealing with a paper filing system. LACK OF SECURITY Paper document filing can be less secure than electronic filing systems. Misplaced documents can easily be placed in the wrong hands. Clients expect their information to be secure in your hands. If you can’t keep this safe, you are at risk of losing them. A cabinet filled with files is way easier to access than a computer that requires a password and credentials to get into. HIGHER COST When using paper documents, the costs are going to be higher because of paying for ink and paper. The office supply bill will be higher if you are using a manual document filing process. While you might think this is insignificant, over time it’s a lot of money that can be used in better ways.
7 1.5 CATEGORIES Trade Documents Documents in this category are the documents needed to support the information relating to the goods exported or imported. Contract Documents Documents that fall into this category is a document setting out the rights and responsibilities of managing the export / import process. Official Documents Documents that fall into this category are the documents required by the authorities of a country for purposes of control and out of goods to the countries involved. 1.6 DOCUMENTATION NEEDED IN THE IMPORT & EXPORT INDUSTRIES Proforma invoice A Proforma invoice is an invoice provided by a supplier in advance of providing the goods or service. A quotation in the form of an invoice prepared by the seller that details items which would appear on a commercial invoice if an order resulted. Pro forma invoices basically contain much of the same information as the formal quotation, and in many cases can be used in place of one. It should give the buyer as much information about the order as possible so arrangements can be made efficiently. The invoices inform the buyer and the appropriate import government authorities’ details of the future shipment; changes should not be made without the buyer’s consent.
8 As mentioned for the quotation, the points to be included in the pro forma are: Seller’s name and address Buyer’s name and address Buyer’s reference Items quoted. Prices of items: per unit and extended totals Weights and dimensions of quoted products Discounts, if applicable Terms of sale or Incoterms used (include delivery point) Terms of payment Estimated shipping date. Validity date Some of the advantages of pro-forma invoice to the importer include to show to his government for foreign currency allocation, opening letters of credit and most importantly, to have a detailed information on the transaction that can help him plan. An accurate and professionally submitted pro forma invoice can help buyers to make a decision and agree to the quotation.
9 o Sample proforma invoice (picture 1) Commercial Invoice After the pro-forma invoice is accepted by the importer, the exporter must prepare a commercial invoice. The commercial invoice is required by both the exporter (to obtain the necessary export documents to enable the consignment to be exported, to prove ownership and to enable payment) and importer (who require the commercial invoice to facilitate the import of the goods into the country in question). The commercial invoice is essentially a bill (i.e., invoice) from the seller (the exporter) to the buyer (the importer) describing the parties to the agreement, the goods to be sold, and the terms involved, as agreed between the exporter and importer.
10 o Sample commercial invoice (picture 2) Consular invoice A Consular Invoice is a documentary of proof of invoice value that is approved by the consulate office, which is a representative of a government stationed in foreign soil. It is different from a normal commercial invoice as the consular invoice receives the certified approval from a reputable source. An invoice covering a shipment of goods certified by the consul of the country for which the merchandise is destined. The invoice is used by customs officials of the country to verify the value, quantity, and nature of the merchandise imported to determine the import duty. In addition, the export price may be examined in the light of the current market price in the exporter´s country to ensure that dumping is not taking place.
11 o Sample consular invoice (picture 3) The marine and cargo insurance Insurance covering loss of, or damage to, goods at sea. Marine insurance typically compensates the owner of merchandise for losses in excess of those which can be legally recovered from the carrier that are sustained from fire, shipwreck, piracy and various other cases. Is a staple to the transport of goods both domestic and international, and transportation intermediaries and logistics service providers are in an ideal position to offer quality Cargo Insurance, sometimes referred to as Shippers Interest, to protect their clients’ financial interests.
12 No matter how robust a shipper’s loss-prevention strategy may be, it is reported that 30% of all freight damage in transit is unavoidable, and most losses occur on the way to or from the ports. o Sample the marine and cargo insurance.(picture 4) Export permits A legal document that is necessary for the export of goods controlled by the Government of export country, specifically goods included on the Export Control List or A document indicating that a government has granted a licensee the right to export specified goods to specified countries.
