Chapter5 methods of
international settlement
Chapter5 methods of international
settlement
 remittance
– definition
Remittance refers to a bank (the remitting bank), the
request of its customer (the remitter), transfers a
certain sum of money to its overseas branch or
correspondent bank (the paying bank) instructing it to
pay a named person domiciled in that country.
– Parties
The remitter: the person who requests his bank to
remit funds to a beneficiary in a foreign country.
Chapter5 methods of international
settlement
Remitting bank: the bank transferring funds at
the request of a remitter to its correspondent or
its branch in another country and instructing the
latter to pay a certain amount of money to a
beneficiary.
paying bank: the bank entrusted by the
remitting bank to pay a certain amount of
money to a beneficiary named in the remittance
advice.
The payee: a person who is addressed to
receive the remittance.
Chapter5 methods of international
settlement
– types
 T/T (telegraphic transfer) : remittance by
cable/telex/SWIFT
 M/T (mail transfer): remittance by airmail (see P71)
 D/D (demand draft ): remittance by banker’s demand
draft. (see P71)
A banker’s draft is a negotiable instrument drawn by a
bank on its overseas branch or its correspondent bank
abroad ordering the latter to pay on demand the stated
amount to the holder of the draft.
Chapter5 methods of international
settlement
Chapter5 methods of international
settlement
– Reimbursement methods
crediting vostro account of the paying bank: when
paying bank opens a current account with the
remitting bank, such as
In cover, we have credited the sum to your account
with us.
Debiting remitting bank’s nostro account: when the
paying bank maintains the remitting bank’s account,
such as:
Please debit the sum to our account with you, or
You are authorized to debit the sum to our account with
you.
Chapter5 methods of international
settlement
Instructing a reimbursing bank to effect payment by
debiting the remitting bank’s nostro account: when the
remitting bank doesn’t open an account with the
paying bank, the former may instruct its correspondent
with which it maintains an account, to debit the
account and credit the paying bank’s account if the
paying bank also has an account with that
correspondent, such as:
In cover, we have authorized The Bank of Tokyo, New
York to debit our account and credit your account with
the above sum.
Chapter5 methods of international
settlement
Instructing the paying bank to claim
reimbursement from another branch of the
same bank or another bank with which the
remitting bank opens an account:
In cover, please reimburse yourselves to the
debiting of our account with The Bank of Tokyo,
New York.
According to the payments agreement between
two countries:
In cover, you are authorized to debit our Central
Bank’s clearing account with your Central Bank.
Chapter5 means of international
settlement
 Collection
– definition
“Collection” means the handling by banks of
documents, in accordance with instructions
received, in order to:
i. Obtain payment and/or acceptance; or
ii. Deliver documents against payment and/or
against acceptance; or
iii. Deliver documents on other terms and
conditions.
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settlement
– classifications
 clean collection: means collection of financial
documents not accompanied by commercial
documents.
 documentary collection: means collection of:
i. Financial documents accompanied by
commercial documents;
ii. Commercial documents not accompanied by
financial documents.
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settlement
–
Parties
The principal (seller/drawer): the person who prepares documents
and submits them to his bank (remitting bank) with a
collection order for payment from the buyer (drawee);
The remitting bank: the bank receiving documents from the seller
for forwarding to the buyer’s bank along with instructions for
payment;
The collecting or presenting bank: the bank that presents the
documents to the buyer and collects cash payment or a
promise to pay in the future from the buyer in exchange for
the documents.
The drawee (buyer): the party that makes cash payment or
accepts a draft in exchange for the documents from the
collecting bank.
– 流程
D/P
D/A
Chapter5 means of international
settlement
– Collection order
The collection order is a standard form of
authority that enables the exporter to include
specific instructions to his bank regarding the
documentary collection.
If the collecting bank can’t comply with the
instructions given in the collection order, it
must immediately advise the remitting bank.
See exhibit 5-2.
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settlement
– Risks involved in Collection
For exporter,
Non-acceptance of merchandise;
Non-payment of trade acceptance: the exporter
takes not only the risk that the time draft will
not be accepted, but also the risk that the
acceptance will not be paid at maturity;
possession of goods;
Exchange restrictions.
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For importer,
Payment may have to be made prior to the arrival
of the goods;
By accepting a bill of exchange under the
documents against acceptance collection, the
importer incurs a separate legal liability on the
bill of exchange besides his liability on the
sales contract;
In some countries, if a bill of exchange is
protested, this can ruin the reputation of the
importer.
