/1.What is a letter of credit/2.Different types of credits
1.What is a letter of credit
1.1. What is L/C? In international trade it is almost impossible to match payment with physical delivery of the goods, which constitutes conflicting problems for trade. Since the exporter prefers to get paid before releasing the goods and the importer prefers to get control over the goods before paying the money. And collection also involves great risks for both the buyer and seller as is mentioned in the previous paragraphs. The letter of credit is an effective means to solve the problems. Its objective is to facilitate international payment by means of the creditworthiness of the bank. This method of payment offers security to both the seller and the buyer. The former has security to get paid provided he presents impeccable documents while the latter has the security to get the goods required through the documents he stipulated in the credit.
DEFINITION
The Documentary Credit or letter of credit is an undertaking issued by a bank for the account of the buyer (the applicant) or for its own account, to pay the beneficiary the value of the draft and/or documents provided that the terms and conditions of the documentary credit are complied with.
The documentary credit achieves a commercially acceptable compromise between the conflicting interests of buyer and seller by matching time of payment for the goods with the time of their delivery. It does this, however, by making payment against documents representing the goods rather than against the goods themselves.
1.2. Characteristics of a letter of credit
A letter of credit places a bank’s credit instead of a commercial credit. It is guaranteed by the issuing bank’s creditworthiness. Its main characteristics are as follows:
1. The issuing bank undertakes to effect payment, quite independent of whether the applicant is bankrupt or is in default or not, provided the documents presented are in compliance with the terms and conditions of the credit.
2. A letter of credit stands independent of the sales contract. Although the credit is issued on the basis of the contract, banks are in no way concerned with or bound by such credit, even if any reference whatsoever to such contract is included in the credit. The bank, when issuing the credit has no regard for the sales contract but follows an application handed in by the buyer.
3. In letter of credit business, banks deal with documents and not with goods, services or other performances to which the documents may relate. They check exclusively on the basis of the documents presented to them to see whether the terms of the credit are fulfilled. They are not in a position to verify whether the goods supplied actually conform to those specified in the credit.
4. Banks engaged in letter of credit business assumes no responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents presented. Their main responsibility in this respect is to examine each document presented to see whether it appears on the face to be in compliance with the credit terms.
5. Banks dealing letter of credit business assume no responsibility for the acts of third parties taking part in one way or another in the credit transaction.
1.3. Benefits of the documentary credit
The documentary credit provides a high level of protection and security to both buyers and sellers engaged in international trade. The seller is assured that payment will be made by a party independent of the buyer so long as the terms and conditions of the credit are complied with. The buyer is assured that payment will be made to the seller only after the bank has received the title documents called for in the credit.
1.3.1. Facilitates financing the documentary credit
n Provides a specific transaction with an independent credit backing and clear-cut promise of payment.
n Satisfies the financing needs of the seller and buyer by placing the bank’s credit standing, distinguished from the bank’s funds, at the disposal of both parties.
n Reduces or eliminates the commercial credit risk since payment is assured by the bank which issues an irrevocable documentary credit. The seller no longer needs to rely on the willingness and capability of the buyer to make payment.
n Reduces certain exchange and political risks while not necessarily eliminating them.
n May not require actual segregation of cash, since the buyer is not always required to collateralize his documentary credit obligation to the issuing bank. 〖segregation本意为“隔离、分离”这里segregation of cash指“动用现金”〗
n Expands sources of supply for the buyer since certain sellers are willing to sell only against cash in advance or a documentary credit.
1.3.2. Provides legal protection
Although not forced, documentary credits are supported by a wide variety of laws and customs such as:
n Legislative and semi-legislative law
n Codified law — in most countries, the law for documentary credit has been codified.
n Decision law — statutory laws governing documentary credits are found in various jurisdictions. There are also extensive legal cases that have interpreted these statutory provisions and are well known in judicial circles.
n Contractual law/customary law — in addition to codified law and case law. Documentary credits are usually governed by the ICC Uniform Customs and Practices for Documentary Credits. These rules, which are periodically revised, have been in effect since 1933 and are the set of universally recognized rules governing documentary credit operation. The current version is UCP500. The UCP rules are adopted by banks through collective notification to the ICC, by the respective National Committees of the ICC, by the national bank association of the country, by a bank’s individual adherence and notification to the ICC, or by incorporation of the UCP in the documentary credit itself.