13 o Sample export permit (picture 5) Import permits. allows an importer to bring in a specified quantity of certain goods during a specified period (usually one year). Import licenses are employed. (1) as means of restricting outflow of foreign currency to improve a country's balance of payments position.
14 (2) To control entry of dangerous items such as explosives, firearms, and certain substances; or (3) to protect the domestic industry from foreign competition. o Sample import permits (picture 6) Packing list is a document prepared by the shipper listing the kinds and quantities of merchandise in a particular shipment. A copy of the packing list is often attached to the shipment itself and another copy sent directly to the consignee to assist in checking the shipment when received.
15 It is also called a bill of parcels. The packing list is issued by the exporter / shipper / consignor. The packing list contains the following elements: Name and address of seller (consignor) Name and address of buyer (consignee) Date of issuance Invoice number (reference to invoice that covers the particular shipment) Order or contract number Quantity and description of the goods Weight of the goods Number of packages Shipping marks and numbers Quantity and description of contents of each package, carton, crate or container Any other information as required in the shipper's instructions (e.g., country of origin) o Sample packing list (picture 7) Weight list Document issued commonly by customs authorities of the exporting country, certifying the correct gross weight of the goods being shipped.
16 o Sample weight list (picture 8) Certificate of origin is a document widely used in international trade transactions which attests that the product listed therein has met certain criteria to be considered as originating in a particular country. A certificate of origin / declaration of origin is generally prepared and completed by the exporter or the manufacturer and may be subject to official certification by an authorized third party. It is often submitted to a customs authority of the importing country to justify the product's eligibility for entry and/or its entitlement to preferential treatment. is a document declaring in which country a commodity or good was manufactured. The certificate of origin contains information regarding the product, its destination, and the country of export. Where to obtain COO? The Malaysian International Chamber of Commerce and Industry (MICCI) is authorized by the Ministry of International Trade & Industry (MITI) to issue Certificates of Origin for goods exported to any country in the world. They can be applied for at our main office or at
17 any of MICCI regional offices in Malaysia. Certificates of Origin issued by MICCI are referred to as Non-Preferential Certificate of Origin. Health and safety certificate This certificate will verify that all products are safe and free from any. pollution and harmful content. These certificates are usually issued on. agricultural products and livestock, such as vegetables, meat and unprocessed agricultural products meant to be exported. For example : Meat (lamb, pork, beef, poultry, venison – including prime cuts, and processed meat products etc.) Dairy (milk, yoghurt, cheese, butter & ice cream) Hides, skins, wool, feathers & lanolin Collagen, Gelatine & animal casings Egg Fish and fishery products Laboratory Pet food and animal feeds Other ATA carnet A combination of French and English phrases “Admission Temporaries / Temporary Admission” A carnet is an international custom document commonly known as the merchandise passport that allows temporary importation into
18 member countries without the payment of duties or value added taxes (VAT). It valid for up to three months and can be used for any number of visits in any member countries. It covers all kind of goods except consumable goods (food and agricultural products), disposable items. Give –a ways or postal traffic. Focus on media-reporters, journalists, media and technical equipment. Advantages of using Carnet: Simpler border entries or exits bring certainty and reduce hassle. Costs are reduced by eliminating duties, taxes, VAT and securities. A reduction in red tape allows the time to be used more profitably. We can visit more than one country, perhaps choose a better route. An ATA Carnet can be used for several trips during the three months term. Returning the goods to our home country is more straightforward. Benefit for Economy ATA Carnets help local business, exporters, etc. to compete with foreign traders on equal terms on the world market. ATA Carnets facilitate the conduct of business overseas and stimulate trade (foreign and domestic).