Chapter5 means of international
settlement
 letter of credit (L/C)
– definition and characteristics
 Definition:
A documentary credit is any arrangement, however
named or described, whereby a bank (the issuing
bank) acting at the request and on the instructions
of a customer (the applicant) or on its own behalf:
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Ⅰis to make a payment to or to the order of a third
party (the beneficiary), or is to accept and pay bills
of exchange drawn by the beneficiary;
Ⅱauthorizes another bank to effect such payment or to
accept and pay such bills of exchange;
Ⅲauthorizes another bank to negotiate, against
stipulated documents, provided that the terms and
conditions of the credit are complied with.
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settlement

Characteristics:
The issuing bank takes the first responsibility
to pay, independent of whether the applicant
is bankrupt or is in default or not, provided the
documents presented are in compliance with
the terms and conditions of the credit;
L/C is a transaction of documents (article 4);
L/C is independent on trade contract (article 3).
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Advantages
The seller is assured that payment will be made by a party
independent of the buyer so long as the terms and conditions
of the credit are complied with;
The buyer is assured that payment will be made to the seller
only after the bank has received the title documents called for
in the credit.
–
parties and their relationship
 applicant: an importer who requests his bank to issue a credit
in favor of the exporter;
 issuing bank or opening bank: the bank which issues a letter
of credit at the request of an applicant; (article 9a )
 beneficiary of L/C: the exporter in whose favor the credit is
issued;
–
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 advising bank or notifying bank( transmitting bank):
correspondent bank or branch of the issuing bank to
whom the letter of credit is routed for transmission to
the beneficiary; (article 7)
 paying bank or drawee bank, paying bank agent: a
bank who is authorized by the issuing bank to pay
the beneficiary;
 accepting bank: a bank accepting the draft under the
credit;
 negotiating bank: a bank that purchases the
documents under the credit; (article 10 and 14)
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settlement
 confirming bank: a bank, usually the advising bank,
which adds its undertaking to those of the issuing
bank and assumes liability under the credit; (article
9b, c, d)
 reimbursing bank: the bank from which the
nominated paying bank, accepting bank or any
negotiating bank that has made a payment, may
obtain reimbursement; (article 19)
 transferring bank;
 transferor of L/C;
 transferee of L/C.
 Liabilities and responsibilities of banks under L/C
(article 13, 15, 16, 17, 18)
Part1：国际结算方式概览


See an example of SWIFT L/C。
流程图：
Chapter5 means of international
settlement
– Classifications
 revocable credit & irrevocable credit (article 6 and 8)
Revocable credit: a credit that may be amended or
cancelled by the issuing bank without the
beneficiary’s consent and even without prior notice
to the beneficiary up to the moment of payment by
the bank at which the issuing bank has made the
documentary credit available. The revocable credit
doesn’t constitute an undertaking by the issuing
bank to make payment, so it is generally used
between affiliated parties or subsidiary companies.
Chapter5 means of international
settlement
Irrevocable credit: a credit that can’t be
cancelled or modified without the express
consent of the issuing bank, the confirming
bank (if any) and the beneficiary. It constitutes
an undertaking by the issuing bank to make
payment.
 confirmed credit & unconfirmed credit
Confirmed credit: a credit that carries the
commitment to pay by both the issuing bank
and the confirming bank. Advantage: a double
assurance of payment.
Chapter5 means of international
settlement
 transferable credit and non-transferable credit
transferable credit– Under this agreement, the
beneficiary (first beneficiary) may request the
authorized bank to pay, incur a deferred
payment undertaking, accept or negotiate (the
“transferring bank”), or in the event of a freely
negotiable credit, the bank specifically
authorized in the credit as a transferring bank
to make the documentary credit available in
whole, or in part, to one or more other
beneficiaries.
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settlement
characteristics of transferable credit:
The transferable L/C is suitable where a
middleman operates between the buyer and
seller, his profit being the difference in price. It
enables the middleman who is receiving
payment from a buyer to transfer his claim
under the credit to his own supplier.
article 48.
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settlement
back-to-back credit involves two separate
documentary credits, one opened in favor of the first
beneficiary, the other opened in favor of the second
beneficiary for the account of the first/primary
beneficiary who becomes the applicant for the
second documentary credit. The first L/C is used as
security for the second L/C.
A back-to-back credit may be used when the credit
issued in favor of the middleman is not transferable
or though transferable it does not meet his
requirements.
Chapter5 means of international
settlement
 payment L/C, negotiation L/C, acceptance L/C,
deferred payment L/C
Payment L/C: a credit available by payment , under
which the nominated bank is authorized to pay
against the shipping documents with or without a
draft;
Acceptance L/C: a credit available by acceptance,
under which the nominated bank is authorized to
accept the draft;
Deferred payment credit: a credit under which the
beneficiary doesn’t receive payment when he
presents the documents, but at a later date specified
in the credit. No draft is required.