1.3.3. Assures expert examination of documents
n The buyer is assured that the documents required by the documentary credit (if issued subject to UCP rules) must be presented in compliance with the terms and conditions of the documentary credit and the UCP rules.
n The buyer is assured that the documents presented will be examined by banking personnel knowledgeable in the documentary operations.
n The buyer is confident that payment will only be made to the seller after the terms and conditions of the documentary credit and the UCP rules are complied with. 〖该句“is confident”和上句“is assured”意思相同。〗
1.4. Parties involved in a documentary credit
There are four main parties to a documentary credit transaction and some other parties, which facilitate the transaction. Each party has multiple names. The name used for each party to the transaction depends upon who is speaking. Business people like to use the names buyer, seller, buyer’s bank and seller’s bank. The banks prefer to use the names applicant, beneficiary, issuing bank, advising bank, confirming bank, nominated paying/negotiating/accepting bank and transferring bank, if any.
(a) Applicant/importer/the buyer:〖Theapplicant is always an importer or a buyer, who fills out and signs an application form, requesting the bank to issue a credit in favor of an exporter or a seller abroad.〗
(b) Issuing /opening bank/the buyer’s bank:〖The bank, which issues a letter of credit at the request of an applicant. By issuing a credit the issuing bank undertakes full responsibility for payment against proper documents presented by the beneficiary.〗
(c) Advising bank: 〖Correspondent bank or branch of the issuing bank to whom the letter of credit is routed for transmission to the beneficiary. It has the task of informing the beneficiary that the credit has been issued in his favor so that the beneficiary may make necessary preparation for shipping the goods and drafting the documents stipulated in the credit.〗
(d) Beneficiary/exporter/the seller:〖The exporter or the seller in whose favor the credit is issued, because such a credit is considered to benefit the exporter by its assurance of payment to him.〗
(e) Confirming bank:〖A bank, usually the advising bank, which adds its undertaking to those of the issuing bank and assumes liability under the credit.〗
(f) Negotiating bank:〖A bank that purchases the documents under the credit. If all the credit terms are met, the negotiating bank will buy the exporter’s drafts with or without recourse and then it will send the drafts and documents to the issuing bank for reimbursement.〗
(g) Paying bank/drawee bank:〖A bank who is authorized by the issuing bank to pay the beneficiary according to the terms and conditions of the credit.〗
(h) Accepting bank:〖The bank accepting the drafts under the credit.〗
(i) Reimbursing bank:〖 The bank from which the nominated paying bank or any negotiating bank that has made a payment under the credit may obtain reimbursement. It can be the issuing bank itself, or an authorized bank of the issuing bank.〗
1.5. Basic documentary credit procedure:
Issuance—Amendment—Utilization--Settlement
2. Different types of credits
2.1. According to whether it can be revoked or not
2.1.1. Revocable credit: A credit that may be amended or cancelled or revoked by the Issuing Bank without the Beneficiary’s consent and even without prior notice to the Beneficiary up to the moment of payment by the bank at which the Issuing Bank has made the documentary credit available.
The revocable credit therefore does not constitute an undertaking by the issuing bank to make payment. It involves risks to the beneficiary since the documentary credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although documents may have been presented, before payment has been made, or, in the case of a deferred payment documentary credit, before documents have been taken up. So it is normally accepted as a usage between affiliated parties or subsidiary companies, or as a usage of a particular trade, or as a substitute for a promise to pay or a payment order. At present days, revocable credits are seldom used.
2.1.2. Irrevocable credit: A credit that constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions of the documentary credit are complied with, to pay, accept drafts and /or document(s) presented under the documentary credit. It can’t be cancelled/modified without the express consent of the issuing bank, the confirming bank (if any) and the beneficiary. Therefore, it constitutes an undertaking by the issuing bank to make payment.
2.2. According to the adding of confirmation
2.2.1. Confirmed credit: A credit that carries the commitment to pay by both the issuing bank and the advising bank. It is advised to the beneficiary with another bank’s confirmation added thereto. It constitutes a definite undertaking of the confirming bank, in addition to that of the issuing bank, provided that the stipulated documents are presented to the confirming bank or to any other nominated bank on or before the expiry date and the terms and conditions of the documentary credit are complied with, to pay, to accept draft(s) or to negotiate.
