International settlements

Definitions

•Definitions used with settlements involving documentary letters of credit:

Acceptance is the consent to pay or guarantee payment of payment documents.

Accepting Bank is a bank that made acceptance on a bill of exchange and will accept it for payment after the stated date.

Advising Bank is the seller's bank with the task of advising (notifying) the exporter on a letter of credit without any liability on its part in relation to the payment, acceptance, or negotiation.

Applicant is a legal entity that has applied to the service bank to open a letter of credit (order-issuer of a letter of credit, importer, payer).

Assignee is the third party (as applied to letters of credit, besides the applicant and beneficiary), in favor of whom the funds of the transferable letter of credit may be transferred.

Assignor - as applied to letters of credit - is a beneficiary who instructs the advising bank on the transfer of a part of the funds of a transferable letter of credit to a third party.

Available Bank is the bank that makes payment against the submitted documents, undertaking the deferred payment, accepting or negotiating the bill of exchange.

Beneficiary (Exporter, Seller) is a legal entity in favor of which the letter of credit is issued (exporter, seller, works or services contractor).

Bill of Exchange (Draft) is a bill of exchange containing the written order of a bill holder addressed to the payer to pay a certain amount within a certain term.

Bill of Exchange (Draft) is an unconditional written order of one person (drawer) to another person (drawee) signed by the first person and demanded of the second person to pay on sight, or on a specific date in future, a determined amount of money to the drawer on its order, or the bearer in the manner mentioned in the bill of exchange.

Confirmed Letter of Credit is an irrevocable letter of credit payment under which, in addition to the issuing bank, is guaranteed by another (confirming) bank (it may also be an advising bank). The confirming bank will give the beneficiary its own obligation to make payments stipulated by the letter of credit in time.

Confirming Bank is a bank (as a rule, being also an advising bank) that at the request or upon the consent of the issuing bank adds its irrevocable obligation to pay/accept/negotiate without turning to itself or other banks (i.e., unconditionally) against correctly submitted documents in accordance with the terms of the letter of credit.

Consignee is a person to whom goods are delivered. Equivalent: addressee.

Consignor (Shipper) is a person who sends goods, and is usually, though not always, a beneficiary.

Credit Applicant (Applicant, Buyer, Drawee, Accreditor) is a person who orders the issue of a letter of credit and determines its conditions (buyer, importer, drawee (it requires the use of a bill of exchange on conditions of the letter of credit)).

Divisible letter of credit is a letter of credit that stipulates the payment of funds to the exporter in accordance with the contract after every partial delivery.

Drawer is a person drawing a bill of exchange, a giver of the bill.

Drawee is a person for whom a bill of exchange was issued.

Due Date (Maturity Date) is the date indicated in the accepting inscription on the bill of exchange (term of payment).

Endorsement is, as a rule, an inscription made on the reverse side of a bill of exchange, check, or other document indicated by the person to whom all the rights under that document are transferred.

Execution of a letter of credit by acceptance - the exporter issues a bill of exchange for the issuing bank, or the bank confirming the payment, or the buyer. The process of providing documents does not include a payment, but acceptance of the bill of exchange. The payment will be made within a certain term. The letter of credit with a bill of exchange allows the importer to sell the goods before the term of payment and pay the acceptance at the expense of the proceeds.

Execution of a letter of credit by deferred payment - stipulates that the beneficiary receives payment not upon the submission of documents, but in a later term provided in the letter of credit. When submitting documents in accordance with the letter of credit, the beneficiary receives the written consent of the issuing or confirming bank to make payment on the relevant payment date. Execution of a letter of credit by deferred payment, as well as by acceptance, allows the importer to become the owner of the documents earlier than the payment is made.

Execution of a letter of credit by negotiation - the issuing bank authorizes the beneficiary to issue a bill for it or for a credit applicant. Negotiation means payment of funds by the bank authorized for negotiation against bills of exchange and/or documents provided by the beneficiary. Negotiable letters of credit may be paid both immediately and on the date of payment. Letters of credit may be with free or restricted negotiation. If a letter of credit has free negotiation, any bank may act as a negotiating one.

Execution of a letter of credit by payment on sight- settlements with the beneficiary are made immediately after the submission of the relevant documents to the available bank if all other conditions of the letter of credit are met.

Irrevocable Letter of Credit is a letter of credit that may be modified or cancelled only with the consent of the beneficiary in whose favor it was opened. An irrevocable letter of credit provides the beneficiary with a high level of confidence that its deliveries or services will be paid if he meets all the conditions of the letter of credit.

Issuing Bank (Opening Bank) is the payer's bank that opens a letter of credit on the instruction of its client.

Letter of Credit (L/C, Documentary Credit, Credit) is a form of settlement with which the issuing bank on the instruction of its client (issuer of a letter of credit) or on its own behalf is obligated to:

• authorize another (available) bank to make such payment;
• make payment in favor of the third party (beneficiary) for the delivered goods, performed works, and rendered services.

Negotiating Bank is a bank that negotiates (takes into account) bills of exchange issued by a beneficiary in accordance with conditions of a documentary letter of credit, and that are subject to payment in another bank. If the negotiating bank attaches no confirmation to the letter of credit, the negotiation will be done by referring to the exporter.

Negotiation - as applied to documentary transactions - is the acceptance and cost determination (verification of genuineness with reasonable care) of bills of exchange for referring to the drawee, or for payment (if the bank attaches a confirmation).

Non-divisible Letter of Credit is a letter of credit that stipulates the entire amount owned by the exporter will be paid after the completion of deliveries or after the last partial delivery.

Reimbursing Bank is a bank mentioned in the conditions of the letter of credit as a payer against bills of exchange on sight by the term mentioned in the acceptance, etc., and issued on conditions of the letter of credit.

Revocable Letter of Credit is a letter of credit that may be changed or cancelled by the issuing bank, in the majority of cases upon, the order of the Credit Applicant, without prior agreement with the beneficiary. The revocable letter of credit does not give the beneficiary any guarantees of receiving payment for the shipped goods or rendered services, thus, it is practically not used in foreign trade settlements.

Secured Letter of Credit is a letter of credit opened by the issuing bank with the preliminary transfer of currency funds (security) to the available bank in the amount of the letter of credit for the term of obligations of the issuing bank on condition of the opportunity for their use for payment under the letter of credit.

Transferable Letter of Credit is a letter of credit stipulating the opportunity for its use in full or in part by one or several beneficiaries. A transferable letter of credit is when the first beneficiary does not deliver goods by itself but is an intermediary and wishes to assign some part or all of its rights and obligations to a real supplier (the second beneficiary). The first exporter will order the advising (available) bank to advise the second exporter (supplier) on the amount that is subject to transfer and on conditions of the letter of credit.

Transport Documents (Documents of Movement) are documents confirming the shipment/sending of goods. In the documentary transactions, the following transport documents are widely used: bill of lading, air waybill, road waybill, and railroad waybill, post office receipt.

Unsecured Letter of Credit is a letter of credit opened by the issuing bank without the preliminary transfer of currency funds to the available bank.