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What Does UCP Mean?

(a). UCP is the short form of Uniform Customs and Practice for Documentary Credits.

(b). UCP is the set of international rules that govern the letter of credit transactions throughout the world.

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First international letter of credit rules published nearly 80 years ago in year 1933. Since then, letter of credit rules has been revised regularly by ICC (International Chamber of Commerce).

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(1).1933 – First published.

(2).1951 Revision

(3).1962 Revision

(4). 1974 Revision

(5).1983 Revision – Known as UCP 400

(6).1993 Revision – Known as UCP 500

(7).2007 Revision – Known as UCP 600

?Meaning of LC:

Firstly, Simply LC is latter of credit / Documentary Credit (DC) / Sales Contract (SC).

Secondly, LC is an undertaking of the Issuing Bank to the Beneficiary to effect payment subject to submission of some specified document evidence for shipment of goods or service or performance.

Thirdly, LC is a conditional undertaking of the Issuing Bank on behalf of the buyer to the beneficiary for payment against the stipulated documents are presented to the Nominated bank or the Issuing Bank.

?Definition of LC:

According to UCP-600 Article-2 that “Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.”

?Classification of LC:

??????????????????????: Which can not be amended or canceled without the consent of the issuing bank, the beneficiary and confirming bank (if any).

??????????????????:LC which can be amended or canceled without the consent of the issuing bank, the beneficiary. But Revocable LC is not covered by UCPDC-600.

?????????? ????: It is used for payment of service rendered by any consultant or any person & firm etc. Shipping documents are not required. Need only Draft & CI.

?????????????????? ????: LC confirmed by 3rd Bank in addition to issuing Bank.

?????????????????? ????: It is a single letter of credit that covers multiple transactions over a long period of time. Original amount will automatically revive after shipment & negotiation thus original amount will come into existence.

???????????????????????? ????????????: The opening bank is authorized advising Bank to transfer the credit to any other party or beneficiary in lieu of existing beneficiary.

???????????????????? ????: Negotiation is restricted to any specified Nominated Bank.

???????? ???? ???????? ????: This type of credit is opened against master Export LC under lien.

?????? ???????????? ????: When credit authorizes the negotiating bank to provide pre-shipment advance to the beneficiary

?????????? ???????????? ????: When the credit authorizes the negotiating bank to advance for storage facility in addition to pre-shipment advance to the beneficiary.

?????????? ???? ????: It is used as Bank Guarantee. Bank will make payment in case of default of the applicant

Parties of LC

i. ?????????????? ????????: The bank that issues a credit at the request of an Applicant.

ii. ??????????????????????: The party in whose favor a credit is issued.

iii. ??????????????????: The party on whose request the credit is issued.

iv. ???????????????? ????????: The bank that advises the credit at the request of the issuing bank.

V. ???????????? ???????????????? ????????: When an advising bank utilizes the services of another bank to advise the credit and any amendment to the beneficiary.

vi. ?????????????????? ????????: The bank with which the credit is available or any bank in the case of a credit available with any bank.

vii. ?????????????????????? ????????: The bank which is authorized to make payment or to honor reimbursement claim.

viii. ???????????????????? ????????: The bank that adds its confirmation to a credit upon the issuing bank's authorization.

IX. ?????????????????????? ???????? :

Firstly, the?bank?that verifies documents and confirms the terms and conditions under LC on behalf of beneficiary to avoid discrepancies.

Secondly, the bank after satisfying itself that the documents conform with the letter of credit, agrees to either credit or pay the seller immediately under the terms of the letter of credit.

???????????? ????: ???????????? ?????is prepared by the importer/buyer to import goods from the manufacturer. Master LC?is issued by the Importer's Bank.

???????? ???? ???????? ?????is opened against Master LC by the exporter/manufacturer to procure Raw materials for the production of exported goods. BTB LC?is issued by the Exporter's bank.

Advance TT: A?TT in advance?is a payment made before goods are shipped. The lack of contract can introduce extra risk to the transaction, since a supplier might receive payment without sending goods.

?Back to Back LC: Back to Back?LCs is issued on behalf of a customer against the security of Export LCs for procurement of raw materials.

The value of Back to back LC depends on the percentage of FOB value of Master LC.

???????? ????: UPAS LC?is an Usance?LC?where payment is made on a sight basis to the exporter (beneficiary) but the payment of the buyer (applicant) will be made to issuing bank at the Usance term.?LC?Commission is charged by issuing bank on a quarterly basis and the charge interest against?LC?settled amount.

???????????? ???????????? ???? ???????? ????:?According to Bangladesh Bank Circular:18, On 20.07.2022 that UPAS funding Raw Materials would be extended up to 270 days. but in case of capital machinery it would be 180/270/360 days.

??????????????????????:?Bill discounting, or invoice discounting is the act of sourcing working capital from future receivables.?Bill discounting can be defined as the advance selling of a bill to an intermediary (an invoice discounting business) before it is due to be paid.

q?For example: You have sold goods to XYZ Company Ltd, they have given you letter of credit from bank of 60 days, if you want to get money from bank before 60 days, the bank will charge some interest rate from you, which in return will be called as discount for the seller.

???????????? ????????????: A credit report can act as a shining light into your financial background, helping reveal personal?payment history?and lending and credit worthiness.

Credit?bureaus collect financial information about individuals and create?credit reports?based on that information, and lenders use the?reports?along with other details to determine loan applicants' creditworthiness.

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(a).Interest/Profit: Daily/Monthly/Quarterly/Yearly

(b).LC Commission: Quarterly basis charged

(c).Acceptance Commission: Quarterly basis charged

(d).BG commission: Quarterly basis charged

(e).Swift Charge: One time charged

(f).Credit Report Collection Charge: One time charged.

????????????? ?????????????? ????:?Import against LCA (Letter of Credit Authorization) Form but without opening of Letter of Credit (L/C) in the following cases:-

(a) Import of books, journals, magazines and periodicals on sight draft or usance bill basis.

(b) Import of any permissible item for an amount not exceeding US Dollar 100,000/- (hundred thousand) is allowed only during each financial year against remittance made from Bangladesh.

(1) Import of rice , pulse, maize, beans, ginger, garlic, soyabin oil, palm oil, onion and fish items valued not exceeding 50,000/- (fifty thousand ) US dollar in a single consignment and other items valued 30,000/-(thirty thousand) US dollar and

(2) Import of rice under Public Sector valued up to US dollar two million in a single consignment shall be importable without L/C and in this case above mentioned annual ceiling of hundred thousand US dollar shall not be applicable.

(c) Import under commodity aid, grant or such other loan for which there are specific procurement procedures for import of goods without opening any L/C: and

(d) Import of “international chemical references” through Bank drafts by recognized pharmaceutical industry on the approval of Director, Drugs Administration for the purpose of quality control of their products.

If it will help you then we will describe many more by next article. Pls bear with me.

???????????? ??????????, MBA,MSS,MA, CDCS, Group GM (Commercial & Banking).