Confirmation is only added to an irrevocable credit at the request of the issuing bank. It is used when the seller does not have confidence that the issuing bank can effectively guarantee payment.Therefore, if the issuing bank is considered to be a first class bank, there may not be any need to have its documentary credit confirmed by another bank.
If the advising bank confirms the credit, it must pay without recourse to the seller when the documents are presented, provided they are in order and the credit requirements are met.
Advantage: A double assurance of payment〖双重付款保障〗
--Assurance of payment by the issuing bank
--Assurance of payment from the confirming bank
2.2.2. Unconfirmed credit: A credit that bears no confirmation of the correspondent bank.It only has the commitment of the issuing bank.An unconfirmed irrevocable credit is appropriate only if the political and transfer risks are small.
2.3. According to the tenor
2.3.1. Sight credit: A letter of credit calling for payment upon the presentation of the documents either with or without a sight draft. Under such a credit, the beneficiary (the drawer) is entitled to receive payment at once on presentation of his draft to the drawee bank or to the issuing bank if drawn on the issuing bank, once the relevant documents have been checked and found to be in order. Payment is sometimes effected only against a receipt issued by the beneficiary but usually against correct documents without any receipt.
2.3.2. Time credit / Usance credit: If a letter of credit specifies that drafts are to be drawn at any length of time, such as 60 days, 90 days or 180 days, after sight, it is called a time or usance credit. Under such credit, the issuing bank engages that the drafts drawn in conformity with the terms of the credit will be duly accepted on presentation and duly honored at maturity.
2.3.3. Usance letter of credit payable at sight: Under this credit, the beneficiary will receive payment at sight and the discount charges and acceptance commission are for the account of the applicant.〖for the account of表示“由…支付”〗
2.4. According to whether the credit can be transferred or not
2.4.1. Transferable credit: A credit under which the beneficiary (the first beneficiary) may request the bank authorized to pay, incur a deferred payment undertaking, accept or negotiate (the transferring bank), or in the event of a freely negotiable credit, the bank specially authorized in the credit as the transferring bank to make the documentary credit available in whole or in part to one or more other beneficiary ( ies ) (second beneficiary).
A credit can be transferred only if it is expressly designated as “transferable” by the issuing bank. Terms such as “divisible”, “fractionable”, “assignable”, and “transmissible” do not render the credit transferable. If such terms are used they shall be disregarded.
A transferable credit can be transferred once. The second beneficiary cannot further transfer it.
2.4.2. Non-transferable credit: A credit under which the beneficiary may not request the credit be transferred.
2.5. According to the mode of availability
Depending on the way in which the credit is to be made available to the beneficiary, one or the other of the following credit types or special arrangement is employed.
2.5.1. Payment credit/Sight credit
It provides for payment to be made to the beneficiary immediately after presentation of the stipulated documents and on condition that the terms of the credit have been complied with.
A payment credit is a credit available by payment, under which a bank (the issuing bank/a third bank/the advising bank) specifically nominated therein is authorized to pay against the shipping documents with or without a draft presented in conformity with the terms of the credit. The paying bank indicated in the letter of credit may be the issuing bank, the advising bank or any other third bank.
Available by payment with the issuing bank: It means that upon receipt of the documents by the issuing bank, it will effect the payment. The letter of credit will be expired at the place of issuing bank, that is, documents should be presented to the issuing bank within the validity of the credit. No other bank can negotiate the documents.
Available by payment with a third bank: The third bank is always a clearing bank in major currency clearing centers in the world.
Available by payment with the advising bank: It means that the paying bank is the advising bank and the credit will be expired at the place of advising bank. This is a typical payment credit. Whenever payment is made, it becomes a final payment without any right of recourse. The paying bank is authorized to debit the issuing bank’s account if an account is opened with the bank, or the advising bank may claim reimbursement from the issuing bank by cable.
2.5.2. Acceptance credit
A credit available by acceptance, under which a bank specifically nominated therein is authorized to accept the draft drawn under the credit. The draft thereunder must be a time bill drawn on the issuing bank, advising bank, or any other drawee bank.
After presentation of the compliance documents, the nominated bank accepts the bill. The bill can be discounted in order to obtain the credit amount immediately.
