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Sample letter for outstanding payment for Logistics

okay uh we have now uh six participants we have mr mateen mr kadeer mr asif mr kasim so i will start slowly slowly like that with introduction until they join us okay so my dear can you see my screen now yes yes oh my god so this lecture is about letter of credit somebody use aggravation loc or slash c whatever it is in the end it's a tool you know it's a financial tool so can anyone give me some hints when you hear the word letter of credit what do you think it is a letter of credit uh uh is a bank guarantee okay that a buyer's payment to a seller will be received on time and the correct amount great great that's correct you know because if there is one seller in an overseas country and a buyer is in another country both of them will be feeling uh some suspicious you know if i send you the goods uh you may not pay on time and if the seller asks the buyer to pay in advance okay the buyer maybe i pay in advance and never receive the goods you know so someone should be there to guarantee that payment will be done on time cargo will arrive on time so banks are interfering here as intermediaries between the lawyer and the seller but why we study this subject why do we study the lc the letter of credit any idea why we study this one and we are going through a lot of details which is financial details you know as shipping people and logistics people we are not concerned with too much with financial details because the people of account will deal with that but lc should be understood by the sales and the operation people because you know normally you will find a shipper talking to you if you are loading some cargo for a shipper you will always hear remarks like please put this and that in the bill of leading you ask him why he said okay because this is stated in the letter of credit the shipper and the receiver of goods they agree together to some guidelines and some restrictions and instructions in develop in the letter of credit this instruction should be followed when you prepare the bill of leading and when you load the cargo for example the lid of credit can state a specific date for loading if you tell your customer for example my ship is arriving on the 21st he said no he can say no my letter of credit stating that shipping should be done before the 20th for example so he is obliged to load before the date which is set in the bill they will also dictate some [Music] statements to be placed in the face of the willow bleeding like a ship down board clean bill of lading how many originals should be there you will find these statements in the face of the wheel of living shipped on board you will find that this one is stated in the letter of credit so we should oblige by the instructions in the bill of reading again they can put to order bank when i see to order bank immediately i will understand this shipment is based on letter of credit correct yes doctor yeah because now the consignee is bank the consignee is not the actual consignee the consignee is a bank so this bank naturally is involved in the payment and dispatch of money dispatch of document during the letter of credit operation so actually it's a promise by a bank on behalf of the buyer to pay the seller through his bank you know we we have here two banks we have bank of the buyer and bank of the seller two banks are involved we do this to guarantee payment and to guarantee the safe safeguarding of interest of both shipper and receiver of goods so sometimes they call the letter of credit documentary credit sometimes they call it like that bankers commercial credit letter of undertaking but normally the most common term is letter of credit or documentary credit most people are using letter of credit this is a sample of a letter of credit you will find issue date this is the the type of letter of credit irrevocable there are many types of letters of credit irrevocable what is the meaning of the word irrevocable if one issue we cannot take back is a kind of litter of credit which after issuing you cannot cancel or uh invalidate because there is another kind of letter of credit called revocable in this case after issuing the bill of lading sorry issuing the letter of credit the buyer can cancel the letter of credit which is you know very dangerous because he may cancel the letter of credit when already the goods worshipped or when the shipper or exporter in the other side is already in the middle of preparing the export so that's why there are you know many many types of letter of credits among them is revocable you will find amount of money expiration date all details of shipper and exporter many other details how many number of bills leading they need what is the date banks and a lot of details you know this is a short form of letter of credit but in every bank and every country they have their own form of literacy so they are common in international trade importers and supporters regularly use these letters of credit to protect themselves okay bank by the way the bank will interact here as intermedia intermediary party you know but the bank can do some other services for example now i want to open a letter of credit and then the cargo will arrive and then i have to pay money as a buyer but i don't have money so i can take loan from the bank so the bank is using this letter of credit for many purposes you can take a loan basis of the letter of credit and like that they can do a lot of business out of this letter of credit so they said here if you are a shipping line you you will be here hearing all the time from the shipper i want so and so in the video of leading if you are a free forwarder also or agent you will hear this request many times and sometimes we have to amend the bill of lading many times it is very tiring when we are working with people with a letter of credit sometimes they ask for terms which can cause us some problems so we have to go back to the shipping line to have their permission because everyone should apply the wording which is there in the letter of credit in the ways of leading