19 ATA Carnets contribute to encourage and stimulate technical progress. ATA Carnets contribute to promote economic expansion: To create jobs, to increase tourism , to stimulate investments. Benefits to Business Saves time and money. Partial and split shipments are possible. Easy to obtain. Competitively priced increase business for professionals: e.g., film and TV crews, entertainers, theatrical troupes, musical groups, athletic equipment, technicians, business travellers with samples, exhibitors at trade fairs. Categories of goods allowed to use ATA Carnet documents:- Commercial Sample Professional Equipment (Commercial Equipment) Goods for exhibition use Categories of goods NOT ALLOWED to use ATA Carnet documents:- Items that can be damaged or disposable Goods that have been sold or offered for sale. Gems Goods for the purpose of reprocessing or repair Vehicle Consignment notes a document that shows the details of goods that have been sent from a seller to a buyer, and that travels with the goods: rail/air/road consignment note. Document prepared by a consignor and countersigned by the carrier as a proof of receipt of consignment for delivery at the
20 destination. Used as an alternative to bill of lading (specially in inland transport), it is generally neither a contract of carriage nor a negotiable instrument. o Sample consignment notes (picture 9) Consignee/recipient information Who is the recipient, where is delivery address, and any contact information. Please make sure that postal/zip codes are provided. Telephone numbers are important, preferably mobile phone numbers of the recipient.
21 Specify the contact person on the receiving end in the “Attention” field. If consignee is a corporate entity, indicate the department which is supposed to receive the shipment. o Sample of recipient note (picture 10) Air waybill Also called as air consignment note is a receipt issued by an international airline for goods and evidence of the contract of carriage. It is not a document of title to the goods. The air waybill is non-negotiable. Its serves as a : (1) receipt of goods by an airline (carrier) and (2) as a contract of carriage between the shipper and the carrier. It includes : conditions of carriage that define (among other terms and conditions) the carrier's limits of liability and claims procedures, a description of the goods, and applicable charges. The main functions of an air waybill are: Contract of Carriage: Behind every original of the Air Waybill are conditions of contract for carriage documents. Evidence of Receipt of Goods: When the shipper delivers goods to be forwarded, he will get a receipt. The receipt is
22 proof that the shipment was handed over in good order and condition and also that the shipping instructions, as contained in the Shipper's Letter of Instructions, are acceptable. After completion, an original copy of the air waybill is given to the shipper as evidence of the acceptance of goods and as proof of contract of carriage. Freight Bill: The air waybill may be used as a bill or invoice together with supporting documents since it may indicate charges to be paid by the consignee, charges due to the agent or the carrier. An original copy of the air waybill is used for the carrier's accounting. Certificate of Insurance: The air waybill may also serve as evidence if the carrier is in a position to ensure the shipment and is requested to do so by the shipper. Customs declaration: Although customs authorities require various documents like a commercial invoice, packing list, etc. the air waybill too is proof of the freight amount billed for the goods carried and may be needed to be presented for customs clearance. o Sample waybill (picture 11) Bill of lading A document issued by a carrier, or its agent, to the shipper as a contract of carriage of goods. It is also a receipt for cargo accepted for transportation and must be presented for taking delivery at the destination.
23 a bill of lading contains : (1) consignor's and consignee's name, (2) names of the ports of departure and destination, (3) name of the vessel, (4) dates of departure and arrival, (5) itemized list of goods being transported with number of packages and kind of packaging, (6) marks and numbers on the packages, (7) weight and/or volume of the cargo, (8) freight rate and amount. Delivery order A delivery order is a document that can be issued by the owner of freight, consignee, shipper or a carrier to deliver the goods to another party. A delivery order should be differentiated from the bill of lading. The delivery order is not a negotiable document, and it does not act as evidence or receipt of goods. A delivery order, explained as the full details and information regarding a delivery, is important for 3rd party deliverers. A delivery order contract includes the complete details of a delivery. It is generally an official document which is placed on company letterhead. o Sample delivery order (picture 12)
24 2. CUSTOM FORM
25 2.1 DEFINITION Customs Forms are important documents used by foreign customs authorities to clear mail for entry into their country and, when appropriate, to assess duty and taxes. When you mail a package to another country, the contents and value of an item must be declared on the customs form. 2.2 TYPES (1) Custom form no.1 (K1) Used by importer to import goods from other country. All the information required in this from when enable to determine the details of the goods imported to Malaysia. Also, to ease from custom process to release import shipment at the (2) Custom form no.2 (K2) Used by exporter who wanted to export their goods overseas. It is contained all information details of the goods for export. Details are similar like Custom Form No.1 Will enable custom to process and release for export at load port or Malaysia border Port or border. (3) Custom form no .3(K3) This form used by the company who wanted to export to east Malaysia(Domestic Export) It is required for transit purpose before the good discharge or loaded at the particular state. Full details to be completed and for easy process by the custom. Use only by air or sea. (4) Custom form no.8(K8) This form used as an application / permit to tranship / remove goods as follows:- Approval / permit to tranship duty/tax not paid goods in accordance with Section 23(2) Customs Act 1967 and Regulation 12, Customs Regulation 1977. Transit by road, i.e., the movement of duty/tax not paid goods in transit from the neighbouring country via Malaysia to another country.