The purpose of an acceptance credit is to give the importer time to make payment. If he can resell the goods before payment falls due, he can use the proceeds to meet the bill of exchange. In this way, he avoids the necessity of borrowing money to finance the transaction.
2.5.3. Deferred payment credit
Under a deferred payment credit, the beneficiary does not receive payment when he presents the documents, but at a later date specified in the credit. In this way, the importer gains possession of the documents (and thereby of the goods or service) before becoming liable for payment. No draft is required for this credit.
In economic terms, a deferred payment credit is equivalent to acceptance credit, except that in the absence of a bill of exchange there is no possibility for discounting.〖从经济学术语来说，延期付款的信用证和承兑信用证一样，只是延期付款的信用证没有汇票因此也无须贴现。〗However, the undertaking to pay established by a deferred payment credit can on certain conditions be accepted as security for an advance.
2.5.4. Negotiation credit
A negotiation credit is one under which a bank specifically nominated therein is authorized to negotiate or one, which is freely negotiable by any bank. A negotiation credit assures that any bank negotiating the drafts thereunder will be duly honored by the issuing bank provided all the terms stipulated therein are complied with.
A credit treated as negotiable is either a sight credit or a time credit, calling for drafts to be drawn on the issuing bank or on any other drawee bank. The so-called negotiation is to buy the draft from the beneficiary or to give value for draft and /or documents by the bank authorized to negotiate. In this case the negotiating bank becomes a holder in due course. Negotiation of drafts and/or documents is with recourse to the beneficiary unless the credit has been confirmed by the negotiating bank.
Types of negotiation
1. Free negotiation credit: If the credit is available by negotiation with any bank, it is a freely negotiable credit, and the beneficiary may present documents to and receive money from any bank of his choice.
2. Restricted negotiation credit: If the credit stipulates “this credit is available by negotiation with XXX bank”, it signifies that the negotiation is restricted to a bank nominated therein and the beneficiary must present his documents to the bank so nominated.
3. Non-negotiation credit (Irrevocable straight credit): Under the irrevocable straight credit, the obligation of the issuing bank is extended only to the beneficiary in honor draft(s) / document(s) and usually expires at the counters of the issuing bank.
2.6. According to special function clause
2.6.1. Revolving credit: One by which, under the terms and conditions thereof, the amount is renewed or reinstated without specific amendments to the documentary credit being required.
The so-called revolving clause can be formulated in different ways with different words stipulated in the credit.(1) Automatic; (2) Semi-Automatic; (3) Non-Automatic.
2.6.2. Back-to-Back documentary credit: A back-to-back credit may be used when the credit issued in favor of the exporter (the middleman) is not transferable or though transferable it does not meet his requirements. The exporter, namely, the beneficiary of the first credit, offers it as a security to the advising bank or his banker for the issuance of a second credit. In other words, the two credits are put “back to back”, the one being issued on the security of the other.A back-to-back documentary credit involves two separate documentary credits:
n One opened by the buyer in favor of the seller, and
n One opened for the account of the seller naming the actual supplier of the goods as the beneficiary. The first beneficiary of the first documentary credit becomes the applicant for the second documentary credit.
With back-to-back documentary credit, the second credit should be worded so as to produce the documents (apart from the commercial invoice) required by the primary credit, and to produce them within the time limits set by the primary credit, in order that the primary beneficiary under the first credit may be able to present his documents within the time limits of the first credit.
2.6.3. Reciprocal credit: A reciprocal credit is usually concerned with a barter transaction. It is in all respects similar to an ordinary commercial credit except that the opener of the original credit may assume the position of the beneficiary of the reciprocal credit, while the beneficiary of the original credit may become the opener of the reciprocal credit. In other words, they are both importers and exporters at the time.
2.6.4. Red clause/Anticipatory credit: It is a kind of pre-shipment financing intended to assist the exporter in the production or procurement of the goods sold. It is a credit with a special clause added thereto that authorizes the advising bank or any other nominated banks to make advances to the beneficiary before his submission of documents. The red clause is so called because the clause was originally written in red ink to draw attention to the unique nature of this documentary credit. Nowadays it is seldom used.
A red clause letter of credit will be established only at the request of the applicant, it places the onus of final repayment on the applicant, who would be liable for repayment of the advances if the beneficiary failed to present the documents called for under the credit, and who would be liable for all costs—such as interest of foreign exchange hedging—incurred by the issuing bank confirming bank, if any, or any other nominated bank.
