I. Risk of Letter of Credit
Letters of credit have certain disadvantages and risks for importers, exporters and banks, mainly in the following aspects:
1. The importer's risk is paid by letter of credit. The bank only recognizes documents, not goods. As long as the documents produced by the exporter can meet the requirements of the letter of credit on the surface, they can be accepted or paid by the bank. There are three possible risks for the buyer.
(1) Risks caused by the dishonesty of the exporter If the exporter is dishonest or is purely a leather bag company or a fraud company, it is possible that the goods delivered are fake and the documents made are true. In this way, the bank will pay the exporter after checking the bill, and the buyer will get the fake goods with the bill of lading every day after the exporter escapes, resulting in two empty accounts. For example, an import company in China once used a letter of credit to import a batch of platinum, but the payment was boxes of stones.
(2) Risks caused by collusion between exporters and carriers. If the imported goods are paid by letter of credit and ClF trade terms, it will easily lead to collusion between exporters and carriers. Because the ClF term means that the exporter is responsible for chartering and booking the shipping space, the exporter can choose some well-connected shipping companies or agents. In this way, it is possible for exporters and carriers to collude together, and it is easier for exporters and carriers to make genuine bills of lading and hand in counterfeit goods for the same benefit, which leads to more successful activities of defrauding importers, because the bill of lading is the most important document among all documents and a document of title. If the carrier does not cooperate with the exporter, it will be difficult to make a genuine bill of lading and hand in counterfeit goods: if the carrier gets benefits, it will be easier to make a genuine bill of lading and hand in counterfeit goods. For example, one of my companies imported a batch of primary products from foreign customers, and reached a deal on the basis of ClF price terms and sight L/C payment, and the seller shipped the goods to us by chartering. Our issuing bank has paid the payment according to the documents submitted by foreign negotiating banks that meet the requirements of the letter of credit. However, the transport vessel never arrived at the port of destination. After many inquiries, it was found that the carrier was originally a small company, and the ship was declared bankrupt shortly after it set sail. This ship is an old one, and all the goods are gone. This is a case of collusion between the seller and the ship, which caused us heavy losses.
(3) Risks brought by the carrier's dishonesty. Import selective letter of credit and ClF trade terms. The importer is not responsible for chartering and booking shipping space, and the importer is not very familiar with the credit status of the shipping company. If the shipping company is dishonest, even if the goods delivered by the exporter are genuine, the shipping company may have good goods. The goods are shipped to other places for sale privately, embezzling the importer's payment and then fleeing every day. There are many such cases. For example, in. 1 992, a shipping company in Hong Kong should deliver a batch of natural rubber to an importer in Singapore. Later, the shipping company sold me the whole ship of natural rubber, and a company in Shantou was caught by Interpol when unloading at Guangzhou Port. After the shipping company got the payment from Shantou Company, it fled every day. Finally, the natural rubber was returned to the importer in Singapore. In this case, although the importer in Singapore found the goods, Shantou Company suffered two payment losses due to the dishonesty of the shipping company. If there is no Interpol, the loss will be the importer in Singapore.
2 Exporter's Risks The risks brought by the letter of credit to exporters are manifested in the problems in document preparation, delivery and credit standing of the issuing bank or confirming bank.
(1) The risk letter of credit with inconsistent documents is the bank's conditional payment guarantee document. In this way, the exporter's foreign exchange receipts will be guaranteed. However, whether the payment can be obtained depends on the credit standing of the issuing bank and whether the documents submitted by the exporter meet the requirements of the letter of credit. The credit exporter of the issuing bank can know in advance through the advising bank. If the credit standing of the issuing bank is really problematic, the importer may be required to change the issuing bank or open a confirming bank for confirmation. After the bank letter of credit is settled, whether the exporter can receive foreign exchange smoothly depends entirely on the preparation and presentation of documents by the exporter. Letter of credit is a documentary business. The bank must "reasonably and carefully examine" the documents submitted by the seller. As long as it is confirmed that the documents appear to meet the terms of the letter of credit, the bank will guarantee payment or acceptance. If the issuing bank determines that the documents are not in conformity with the terms of the letter of credit on the surface, it may refuse to pay or contact the importer (applicant) to accept the discrepancy. In this case, whether the exporter is in a passive position can proceed smoothly depends on the attitude of the importer. If the market situation of imported goods is optimistic at this time, the importer may agree to pay the redemption order to the bank: if the market falls, the importer will send a signal to the bank to refuse to pay the redemption order. In this way, the exporter may not be able to obtain the payment of the letter of credit because the documents do not match, and the seller's payment can only be reduced to collection. When the market falls, the seller's payment is often rejected by the buyer, resulting in two empty payments. Or, although the goods will not be picked up, the seller has to bear the extra expenses and price reduction losses caused by handling or transporting the goods.
