Back to Back Letter of Credit (BTB):
Bangladesh
is a developing country. After receiving order from the importer, very
frequently exporters face problems of scarcity of raw material. Because
of some raw materials are not available in the country. These have to
be collected from abroad. In that case, exporter gives lien of export
L/C to bank as security and opens an L/C against it for importing raw
materials. This L/C is called Back To Back L/C. In back to back L/C,
ABBL keeps no margin.
Sometimes there
is provision in the export UC that the importer can use the certain
portion of the export L/C amount for importing accessories that are
necessary for the making of the product. Only in that case, BTB is
opened.
Payment of Back to Back LC:
Client
gives the payment of the BTB L/C after receiving the payment from the
importers. But in some cases, client sells the bills to the ABBL. But
if there is discrepancy, the ABBL sends it for collection.
In
case of BTB L/C, ABBL gives the payment to the beneficiary after
receiving the payment from the UC of the finished product (i.e.
exporter). Bank gives the payment from DFC Account (Deposit Foreign
Currency Account) where Dollar is deposited in national rate.
For BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 3% to 5%.
A
schedule named Payment Order; Forwarding Schedule is prepared while
making the payment. This schedule is prepared when the payment of UC is
made. This schedule contains the followings:
- Reference number of the beneficiary’s bank and date.
- Beneficiary’s name.
- Bill value.
- Payment order number and date.
- Equivalent amount in Taka.
Advance against Red-clause Letter of Credit:
Under
Red clause letter of credit, the opening bank authorizes the Advising
Bank/Negotiating Bank to make advance to the beneficiary prior to
shipment to enable him to procure and store the exportable goods in
anticipation of his effecting the shipment and submitting a bill under
the L/C. as the clause containing such authority is printed in red ink,
the L/C is called Red clause and Green clause respectively. Though it is
not prohibited, yet very rare in Bangladesh.
Post Shipment Credit:
This
type of credit refers to the credit facilities extended to the
exporters by the banks after shipment of the goods against export
documents. Necessity for such credit arises as the exporter cannot
afford to wait for a long time for without paying
manufacturers/suppliers. Before extending such credit, it is necessary
on the part of banks to look into carefully the financial soundness of
exporters and buyers as well as other relevant documents connected with
the export in accordance with the rules and regulations in force. Banks
in our country extend post shipment credit to the exporters through-.
Negotiation of documents under L/C
Foreign Documentary Bill Purchase (FDBC)
Advances against Export Bills surrendered for collection;
Negotiation of documents under L/C:
The
exporter presents the relative documents to the negotiating bank after
the shipment of the goods; a slight deviation of the documents from
those specified in the L/C may raise an excuse to the issuing bank to
refuse the reimbursement of the payment already made by the negotiating
bank. So the negotiating bank must be careful prompt, systematic and
indifferent while scrutinizing the documents relating to the export.
Foreign Documentary Bill Purchase (FDBC):
Sometimes
the client submits the bill of export to bank for collection and
payment of the BTB L/C. In that case, bank purchases the bill and
collects the money from the exporter. ABBL subtracts the amount of bill
from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order.
For this purpose, ABBL maintains a separate register named FDBC Register. This register contains the following information:
- Date
- Reference number (FDBC)
- Name of the drawer
- Name of the collecting bank
- Conversion rate
- Bill amount both in figure & in Taka.
- Export form number
- Export L/C number
Advances against Export Bills surrendered for collection:
Banks
generally accept bills for collection of proceeds when they are not
drawn under an L/C or when the documents, even though drawn against an
L/C contain some discrepancies. The bank generally negotiates bills
drawn under L/C, without any discrepancy in the documents, and the
exporter gets the money from the bank immediately. However, if the bill
is not eligible for negotiation, the exporter may obtain advance from
the bank against the security of export bill. In addition to the export
bill, banks may ask for collateral security like a guarantee by a third
party and equitable/registered mortgage of property.
Export Documents Checking:
General verification: –
L/C restricted or not.
Exporter submitted documents before expiry date of the credit.
Shortage of documents etc.
Particular verification:
Each and every document should be verified with the L/C