2.6.5. Standby credit: The standby credit is a documentary credit or similar arrangement, however named or described, which represents an obligation to the beneficiary on the part of the issuing bank to:(1) repay money borrowed by the applicant, or advanced to or for the account of the account of the applicant; (2) make payment on account of any indebtedness undertaken by the applicant; or (3) make payment on account of any default by the applicant in the performance of an obligation.
2.7. Combined function Credits
2.7.1. Irrevocable Straight Documentary Credit
Definition:An irrevocable straight documentary credit conveys a commitment by the issuing bank to only honor drafts or documents as presented by the beneficiary of the credit.
Characteristics:Under this type of credit, the obligation of the issuing bank is only extended to the beneficiary in honoring draft(s)/document(s) and usually expires at the counters of the issuing bank. This type of credit conveys no commitment or obligation on the part of the issuing bank to persons other than the beneficiary.
Advantage/disadvantage:It is of greatest advantage to the applicant, because he does not incur a liability to pay the beneficiary until his own bank views the documents of the credit.
2.7.2. Irrevocable Negotiation Documentary Credit
An irrevocable negotiation documentary credit conveys an engagement by the issuing bank to honor drafts or documents as presented by the beneficiary or any third parties who might negotiate or purchase the beneficiary’s drafts or documents as presented under the documentary credit.
Characteristics: Under this kind of credit, the beneficiary may ask a third bank or financial institution to negotiate or purchase and resell drafts and documents as presented under the documentary credit. This assures anyone who authorized to negotiate draft(s)/document(s) that this draft(s)/document(s) will be duly honored by the issuing bank so long as the terms and conditions of the credit are complied with.
Advantage/disadvantage: It is of advantage to the seller in that he does not have to wait until the issuing bank reviews the documents to get paid the proceeds under the credit.
2.7.3. Irrevocable Unconfirmed Documentary Credit
An irrevocable unconfirmed documentary credit conveys a commitment by the issuing bank to honor drafts or documents as presented by the beneficiary of the credit. This advising bank only undertakes to advise the credit, so the beneficiary of the credit will be paid by and has recourse to the issuing bank only.
2.7.4. Irrevocable Confirmed Documentary Credit
An irrevocable confirmed documentary credit is an irrevocable credit that contains a commitment on the part of both the issuing bank and advising bank of payment to the beneficiary so long as the terms and conditions of the credit are met.This is most secure for the beneficiary, but it is more costly.
Self-Study L/C Practice:
/1.Credit financing/2. Risk protection
1. Credit as a means of finance
There are a number of methods that may be applied to meet the exporter’s needs, such financing arrangements include: red clause letter of credit and transferable credit. Other arrangements include: Pre-shipment advances ＆ Cessions/assignments under credits.
1.1. Pre-shipment advances//发运前的融资
1.1. 1. How does pre-shipment financing work?
Having received the letter of credit from the importer’s bank, the exporter will approach his bank seeking pre-shipment finance on the strength of the letter of credit in his favor. If agreeable, the bank will then advance cash against the letter of credit (normally an amount of say 80% of the letter of credit amount or the full purchase price of the goods to be shipped). The exporter will then apply these funds to purchase the goods from the final supplier and, after having shipped the goods to the importer, will submit documents under the credit to the bank. The bank will in turn obtain payment under the letter of credit (assuming the credit terms are complied with) and apply the funds against the cash advance with the balance being paid out to the exporter.
Such advances can also involve the bank issuing a letter of credit or payment guarantee in favor of the supplier, whereby once documents are presented under a credit or a claim is made under the guarantee, the exporter’s bank will pay the supplier and then proceed to obtain the funds under the primary letter of credit.
