Provisions for Interpretation of Credits

A (1) Railroad export and forwarders' bills of lading will not be accepted.

(2) Ocean bills of lading permitting transshipment will be accepted.

B (1) Bills of lading shall contain no words qualifying the acceptance of shipments in apparent good order and con dition.

(2) "Received for shipment" or "alongside" bills of lading will be accepted and the date thereof taken to be the date of shipment, and in this case insurance shall cover the shipment from such date of shipment and on whatever vessels carried.

(3) When "on board" shipment is required and such shipment is represented by an "on board" bill of lading, the bill of lading date will be taken as the date when such shipment was effected; if evidenced by "on board" endorsement, the endorsement date will be so taken.

(4) Any extension of the date of shipment shall extend for an equal length of time the date for presentation or negotiation, and vice versa.

The term "insurance" shall be construed as including underwriters' certificate of insurance.

A shipment for any part of the specified property may be drawn against if the pro rata value can be verified. If shipment in instalments within stated periods is specified, and there is a failure to ship in any designated period, shipments of subsequent instalments, made in their respective designated periods, may be drawn against. When the indicated expiration date for presentation or negotiation falls on a Sunday or legal holiday, the expiration is extended to the next succeeding business day.

Presentation must be made during the usual banking hours.

The terms "prompt shipment," "shipment as soon as possible," "immediate shipment" or words of similar import shall be interpreted as requiring shipment to be effected within thirty days; and if no date for presentation or negotiation is stated, such presentation or negotiation must be made within thirty days from

the date of the credit or advice.

Documents representing more than the specified quantity of property may be accepted in the discretion of
the paying or negotiating bank without thereby binding the buyer to accept or pay for such excesses but
payment shall be limited to the sum named in the credit or advice,

The terms "approximately," "about," or words of similar import, shall be construed to permit a variation
of not exceeding ten per centum from the named sum or quantity.
Drafts drawn without recourse will not be honored.

Definitions of Export Quotations will be those adopted by the National Foreign Trade Council, Chamber
of Commerce of the U. S. A., National Association of Manufacturers, American Manufacturers' Export
Association, Philadelphia Commercial Museum, American Exporters and Importers Association, Chamber
of Commerce of the State of New York, New York Produce Exchange and the Merchants' Association of
New York at a conference held in India House, New York, on December 16, 1919.

Figure 20.-Confirmed irrevocable letter-of-credit (reverse of fig. 19).

exporter not only that the credit will not be withdrawn, without his consent, prior to a specified date, but also that the drafts drawn thereunder will be honored by the notifying bank as long as it remains open, no matter what may happen in the meantime to the opening bank. (See figs. 21 and 22.)

New York..

Dear Sirs:

We are instructed by.

to advise you that they have opened their irrevocable credit in your favor for account of

Credit No. D-b.

Authorized Officer

Figure 21.-Confirmed irrevocable letter-of-credit advice.

If the letter of credit is "circular" in form, it must be availed of by "negotiation;" in other words, the beneficiary will draw his draft either in dollars or foreign currency, according to the terms of the credit, on the opening bank, or some bank designated by it, and must seek out a bank which will negotiate the draft. For most exporters, especially those in smaller localities, the "specially advised" credit is preferable to the "circular" form.

"STRAIGHT" LETTER OF CREDIT

The

If the credit is "specially advised" and the notifying bank is also designated as the paying agent, it is termed a "straight" credit. principal distinction is that under a "negotiated" credit the beneficiary must bear the cost of negotiation, while under a "straight" credit this burden is placed upon the foreign buyer.

TIME AND SIGHT DRAFTS UNDER LETTERS OF CREDIT

The beneficiary may be authorized to draw at sight either upon the notifying bank (if the credit is "specially advised") or upon the opening bank (if the credit is "circular" in form). Or the credit may stipulate that the drafts be drawn at time, for acceptance, upon some well-known bank. In either case the beneficiary will receive payment at once-in the case of a time draft, by discounting it. But an acceptance credit will not only afford the foreign buyer a longer

period within which to meet his obligation but will also give him the benefit of the interest rate for prime bankers' acceptances, which is lower than the ordinary commercial bank rate.

"SIMPLE" CREDITS

If the opening bank carries a credit balance with the notifying bank, the payment made to the beneficiary, plus commission, is debited to this account. Such a credit is termed a "simple" credit.

"REIMBURSEMENT" CREDITS

If, however, the opening bank does not have a credit balance with the paying (notifying) bank or prefers not to have this balance debited, the paying bank will draw a draft for the amount of the payment it makes plus commission and interest to date of reimbursement, either on the opening bank or on another designated correspondent of that bank. In that case the credit is of the type known as "reimbursement."

ADVANTAGES OF LETTERS OF CREDIT TO THE EXPORTER

To the exporter the chief advantage of having a letter of credit established in his favor is that it assures him of prompt payment for the shipment when the same is ready and thus eliminates doubts as to the buyer's capacity to pay. If the credit is of the irrevocable type, the exporter is protected against cancelation of the order prior to the date specified for shipment. If the credit is also confirmed by a bank in the exporter's country, he is doubly assured as to payment, for the responsibility of two banks is thus involved.

ADVANTAGES AND DISADVANTAGES TO THE FOREIGN IMPORTER

To the foreign buyer or importer, the letter of credit offers the advantage of making certain that the specified conditions as to date of shipment, documents, etc., will be complied with before payment is made. On the other hand, opening a letter of credit means that a corresponding amount of the importer's line of credit with his own. bank and of that bank's line with its correspondent in the United States is tied up for the time being. In addition, there are commissions and exchange charges to be paid, adding to the cost of the goods. to the importer.

DISADVANTAGES TO THE EXPORTER

The features just mentioned may work to the American exporter's disadvantage, if his product is a highly competitive one. A competing foreign exporter, for example, may not be able to quote a lower delivered price on a given product but he may quote better terms-that is, sight draft against documents or 30, 60, or 90 days' sight, thus assuming the burden of the financing instead of placing it upon the foreign importer. The American exporter must take this fact into account when deciding upon terms of payment; also the facts that certain countries, particularly in Latin America, have become accustomed to longer credit terms from foreign sellers and that certain foreign governments now aid their exporters by government financial assistance, credit insurance, etc.