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FTNX Payment via Documentary Letter of Credit (DLC)
As politicians and leaders create disharmony and turmoil in the international market place, the two aspects that must still prevail when selling or buying commodities or when big business is being conducted internationally. Aspect (1):The end buyer must obtain goods as ordered in where at aspect (2); the seller must be able to have payment for exported goods guaranteed when clean delivery is apparent. Any aspect in between these two are regarded as risk laden and financially precarious trading applications. Unfortunately when one does not abide by strict principles of delivery and payments then one can expect loses to be incurred.
ICC PARIS FRANCE DLC Rules
Under ICC delivery rules defined as Incoterms, the term delivery means ‘delivery of documents’ and not actual goods. A supplier must be paid before good leave POL. Accordingly to ensure both safe aspects of trade are apparent, strict adherence to incoterms must apply as payments to be collected upon, interact with Incoterms. Without these transactional rules the global financial payment system would represent the ‘wild wild west’ scenario. The buyer FTNX signs the contract with the supplier and within 7 days advises a DLC denoting all terms and condition pertaining to collection proceedings.The supplier has 5 banking days to accept the DLC. Once accepted, the supplier has 5 days to advise a financial instrument to FTNX declaring a performance guarantee. The DLC issuance process applies UCP rules and the collection process applies URC rules as administered by the ICC Paris France. A bank issued DLC is available to suit any purchase situation. FTNX only uses to apply the type of DLC as provided below and variations therein. In all matters of delivery and collection applied to a financial instrument, expenses are incurred when changes to the delivery of payment routine is apparent. Amendments and waivers are costly applications. This is why it is important to ensure safe trading and payment procedures are applied from start of the deal with no short cuts allowed.
FTNX makes an offer to procure (OTP) to the supplier, when it’s ready to make a purchase of export ready goods. On the OTP full explanation to do with matters of delivery and payment are made apparent. The supply side is more complex than completing a deal on the end buyers side. The economic or political situation of a country issuing a credit is also of great importance.
The end buyers side payment instrument is explained below, the mirror effect of the same basis will become apparent to the supplier side even though a different format on the financial instrument used may apply.
Payment for Goods to FTNX via a UCP endorsed DLC
FTNX will expect from a buyer the following bank issued financial instrument for payment of goods bearing UCP 600 rules of issuance or as current. If the letter of credit is not issued from 100 ranked bank of the world, the DLC must be advised bearing confirmation of the issuing bank or second corresponding bank.A top one hundred bank of the world does not need to confirm its credit. The transport documents are presented ‘at sight’ to the confirming/bank. Transfer fee, bank fees, amendment fees, and availing fees are added expenses incurred which the bank claims prior to enacting on the credit. The role of the bank is a very important one as they act as an intermediary between FTNX and the supplier or end buyer as such, banks earn fees and commissions for the valuable position and service they provide in supervising the financial side for the deal. The bank has no part in matters of the contract. Banks deal in finance not contractual matters pertaining to the export deal.
FTNX will expect from an end buyer the following kind of instruments to pay for goods as stipulated on the offer served by FTNX. Changing single key words means a different situation become apparent. Keywords such as; Pre-advised, irrevocable, revocable, cumulative revolving, non cumulative revolving, confirmed, deferred, acceptance, bank issued, transferable, negotiable, DLC, SLC, etc.etc.
- A Pre advised, irrevocable, transferable non cumulative revolving UCP 600 ruling Documentary letter of credit.The credit covering the whole value of the contract where two payment is advance is always apparent. As one credit value is collected on a delivery, another value fills its place is the standard aspect. Where deliveries may clash in a manner where two shipments may at time arrive in the same month, two credit values is advance must apply that is; as one credit is collected upon its value is replaced to ensure two shipment values are in the account at all times. When a pre-advised credit is used, the end buyer must first ask its bank if they will issue a UCP 600 endorsed PA TIDLC before accepting an offer–not all banks can be bothered to issue a pre advised credit. This is the easiest and least expensive credit to advise. If the DLC from the buyer is not going to be opened as transferable, then FTNX will expect the DLC to be advised as confirmed as well. This will stall the collection aspect by ten days; hence accepting the first credit within 5 banking days of issuance is the quickest option. As stated changes made to a credit means added expenses and delays. A pre-advised credit once activated become irrevocable once the condition of pre-advising the credit has been met. FTNX offers the end buyer a FTNX initiative defined as a PPI (Policy Proof of Interest ) document, as advised by from our bank to the bank of the end buyer; so as to have the pre advised status removed from the DLC where a full active credit becomes apparent.The PPI has full details of where supply is located and the details of our supplier from whom we have have purchased the goods from. The ends buyer may even talk to the supplier by phone or other means, to confirm that they have goods belonging to FTNX; nothing else will be revealed beyond the said scope. Upon the PPI document being advised, the pre-advised aspect of the credit is removed prior to first delivery being finalised. Whether the PPI is verified or not is not our concern; what is out concern is that during the course of a transaction it is found that the the information in the PPI is falsely served, then a fraudulent act is able to revoke the irrevocable status of a credit. Something which will not happen with FTNX. The PPI is an added FTNX security protocol.
- Variants of the above base DLC issuance aspect may apply as per the keywords used.
- Once the PPI is advised and the credit is fully activated the process of delivery starts.
- If FTNX is late on any delivery a Late Delivery Discount (LDD) will be served as a discount of the price of goods for the delivery which is deemed late; or LDD is paid directly to the account of the buyer within 7 days of a late delivery call.
- FTNX LDD rate between 2.0% to 3.0% is often given on the offer, or sales contract.
- If the end buyer prefers to have a deferred payment option, then a deferred collection period can be discussed of up to 60 days; which will attract and added interest component to the value of goods. The DLC must be advised as transferable negotiable and confirmed to have this option. This option allows the goods to arrive at destination port, in where the end buyer can sight the goods and even sell the goods before the deferred value of credit is collected within i.e: 45 days for first delivery. FTNX will have to wait 45 days after delivery before it can collect the full value of the DLC. FTNX has discretion on this matter depending on the kind of good being purchased and quantities being delivered monthly. A D/P aspect allows the buyer to actually sight goods first before payment is collected by the seller.
The terms and condition applied on the credit and not the contract is what must be observed and enacted upon before a DLC is able to be collected upon.
It’s All About Safe and Proper Procedures
An SLC is never served to pays for goods as this is an unconditional instrument; the SLC can be ‘cashed in.’ A DLC on the other hand is a conditional instrument. Meet all the condition advised on the instrument in due course as dictated by universal banking rules under UPC 600 allows the DLC to become collectible and transferred into our account accordingly. If conditions are not met, the DLC is worthless. This is where the added security features are inherited within the bounds of a ICC UCP 600 bank issued DLC. These deals take months to close, and the goods are loaded onto a ship/plane to complete delivery within 30 days after contract is signed; meaning that there is plenty of time to verify matter so shipments. As stated previously under UCP 600 rules only fraudulent activity can cancel the irrevocable aspect of a UCP 600 bank advised DLC; serves further confidence to the end buyer that they are dealing safely and with professional traders.
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