26 E.g., From Thailand to Singapore via Malaysia road.(north-south highway)(Regulation 13 Customs Regulation 1977), Movement of imported (duty / tax not paid) goods from a custom port or airport to an inland Customs station (Regulation 14 Customs Regulation 1977). Movement of duty/tax not paid goods from one bonded area (licensed warehouse) to another bonded area (licensed warehouse). (Regulation 30) Movement of duty/tax not paid goods from the licensed warehouse for export (Regulation 31 Customs Regulations 1977). Movement of duty/tax not paid goods from/to the Free Zones for purposes of export / import. (Regulation 27 and 28 Free Zone Regulation 1991. (5) Custom form no. 9(K9) (Regulation 29 Customs Regulation 1977) This form is used as a permit / approval to remove dutiable goods from Customs Control and licensed warehouses such as Customs Warehouse, Public & Private Licensed Warehouses and Licensed Manufacturing Warehouses after the payment of relevant customs duty/ tax. This form is used for the declaration, payment of duty/tax and release of goods from the Licensed manufacturing Warehouses for sale to the local market / consumption. This also facilitates the partial removal of goods in small consignments / lots. However, should one whole shipment be released, then a Customs No.1 should be used to substitute a Customs No. 9. 2.3 SUPPORTING DOCUMENT FOR THE DECLARATION Supporting documents for the declaration forms are as follows:
27 Delivery order Packing list Original invoice (commercial invoice) Bill of lading Certificate of origin Import licenses which may be required by a proper officer of customs. Letter of credit / Bank Guarantee (1) Tariffs Is defined as a form of duty or tax levied on goods for protective purposes and revenue purposes when they are transported from one customs area to another. (2) Duty Is a form of taxation levied on certain goods, services, or other transactions that are imported and exported. Must be paid first before the goods can be released from customs control. (3) Tax is a mandatory fee or financial charge levied by any government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure. 2.4 LAYMAN’S TERM K1 - Import for dutiable and non-dutiable goods. K2 - Export for dutiable and non-dutiable goods. K3 - Import & Export of dutiable and non-dutiable goods within Malaysia. K8 - Declaration of duty not paid goods. (1) By rail - Pasir Gudang declared K8 to rail the containers from Pasir Gudang to Port Klang without paying the duty. Port Klang declared K1 to clear the containers by paying duty. (Dutiable cargo) (2) Transhipment - From one port tranship from another port. K8 can move container from Westport to Northport and vice versa without paying duty.
