LCMAINT - L/C Maintenance
What is LCMAINT
This procedure is used to setup basic details to describe a L/C (incoming or outgoing).
LCMAINT is not a full definitive banking subsystem but is useful for simple administration. It is used by some ITAS procedures e.g. CASHUG. (Cash Flow), BANKRVU . (bank limit/use review)
The LC is linked with their TRADE details that comprise the makeup of the L/C. When a TRADE record, that is maintained as a member of the LC Makeup, is subsequently split the user is asked if they wish to correspingly split the LC makeup. The TRADE payment terms are set up as LC style and a Date by which LC needs to raised is maintained; there is a simple LCREPS report style that will list TRADE that do not have their LCMAINT record setup
The maintenance of the draw-downs on the L/C is linked with the makeup to the TRADE records. L/Cs can be deleted or marked as closed/complete; these are right-click features when the L/C is recalled, before edit enabled.
There is a simple import process that enables creation of individual L/C templates (right-click when open LCMAINT), whereby user specifies path to text file of import data. The import data is standard ITAS generic content i.e. columns are field names form loc01, ,loc02 and loc04, so specialist knowledge of ITAS tables is required before building import data.
LCMAINT does handle the import of SWIFT standard form 700 and other import forms. The Import Process is activated with right-click BEFORE any other entry on the screen. The 700 form is a list of text fields with SWIFT side headings e.g. :40A: being the type of L/C i.e. Irrevocable. These fields are imported into their own tab on the LCMAINT form. If an amendment set of SWIFT data is to be processed, the user is asked for update or not. This handles where erroneous duplicate files are being selected. The M700 data is available for amendment and can be used in DOCDES forms, especially useful in INVOICES. This process is only enabled when the correct S01 setting/path has been applied, View/Treasury/ctrl40_mt700folder e.g. e:\itas\MT700\. Any number of import styles can be setup with their rules determined for the import process to apply. These styles are located in right-click = ‘MT700 Import Parameters’
LCMAINT, like all other ITAS applications, is a codes driven system but it is sometimes necessary to have a variation of Names and Addresses that differ from the ITAS code content. The M700 page allows for this situation and if a L/C is setup without use of import of a 700 form, the user can still populate the M700 fields by use of the [default values] box. This will populate the descriptions etc from the existing codes and thereafter allow the user to amend the M700 fields to replicate the script that the banks are applying.
There is a feature (ctrl30_mt700split) that enables the updating of TRADE invoicing/forwarder documentation directly from the ‘makeup’ grid; click on any row and right-click where user can update that TR$ADE documentation. The same process exists from TRADE.
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The reports that support the L/C maintenance are LCREP and any ReportWriter items that can be activated from the Reports icon on the toolbar of LCMAINT e.g. LCs with Outstanding Amendments.
Forms (DOCDES) can be produced from LCMAINT using the special rules and the standard database/tables field names.
Letter Of Credit Business Definitions.
A sight letter of credit involving the irrevocable engagement of a prime U. S. bank, and opened sufficiently in advance of shipment, is usually considered to be the safest method of payment for exporters. Letters of credit are also used in order to establish bid bonds and performance bonds,
A commercial letter of credit is an instrument in which a bank undertakes to honour drafts drawn in accordance with certain stipulated conditions. The credit is opened on instructions of the account party in favour of the beneficiary by the opening or issuing bank; advice or confirmation may be added by the advising or confirming bank. The terms and conditions of the credit may be modified by amendment. The credit is negotiated by drawing of drafts.
Types of letters of credit –
a. Revocability is either revocable or irrevocable. Revocable = Credit may be amended or canceled prior to negotiation, without beneficiary's consent. Irrevocable = Bank engages its absolute liability to honor properly drawn drafts; credit may not be canceled or amended without beneficiary's consent.
b. Advice or Confirmation: A credit opened by one bank may be negotiable (payable) at another bank which advises or confirms the credit. Advised = Advising bank will honour properly drawn drafts, provided non-contradicting instructions are not received from opening bank. Confirmed = Confirming bank engages its absolute liability to honour properly drawn drafts.
c. Sight documentary letter of credit: Calls for payment by paying bank against presentation of sight draft accompanied by such shipping documents as may be specified in the credit. This method of payment is used for shipments under Title I of PL-480 shipments to Latin America, the , etc.
d. Acceptance letter of credit: Calls for drawing of drafts accompanied by specified shipping documents. The drafts are not drawn to be payable at sight, but rather, to mature a stated number of months after sight. If the draft is properly drawn, the bank will stamp it "ACCEPTED", sign it, and return it to the beneficiary. The draft has then become an acceptance which can be discounted (sold for cash) either to the accepting or to another bank, or it can be held until maturity by the beneficiary, then presented to bank for payment. Expenses to be considered in the type of financing are: 1) Opening fee - expense of establishing the letter of credit, 2) Confirmation fee - if a bank confirms the letter of credit, 3) Acceptance fee - charged by the accepting bank for lending its name, or accepting the draft, usually 1.5% per annum. 4) Discount Charge - The fee deducted from the proceeds of the drafts by the bank which discounts or buys the accepted draft.
In sales of commodities, discount charges are usually for seller's (beneficiary's) account, and acceptance fees for buyer's account. It is necessary under these circumstances for the seller to stipulate in the sales contract the interest payable by buyers, at a rate which will be sufficient to cover bank's discount on principal plus interest. Thus, if an acceptance is drawn for $100,000.00 principal plus 6% interest p.a., for one year or $106,000.00, discounting bank will compute its charge on principal amount of $106,000.00. If discount fee is 6% p.a., net proceeds to beneficiary will be 94% of $106,000,00, or $99,640.00, and not the $100,000.00 invoice value. The interest set forth in sale contract must be sufficient to offset actual discount charges.
e. Deferred payment or "standby" letters of credit. Calls for drawing of sight drafts, usually 6 months or more after opening of the credit; the credit may call for presentation of certain shipping documents in order for it to become operative. The draft may have to be accompanied by a statement that the amount of the draft is due beneficiary. The credit may be financed by beneficiary with paying bank, with the latter advancing the funds at an interest rate fixed at the time of the loan; this method of financing is particularly workable if the credit calls for presentation of shipping documents, which have been submitted to the bank. The terms of sale of the commodity may call for "discount charges for seller's account"; in that case, the credit should be opened for an amount equal to sales value plus interest at a rate sufficient to cover- the fact that the discount is computed on a principal value corresponding to sales value plus interest. Alternatively, the acknowledgment issued by the bank stating that it has received the documents required under the credit, may be used as collateral by beneficiary, either at the paying or at another bank; in that case, a demand loan is involved, and the interest rate charged will change if there are fluctuations in the prime rate of interest, (or such interest rate as the bank normally charges the beneficiary). This type of financing is rarely used in international commerce; "standby" credits actually serve as bank guarantees, and are used in CCC agricultural disposal programs, also for bid bonds and performance bonds.
f. Red clause letter of credit: v. red clause credit. The Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce, govern interpretation of credits by U. S. bank.