if you didn't adhere to the wording which is in the letter of credit a buyer may be losing time and money and everything because the seller may refuse to accept the letter of credit there are agreements they have agreement together in the sales agreement and then we have to adhere to the wording of the it is of course for seller protection and buyer protection uh to safeguard the interest of both parties seller and buyer again we just want to know what is ucp ucp is uniform custom and practice 600 this this are a group of instructions given by international chamber of commerce to guideline the banks on the way the letter of credit should be issued and dealt with so the international chamber of commerce has issued some group of instructions guidance to the banks called ucp 600. so if you hear the word ucb 600 that means the rules behind the letter of credit which was initially issued by international chamber of commerce can you recall from our last few lectures what are the other rules we studied uh which was issued by icc can you remember [Music] come on my friends you should remember this one hello hello can you hear me are issued by icc remember this one we we studied the terms cif x work you remember this one yes yes yes all these are issued also by icc so i feel that this i know it's a heavy subject the letter of credit but i want you to be aware of these steps so whenever you have any questions just share with me any ideas just share with with us with the group okay shall we proceed yes sir any any issues with all we have discussed before any issue no it's okay uh inco terms also has been uh this one designed by icc yeah yeah okay this is one ir international air transport association okay i mean our shipping line yeah they again the ucp is issued by icc which covers the letter of okay so as a seller as a seller you ask for that because you want to be confident for of payment uh you don't know maybe you are dealing for the first time with this is exporter or importer to avoid all this you insist on having a litter of credit maybe i feel you are a little bit maybe confused so before going further i will try to show you the technique how it works maybe seeing the techniques will give you a more clearer picture about this practice you see so now i like to buy who is this one this is a buyer okay i like to sell this is the exporter fine yes doctor yeah the buyer in the language of letter of credit we call it applicant okay buyer will be calling them applicant buyer is an applicant why we call this applicant because he is the one who will apply to open the lc fine yeah okay yes doctor and the exporter we will call him beneficiary because he is the one who will get the money you know once doctor exporter will send the goods and then receive money from the buyer that's why they in the lc terminology they call the buyer applicant and then they call the seller beneficiary all right okay okay so what will happen what will happen i am now i am applicant who is sitting in saudi arabia okay i am an applicant i am ethics ethics now want to import some spare parts from china all right so ethics want to import trucks and spare parts or something like that in millions of dollars so they want to open and letter of credit in saudi bank al-alibank okay so you will go to the bank and you will ask for the form you will tell the bank give me a letter of credit form right and then you will fill the form you will put your name as a receiver uh but before that you should have an agreement with the exporter in china you agreed for everything invoice you agreed for the number of pieces price everything now you have the deal ready the deal is ready but now is the problem is the payment correct yeah okay so i go to the saudi bank i am fx i go to the saudi bank and i apply for letter of credit i tell the bank there is a company in china we want to import trucks from china and then we will open letter of credit with amount of 1 million u.s dollar for example you didn't pay anything you just apply for the letter of credit okay you show the amount everything name of the owner of the company stamp should be original everything and then the bank will tell okay now we will tell the seller that you have opened an llc letter of credit they will send the rate of credit to the seller bank okay now when you do the agreement you know the bank of the exporter in china okay easy yes yes yes now the seller bank in china because the beneficiary is one of his clients you know so he will contact him and said please come to the bank because affects in saudi arabia has opened an lc in your name an amount and everything so please come to check this one or descended by mail or whatever now what he will do the beneficiary what he will do he will do a lot of things now everything will be in this moment on the shoulder of the exporter the exporter first of all will check the letter of credit is it okay is it by agreement is it okay is it correct pair our agreement is it [Music] compatible with what we agreed with effects the amount of money cost time or shipment how many units everything if everything is okay now he will prepare the shipment he will prepare the shipment and ship it or immediately he will ship the goods and return after shipping the goods what he will get from the line can you tell me beer bl great the original bl the original who is the kunsani in the original vl bank the bank the bank of affects in rio the original will be sent back to the seller bank to be sent to the applicant bank fine yeah now we will ask mr mateen to go to the bank to receive the original bill of lading do you think you will give him the original bit of bleeding no why because it means it has to be shipment has to be delivered and get it attested by the receiving bank okay the shipment already is done okay the shipment has done because you know after the after the seller exporters i put the shipment on board the vessel or ship he will receive the documents already the shipment has done but if you go now you want the bill of lading to receive your goods they will tell you no you cannot get the original bill before you pay