28 K9 - Clear dutiable cargo slowly out from bonded warehouse. K8 declares for the container truck into bonded warehouse and K9 clears the cargo partial by partial out from the warehouse probably due to high duty charges. (Picture 13) (picture14) (Picture 15) (picture 16) 3. EDI & EFT 3.1 EDI
29 Electronic Data Interchange (EDI) is the electronic interchange of business information using a standardized format; a process which allows one company to send information to another company electronically rather than with paper. Business entities conducting business electronically are called trading partners. 3.2 ADVANTAGES AND DISADVANTAGE ADVANTAGE DISADVANTAGE Lower operating costs - Saves time and money High Dependence on the participation of trading partners Less Errors = More Accuracy - No data entry, so less human error Costly for smaller company Increased Productivity -More efficient personnel and faster throughput Difficult to agree on standard to be used Faster trading cycle - Streamlined processes for improved trading relationships hackers 3.3 DIFFERENCE TRADITIONAL DOCUMENT EXCHANGE AND EDI
30 Traditional Document Exchange of a Purchase Order An EDI Document Exchange of a Purchase Order This process normally takes between three and five days. This process normally occurs overnight and can take less than an hour. Buyer makes a buying decision, creates the purchase order and prints it. Buyer makes a buying decision, creates the purchase order but does not print it. Buyer mails the purchase order to the supplier. EDI software creates an electronic version of the purchase order and transmits it automatically to the supplier. Supplier receives the purchase order and enters it into the order entry system. Supplier's order entry system receives the purchase order and updates the system immediately on receipt. Buyer calls supplier to determine if purchase order has been received, or supplier mails buyer an acknowledgment of the order. Supplier's order entry system creates an acknowledgment an transmits it back to confirm receipt. (Picture 17) (picture 18) 3.4 EFT
31 is a system of transferring money from one bank account directly to another without any paper money changing hands. EFT (electronic fund transfer) is used to move money from one account to another. The transaction is completed electronically, and the two accounts can be at the same financial institution or different financial institutions. 3.5 BENEFITS AND DISADVANTAGE Benefits of EFT This process normally takes between three and five days.This process normally occurs overnight and can take less than an hour. Buyer makes a buying decision, creates the purchase order and prints it. Buyer mails the purchase order to the supplier. Supplier receives the purchase order and enters it into the order entry system. EDI software creates an electronic version of the purchase order and transmits it automatically to the supplier. Supplier's order entry system receives the purchase order and updates the system immediately on receipt. Supplier's order entry system creates an acknowledgment an transmits it back to confirm receipt. Disadvantages of EFT a lot of money must be spent of security of networks. Hackers may monitor transactions and obtain confidential information. very expensive to develop such types of information systems. (Picture 19) 4. BILL OF LADING
32 4.1 DEFINITION The bill of lading, or BOL, at its most basic is a legal document. This legal document protects the shipper, the carrier, and the customer all in one place. Acting as a contract between all parties, the bill of lading contains all pertinent information about a given shipment. For instance, it lists the names as well as typically the addresses and phone numbers of shippers and consignees. Also, it includes an itemized list of the goods being transported. This list should include the quantity as well as weight of the cargo. It is one document represented exporter and shipping companies who shipped the shipment from origin port to destination port. Issued by shipping company and all the information filled by the exporter. Information from bill of lading actually the agreement between both parties which is related to shipment of the goods from origin to destination. It is also given detailed information to exporter and the shipping company who shipped the goods with the following details. The possible risk face by them in term of loss and damage of the goods. Actual information about the shipment. Terms and contract agreed by both parties. 4.2 3 MAIN FUNCTION
33 B/L is a receipt for goods. It is a receipt for goods received carriage. Once shipped on board endorsement has been added (if required) it becomes a receipt for goods on the nominated vessel. B/L is evidence of the contract carriage. It is the contract. However, the fact if not being issued does not mean that no contract as the contract commence at the time of booking and subsequently issue of the B/L merely confirm this arrangement and provide the evidence of the contract there by agreed. B/L is a transferrable of Title to Goods This means that goods can be bought and sold merely by the passing of a B/L consigned “to order” whether of the shipper or of a named consignee. Provide that all the endorsement is in order. 4.3 TYPES BOL (1) Order B/L A negotiable bill of lading made to the order of the shipper, who can legally sell it to anyone. An order bill of lading allows the shipper to collect for the shipment before it reaches its destination. Also called negotiable bill of lading. (2) Straight B/L In this importer/consignee/agent is named in the bill of lading, it is called straight bill of lading. It is a document, in which a seller agrees to use a certain transportation to ship a good to a certain location, where the bill assigned to a certain party. It details to the quality and quantity of goods. A non-negotiable written receipt provided by a shipper for a consignment that must be delivered directly to the specified party.
