What is an advance letter of credit?
(I) The Anticipatory Letter of Credit ( ) is characterized by importers paying in advance, and the exporter's post-delivery trade method is a kind of preferential treatment provided by the importer to exporters and the convenience of financing. For the letter of credit to be used for advance payment, when the buyer and the seller negotiate, the exporter must submit a payment clause to the importer, and the amount and method of advance payment shall be stated in the letter of credit. With the consent of the importer, the importer fills out and signs the letter of application for opening the letter of credit.
(II) Trade modes applicable to the advance letter of credit 1. In the contract commodity sector, the shortage of commodities is in short supply, and the importers adopt preferential and competitive payment methods in order to obtain the goods as quickly as possible in order to meet the urgent needs of the market. 2. Exporters are short of funds or cash flow is not working. Exporters require the use of advance credit, but importers can use this opportunity to provide preferential payment methods for the sake of lower prices. 3. The importer searches for sources of goods and promptly sources the goods. Therefore, the pre-arranged letters of credit will be opened to agents or commissioners at the exporting place, and the goods in short supply will be seized in a flexible manner in time to compete with their opponents by means of advance payment.
(3) Types of advance letter of credit
1. Prepayment of full amount of credit Advance payment of the entire amount of the letter of credit (Clean Payment Credit) is performed by the exporter prepaying the entire amount of the clean bill ( Clean Bill) , also known as the prepayment method. In addition to issuing a bare ticket, a statement must be attached. The contents of the guarantee state that the exporter is responsible for the delivery of the documents required by the credit and guarantee timely delivery. In the event that the beneficiary does not repay the documents or misappropriate the advance payment for other purposes, or does not purchase the contractual cargos under the contract, the advance bank shall not be liable and the risk shall be borne by the importer or the issuing bank. The terms stipulated in the credit repay the principal and interest of the advances paid.
2. Red clause The letter of credit (Red Clause Letter of Credit) is used to advance some of the amount listed in the letter of credit. The amount of prepayment is printed in red color to indicate clearly and eye-catching. certificate. In international trade practice, the terms of advance payments have also not been used in red letters in recent years. The contents of the red clause shall indicate that the exporter may be allowed to advance a portion of the amount, and then after the additional documents are submitted at the designated date, the bank shall deduct the principal and interest of the advance payment and pay the balance. The importer agrees to use the red letter of credit. Once the risk arises, the advance payment should be borne by the importer. Therefore, the red letter of credit should be used with caution.
3. Green Terms Letter of Credit Green Terms Letter of Credit (Green Clause Letter of Credit) is similar to the function of the Red Clause Letter of Credit , but the green term letter of credit contains more stringent content and practices than the Red Clause Letter of Credit . Adopting the green clause L/C method means that the exporter must deposit the contracted goods purchased by the advance funds in the name of the bank to store the warehouse and deliver the warehouse documents to the bank to ensure that the advance amount is used according to the L/C and is controlled. To reduce the risk of misappropriation of funds. In the practice of international trade, when the importer agrees to adopt the green clause L/C, the importer must provide guarantee or mortgage to the issuing bank, and in general, where the amount of the advance amount under the green clause L/C is large, it is for clarity. its function, must be marked "green credit terms" (green clause credit) words in letters of credit.
4. Packing Letter of Credit (Packing Letter of Credit) is also referred to as Packing Loan . Its function is that the exporter receives a letter of credit and advances a certain amount of money to the bank with the terms stated in the credit. Purchase contracted goods and packing and transportation, and the principal and interest of the advance payment amount after deduction is deducted at the time of negotiation. This practice is a " pre- shipment finance " for exporters at the bank where the exporter is located. Rongtong Bank shall bear the risk of financing advances. In order to reduce risks, banks sometimes require exporters to provide collateral and handle relevant procedures when making advance payments.