1.1.2. Advantages to the exporter
n Not using its own liquidity
n Ability to undertake transactions that may otherwise be out of the exporter’s financing ability
n Not forced to reveal identity of other parties to buyer or supplier
1.1.3. Disadvantages to the exporter
n Depending on bank approval
n Financing costs levied by bank and/or cost of issuing guarantees or letters of credit
n Often required to assign title of goods over to the lending bank
1.1.4. Advantages to the bank
n Transaction secured by exporter letter of credit
n Additional interest income and commission income
n Financing on a “with recourse basis”
1.1.5. Disadvantages to the bank
n Reliance on issuing bank/applicant for payment under the letter of credit
n Transactions often very complex hence tight control needed
n Inability to fully secure transactions
1.1.6. Bank’s considerations when granting pre-shipment finance
1. Creditworthiness of borrower: balance sheets-- reputation-- financial standing -- nature of business -- track record-- future outlook
2. Security of letter of credit: standing/reputation of the issuing bank -- country risk-- authenticity-- terms of credit-- confirmed/unconfirmed
3. Foreign exchange risks: hedging
4. Supplier: standing & ability-- reputation-- track record-- nature of
business/goods
1.1.7. How to minimize risks
1. Always try to obtain the original letter of credit.
2. Ensure that the letter of credit is genuine (signature, test key), if in doubt contact the issuing bank for their confirmation.
3. If the letter of credit was advised through another bank, inform the advising bank that your customer has authorized you to “handle” this transaction.
4. Consider the status of the issuing bank.
5. Examine terms of the credit, can the bank lend against the credit?
6. Always obtain a copy of the exporter’s proforma invoice that has been sent to the ultimate seller. If in doubt, contact the seller to “confirm” the transaction.
7. If deemed necessary, try and obtain copies of the related contracts between all parties.
8. Try and ensure that payment to the seller is made directly to the seller’s bank.
9. If possible, don’t advance the whole purchase price but rather 80% thereof.
10. Upon receipt of the documents, ensure that they conform to the credit terms.
1.2. Cessions/assignments under credits//信用证的让渡
1.2.1. Under what circumstances can an assignment be made?
Cessions/assignments are normally seen when the beneficiary under the credit needs to procure goods or services from other companies in order to complete and fulfill the transaction with the buyer.
1.2.2. Key factors for accepting the assignment under the letter of credit:
n Total trust in the assignor and its ability to present credit conform documents under the letter of credit;
n The reputation of the issuing bank;
n The political and economic stability of the buyer’s country.
1.2.3. Mechanics of an assignment of proceeds
1. Having received a letter of credit, the beneficiary will inform the advising or confirming bank, in writing, that he has assigned a specified amount of the credit to another company, his supplier.
2. Upon receipt of the notice of assignment, the bank will inform the assignee of the assignment giving details of the letter of credit and the amount that the beneficiary has assigned to the assignee.
3. In the event that the advising bank has confirmed the credit, the bank will inform the assignee that on receipt of the complying documents they will pay the assignee.
4. It is therefore the beneficiary’s responsibility to ensure that the complying documents are drawn up and submitted to the bank, within the validity of the credit, in order that payment may be obtained.
5. Upon receipt of the documents, the advising bank will handle the documents in accordance with the reimbursement instructions of the issuing bank and on receipt of funds will effect payment to the assignee with the balance being paid to the seller.
2. Risk Protection
As we have seen, letters of credit enjoy a peculiar status in the payment cycle. Because they guarantee the underlying commercial transaction, they have to be a legally independent vehicle from that transaction. This means that if the supporting documents give every appearance of being genuine, banks are obliged by international law to pay against them.
Effectively this changes the status of the back-up documentation for an L/C. It means that a bill of lading is a negotiable document, and a counterfeit copy could well be worth millions of dollars. It is strange, that traders do not realize this. There is often an implicit trust in international trade, but the key message to all our clients, when entering into a new relationship, should be caveat emptor.
Documents supporting L/Cs that are susceptible to forgery are: bills of lading; commercial invoices; insurance certificates, certificates of quality.〖信用证有关单据中容易出现伪造的有:提单,商业发票,保险单和质量检验证书。〗
The potential fraudster has a series of options open. He could ship, for instance, sub-standard goods or even rubbish inside the correct packing cases and then, using the genuine bill of lading, obtain payment through the L/C.
Alternatively, and frequently much cheaper, if he can obtain an entire set of forged backing documents, including the bill of lading, he may present them to the bank negotiating the L/C and obtain payment.
The crime would, in both instances, not normally be detected until after the ship had reached its destination, weeks, sometimes months after the payment had been made. Therefore, whenever being approached by an unusual transaction with unknown parties, importers and banks should exercise extreme caution to avoid becoming involved in fraudulent transactions. The best way to avoid fraud is to have a detailed investigation about the creditworthiness of the prospective trader.
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