34 (Picture 20) (1) SHIPPER (From) - Enter the company name and address of the shipper (Consignor). (2) POINT OF ORIGIN (At) - Enter the city and state of the actual shipping point. (3) DATE OF SHIPMENT - Enter the date of the shipment; that is, the date the Carrier took control of the merchandise. (4) TRUCK/FREIGHT - Check the truck block if the shipment is to move by truck, or the Freight block if the shipment is to move by rail. (5) SHIPPER'S NUMBER - Enter a unique control number to reference the shipment with the Carrier. (6) CARRIER - Enter the name of the company which will take initial control of the shipment and cause its delivery to the consignee. (7) AGENT'S NUMBER - Enter Carrier's control number, if known or required. (8) CONSIGNED TO - Enter the full of the final recipient of the shipment, the ultimate consignee, if different than destination, for Carrier notification purposes. (9) DESTINATION - Enter the street address, city, and zip code where the Carrier will make delivery to the Consignee in Field 8.
35 4.4 SAMPLE (picture 21)
36 5. LETTER OF CREDIT 5.1 DEFINITION A letter of credit, or "credit letter" is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility. A letter of credit is a document from a bank that guarantees payment. There are several types of letters of credit, and they can provide security when buying and selling products or services. Seller protection: If a buyer fails to pay a seller, the bank that issued a letter of credit must pay the seller as long as the seller meets all of the requirements in the letter. This provides security when the buyer and seller are in different countries. Buyer protection: Letters of credit can also protect buyers. If you pay somebody to provide a product or service and they fail to deliver, you might be able to get paid using a standby letter of credit. That payment can be a penalty to the company that was unable to perform, and it’s similar to a refund. With the money you receive, you can pay somebody else to provide the product or service needed. 5.2 BASIC TYPES (1) Revocable Letter of Credit (L/C): If the Letter of Credit (L/C) can be cancelled or modified at any time without consent of the exporter, it is called revocable Letter of Credit (L/C). (2) Irrevocable Letter of Credit (L/C) : If the Letter of Credit (L/C) cannot be cancelled or modify without consent of the exporter, it is called irrevocable Letter of Credit (L/C).
37 5.3 BENEFITS TO EXPORTER AND IMPORTER To The Exporter/Seller Letters of credit open doors to international trade by providing a secure mechanism for payment upon fulfilment of contractual obligations. A bank is substituted for the buyer as the source of payment for goods or services exported. The issuing bank undertakes to make payment, provided all the terms and conditions stipulated in the letter of credit are complied with. Financing opportunities, such as pre-shipment finance secured by a letter of credit and/or discounting of accepted drafts drawn under letters of credit, are available in many countries. Bank expertise is made available to help complete trade transactions successfully. Payment for the goods shipped can be remitted/submitted to own bank. To the Importer/Buyer Payment will only be made to the seller when the terms and conditions of the letter of credit are complied with. The importer can control the shipping dates for the goods being purchased. Cash resources are not tied up. 5.4 HOW IT WOKS (Picture 22)
38 A beneficiary is the person you're sending money to - also known as a recipient. A beneficiary bank is the bank which holds the account you're sending money to. Applicant means a person at whose request or for whose account a letter of credit is issued. The term includes a person who requests an issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse the issuer. Letter of credit is opened and finalized by the issuing bank. The issuing bank is the institution that gives ultimate irrevocable and conditional payment guarantee to the beneficiary. All other banks are acting according to the instructions and authorization that they have received from the issuing bank. Advising Bank is the bank that advises the letter of credit to the beneficiary. Advising banks act upon the request of issuing banks. Generally, advising banks are located in the same country as beneficiaries. That is why issuing banks need their services. o Sample letter of credit (picture 23)
39 6. CONCLUSION Import and export documents contain important information that is necessary not only for the buyer and seller but for customs authorities, carriers and foreign governments. Failure to include the proper documentation with your imports and exports can result in fines and even seizure of your goods by customs. Imports lead to an outflow of funds from the country since import transactions involve payments to sellers residing in another country. Exports are goods and services that are produced domestically, but then sold to customers residing in other countries. you'll need documentation to cover the transport of the goods and insurance during the journey. the right paperwork can be an important part of the payment mechanism. consider requirements for the country the goods are being exported from and the country they're being imported into. in conclusion, exporting is a popular entry strategy for firms venturing abroad for the first time and it is an entry strategy responsible for the massive inflows and outflows that constitute global trade. Exporting generates substantial foreign-exchange earnings for nations.