(2) Risks caused by non-delivery as stipulated in the contract. Banks only recognize documents but not goods, which often gives the business personnel of export enterprises a misunderstanding. As long as the documents that meet the requirements of the letter of credit are handed over, the delivery can be ignored and the requirements of the contract terms should be met. Especially when it is found that the contents of the letter of credit are not completely consistent with the contents of the contract and there is no need to amend it, the business personnel often only pay attention to the consistency of the documents, regardless of the terms of the letter of credit. As a result, the payment was successfully obtained, but the delivery violated the contract requirements, and the importer claimed losses. For example, an export company in China signed a contract for the sale of goods with an African customer, and the contract stipulated that the goods should be shipped at the same amount of ××× 10,000 meters per month. The letter of credit only stipulates partial shipment. " Our company's business personnel saw that the letter of credit did not specify the clause of "equal monthly shipment of X× meters". In order to export early and collect foreign exchange early, half of the contract was packed together when the first shipment was made. When a single settlement is made, the issuing bank pays off the loan. However, after receiving the delivery notice, the customer found that the goods were not delivered in accordance with the contract, that is, he raised an objection to our company and asked our company to compensate for the losses.
(3) Credit problems of the issuing bank or the confirming bank lead to the risk of the exporter's foreign exchange collection.
Payment by letter of credit is a kind of bank credit, and the issuing bank uses its own credit as payment guarantee. The exporter can draw money directly from the issuing bank's certificate with the letter of credit, without first looking for the importer's issuing bank or confirming bank as the first payer. Therefore, if the credit ability of the issuing bank or the confirming bank has problems, the exporter may not be guaranteed to receive foreign exchange.
3. Risks existing in banks
The risks brought by letters of credit to banks are mainly manifested in the following aspects:
(1) The risk exporter who receives the payment by the negotiating bank against the letter of credit can obtain the trade financing ① packaged loan from the negotiating bank as long as he makes the documents that meet the requirements of the letter of credit. Packaged loan refers to a kind of maritime financing that the exporter who adopts the letter of credit settlement method uses the original letter of credit received as the repayment source and applies to the bank within the credit line. Mainly used to make up for the lack of funds when producing or purchasing goods. After delivery, the customer submits the export documents under the letter of credit to the bank for negotiation and returns the payment to the bank. (2) Negotiation of payment. Bills of exchange and documents drawn by export enterprises are submitted to local negotiating banks. After the negotiating bank verifies that the documents are consistent with the letter of credit, it will advance them to the exporter with its own funds. Whether it is a sight draft or a time draft, the exporter can get the payment from the negotiating bank immediately. The negotiating bank negotiates the sight draft, that is, the export draft. Negotiating a time draft is a discount. Negotiable bills discount business is a financing facility provided by negotiation to solve the short-term capital needs of export enterprises. If the negotiating bank refuses to pay the documentary draft remittance to the foreign issuing bank, it has the right to recourse against the export enterprise. However, if the export enterprises fail to keep their promises, flee every day, or cheat by making false documents, the negotiating bank's right of recourse will disappear.
(2) The risk letter of credit of the issuing bank is a conditional payment guarantee of the issuing bank. As long as the exporter has consistent documents, the issuing bank can advance funds for the importer to the exporter. In the letter of credit, the importer obtains the following benefits from the issuing bank: ① Import bill: the prepayment behavior immediately after the issuing bank examines the documents. (2) Facilitate the financing of importers through false forward letters of credit. False usance letter of credit refers to a letter of credit in which the importer stipulates in the contract that a false usance letter of credit is opened as a payment usance letter of credit, but at the same time stipulates that the discount fee and acceptance fee are accepted by the importer, allowing the exporter's bank to demand foreign exchange at sight. The purpose is to facilitate the buyer to use the funds of the issuing bank. The issuing bank negotiates payment or provides financial facilities for import. Once the importer escapes or dies every day or intentionally swindles, the issuing bank cannot recover the funds, resulting in losses.