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Negotiation L/C: a credit under which a
specifically nominated bank or any bank is
authorized to negotiate the documents and /or
drafts. Negotiation of drafts and/or documents
is with recourse to the beneficiary unless the
credit has been confirmed by the negotiating
bank.
The differences among the above L/Cs see
appendix.
 stand-by L/C & commercial L/C;
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 special types of L/C
revolving L/C– Under the terms of this L/C, the
amount is renewed or re-instated without
specific amendments to the documentary
credit. This type of L/C may be revocable or
irrevocable and will revolve in relation to time
and value.
The revolving clause can be formulated in
different ways with different words stipulated
in the credit: automatic; semi-automatic; nonautomatic.
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settlement
reciprocal L/C, the beneficiary and the applicant in
the first L/C are the applicant and the beneficiary in
the second L/C. This credit is generally used in a
barter transaction.
anticipatory L/C or red clause L/C- a credit with a
special clause that authorizes the confirming bank,
or any other nominated bank, to make advances to
the beneficiary before presentation of documents. It
is a kind of pre-shipment financing intended to assist
the exporter in the production or procurement of the
goods sold.
Chapter5 means of international
settlement
A Usance Letter of Credit Payable at Sight is
a usance L/C issued by the issuing bank,
which undertakes to pay the beneficiary at
sight, provided the required documents are
submitted and the terms of the credit are
complied with, while the applicant makes
reimbursement to the issuing bank when the
tenor is due. It is a kind of finance offered to
the applicant and the interest thereof is
normally borne by the applicant.
结算方式
信用证
托收
汇款
如何付
款
基于付款承诺，由开证行支付
根据托收条件（D/A或
D/P），由进口商
付款
进口商通过银行
进行
结算依
据的
基础
银行信用
进口商的商业信用
进口商的商业信
用
货运单
据的
寄送
由银行转送
由银行转送
直接由出口商寄
给进口商
对进口
商的
利弊
即使货物品质不良，只要货运单
据与信用证条款吻合，必须付
款
不会有申请开立信用
证的繁杂手续与费
用
货款预付对进口
商不利，后付
有利
对出口
商的
利弊
利用信用证进行融资
在资金融通上较困难
货款预收有利，
后收则有风险
使用法律
《信用证统一惯例》
《托收统一规则》
无
Letters concerning Letters of Credit
Discrepancies in Documents under
Our Letter of Credit No. 4081419
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We are in receipt of your captioned payment advice together with the
relative documents.
We regret to advise you that we are unable to make payment for the
reason of the following discrepancies in the documents:
1. Net weight is not indicated on the invoice, packing list and inspection
certificate;
2. The number of cases shown on the invoice and the bill of lading is not
consistent.
We have referred the matter to our clients, who state that the above
discrepancies are unacceptable to them. They, however, express the idea
that the payment will be effected upon receipt of relative revised
documents and deducting the delay penalty from the invoice value.
Please take note of the above and convey the same to the beneficiaries.
We are now holding the documents at your disposal pending your
instructions.
Chapter5 means of international
settlement
1. A B/L shows only the gross weight (205.85MT)
whereas the other documents show only the net
weight (200 MT). Is this acceptable?
2. A credit does not allow partial shipments, the
beneficiary presents 3 sets of B/L, each with a
different date of loading on board but indicating
the same vessel and the same journey. Should this
be considered a partial shipment?
Chapter5 means of international
settlement
3. A credit concerns a shipment of "Fish/average
weight 400/450 grams per piece". The documents
presented show some pieces that are above or
below the weight range established but the
difference does not exceed 10% (i.e. they all weigh
between 360 and 495 grams). Is this acceptable?
Chapter5 means of international
settlement
4. A beneficiary presents documents prior to the
credit's expiry date but with discrepancies. The
beneficiary takes back the discrepant documents to
correct them and leaves the others with the bank.
He subsequently presents the corrected documents,
but in the meantime the credit has expired. Should
the bank refuse the documents due to "credit
expired"?
Chapter5 means of international
settlement
5. In a transferable credit, the first beneficiary may
subsititute:
a any documents
b only drafts and invoices
c drafts, invoices and insurance document
d any document except for the transport document
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6. A credit calls for a packing list and a list of weights: the
beneficiary presents a combined document called:" list of
packages and weights". Is this acceptable?
7. In a transferable credit, is it possible that the second
beneficiary may ask to retransfer the credit to the first
beneficiary?
8. The credit doesn't call for presentation of a transport
documents but requires a "warehouse receipt". Does the
rule concerning presentation within 21 days apply?