the buyer his money got my point yeah he will pay mr martin will pay 1 million in the bank and then he will receive the original bins now he can get the cargo from the port and at this moment they will transfer the money to the seller bank you see yes so in this way you know everyone is safe you know you are safe because you receive the bills of leading and the cargo is ready he is safe because he will receive his money through the bank this is the function of the letter of credit you see so it's like that now the exporter has sent sent the shipment to the to the port to saudi arabia now they will tell you please come and collect the bills of leading but you have to pay you have to pay them the money which is belongs to the seller bank they will send them money to the seller bank and then the seller bank will deliver the money to the beneficiary this way everyone is satisfied everyone is secured because everything is going through banks we cannot receive the goods without paying and also he will not ask for his money before the original bids of leading arrived and the goods arrived okay so i think it's clear now what do you think yes yes it's very clear any doubt any doubt no okay so let's see some some terminology here they call the the importer or the buyer they call it yes yeah i have one question what is his document collection document collection one moment yeah document collection in in um okay uh which one did which one documents this one or this one this one or this one the one in the seller bank or wire bank buyer buyer bank buyer bank or wire bank and now the seller will receive the bills of leading the original bills of leading from the beneficiary from the exporter okay the original bill and then he will send it to the wire bank fine these documents again the same documents they are the original bids of leading you see but this one the consignee maybe to order bank they have to stamp endorse the bill of lading you see they have to stamp it what the stamps say they please deliver two effects in the back of the group or in the face whatever but they should stand after you pay they will stamp yeah they will stamp after you pay the amount to the buyer bank to send it again you see so this is the money this one after you pay you they will deliver you the documents stamped and then they will send the money to the seller bank okay the two banks guaranteeing the payment and the two banks guaranteed the documents flew and the two banks guarantee that their shipment is going on the right way that's why it is secured you know to deal with a letter of credit clear now yeah clear doctor thank you very much okay all right so what we were talking about is some terminology because you know the buyer they call him the applicant okay he is the one who applied to open the letter of credit beneficiary is the exporter he will receive the money will receive the payment issuing bank is the bank of the applicant because he is the bank who issue the letter of credit negotiating bank is the bank of the receiver of the sorry of the seller of the exporter this is the negotiation negotiating bank the bank in the country of the exporter sometimes they have third bank called the confirming bank for example if you import goods from an area which is not secured let's say you are sending money importing goods from for example sudan or somalia or whatever you may say no i am not trusting the somali bank we need third bank in the middle you know to confirm the operation they want a bank who can guarantee the somali bank in front of the other bank it's a bank which is you know confirming or giving confidence because that happened with us many times sometimes cargo are coming from ethiopia for example to another country and then you will find exporters say i do not trust ethiopian bank i do not trust kenya bank we need a third bank in the middle so for example we go ethiopia let's check we find for example in ishibuti for example bank branch of hsbc or a branch of international bank like barclays bank or svc in another country he will be introducing in the middle as confirming bank but he will get some commission you know so you may involve many banks you may invite you may involve another bank called advising bank but the main two banks are the bank of the exporter and the bank of the buyer intermediary uh also this could be a broker a broker could be there you know not a bank this could be a company or something intermediary could be a broker between the shipper and the receiver it is the seller and the receiver a trade for order of course you know free for the shipper you know the shipper legal counsel is a firm that advised applicant on how to deal with the letter of credit so again this is the operation you have seen buying letter of credit request and then exchanging document and next changing payments and this is overview of the whole operation so as we said before issuance is the first step which is done by by whom who is doing the issuance buyer the buyer the buyer will do the issues and this of course after agreeing to the terms in the sale in the sale contract in the sale agreement they will issue the lc of course the seller will demand that to be in the safe side but there is one point here the sales agreement is not part of the letter of credit which means negotiation prices and all these things are in the sales contract sales contract is an issue and letter of credit is another issue the letter of credit is not a sales contract you got my point yeah it is not a sales contract this one is not a sales contract it is only a tool to guarantee payment it has nothing to do with the sales contract after we agree on the sales terms we issue the letter of credit and now issuing the letter of credit which will be done by the by um by whom by the buyer by the way bank issuing the lclc by the way bank in the loc you will find how much in the payment what is the name and address of the seller the beneficiary how will the seller ship the goods timing number of bills of leading what are the terms on the bill of leading there is also when you open a new loc you have to pay charges to the bank