Import Trade Services

BankMuscat’s experienced, well-trained staff and state-of-the-art technology will ensure that all your import requirements are attended to without delay. Our range of services include:

4 Documentary Letter of Credit
4 Documentary Collection

Documentary letters of credit are a long established mechanism by which banks facilitate international trade.

A Documentary Credit (DC) is:

• A Definite (Unconditional) Undertaking of Payment by a Bank (Issuing Bank)

• Issued to the Supplier(s) of Goods, Services and/or other Performances (Beneficiary)

• Upon the Request and/or Instructions from the Buyer (Applicant)

• To Accept, Negotiate or Pay the Bill of Exchange (Draft) and/or Documents up to a Fixed Amount (Free Currency) Within a Prescribed Time Limit For Shipment and Presentation Against Stipulated Set of Documents

The Documentary Credit does not deal with goods, services and/or performances to which the documents may relate. The issuance and operation of Documentary Credits are governed by internationally accepted guidelines published by the International Chamber of Commerce - Uniform Customs & Practice for Documentary Credits (UCP500).

We issue Letters of Credit to beneficiaries in various countries within 12 hours. Our network of correspondent banks allows us to offer you confirmation at competitive rates. For further assistance please mail to:  tradefinance@bankmuscat.com

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Advantages and Disadvantages:

a) Advantages to Exporter

• Credit risk is eliminated

• Need for credit checking is reduced

• Exchange or political risk is reduced/eliminated

• Awareness of all requirements for payment

• Protection on pre-shipment risk, i.e. cancellation of contract loss does not affect bank’s obligation

• Facilitates financing before shipment

• Immediate payment once shipment effected

b) Advantages to Importer

• Payment will only be effected after the shipment is found regular

• Expert examination of documents

• Can negotiate for better prices and terms

• Expanded sources of supply of goods

• Financing under L/C is less expensive and more easily obtainable than other methods of payment

• No tie-up of cash. Payment will only be effected upon arrival of documents and even upon sale of goods if T/R is arranged

c) Disadvantages to Exporter

• Not as safe as payment in advance

• Small discrepancies in documentation may cause delays in obtaining payment

• Might have to allow a measure of credit under an acceptance credit

d) Disadvantages to Importer

• Effort of arranging for the credit to be opened and its attendant costs

• Credit will either form part of total bank facility, alternatively may be require to provide cash cover

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TERMS

Payment: Applies to sight draft. Nominated bank will pay Beneficiary on receipt of the specified documents and on fulfillment of all terms of the credit.

Acceptance: Also referred as “term credit” or “usance credit”. The seller draws a draft on the nominated bank demanding payment at some determinable future date, e.g. at 30 days’ sight.
Deferred Payment Credits: Usance Credit, but with no bill of exchange, perhaps to save stamp duty.

Negotiation: If a bank negotiates a credit, it will advance money to the beneficiary on presentation of the required documents and will charge interest.

Types Of Documentary Credits

Standby L/C
A type of Documentary Credit which represents an obligation to the Beneficiary on the part of an Issuing Bank to make payment on account of any indebtedness undertaken by the Applicant, or to make payment on account of any default by the Applicant in the performance of an obligation. It serves as a back-up or secondary means of payment, though it is recognized as a primary obligation of the Issuing Bank. Standby Letters of Credit are widely used in the United States of America in place of Bonds or Guarantees. As a form of Documentary Credit, it is important to note that they are subject to UCP500.

Red Clause L/C
A Documentary Credit containing a condition that authorizes the Advising Bank or any other Nominated Bank to make advances to the Beneficiary before presentation of documents. The clause is incorporated at the request of the Applicant, and the wording is dependent upon his requirements. Repayment is obtained when the Beneficiary subsequently presents the documents, and includes the amount of the advance, and interest, will be deducted from the full amount of the credit.

Revolving L/C
A Documentary Credit in which the amount is renewed or reinstated without specific amendments to the Documentary Credit being required. The Revolving Documentary Credit may be revocable or irrevocable, and may revolve in relation to time or value.

Transferable L/C
A Documentary Credit under which the Beneficiary (First Beneficiary) may request the bank authorised to pay, incur a deferred payment undertaking, accept or negotiate (the Transferring Bank), or in the case of a freely negotiable Documentary Credit, the bank specifically authorised in the Documentary Credit as a Transferring Bank, to make the Documentary Credit available in whole or in part to one or more Beneficiary[ies] (the Second Beneficiary[ies]). A Documentary Credit can be transferred only if the Issuing Bank specifically designates it as “transferable”. Article 48 of UCP500 details the rules governing Transferable Documentary Credits.

Back-To-Back L/C
Back-to-Back Documentary Credits consist of two entirely separate Documentary Credits, with the primary Documentary Credit acting as security for the other. They apply in transactions where the original suppliers and ultimate buyers deal through a middleman. Only the middleman and his bank, normally the Advising Bank for the first Documentary Credit, have knowledge of the arrangement. The second Documentary Credit must always be for an amount less than the original Documentary Credit and have an earlier expiry date.

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Documentary Collection
Documentary collection is a process where the seller (drawer) forwards documents through his bankers (remitting bank) with instructions to the buyer’s bank (collecting bank) that the documents be released to the buyer (drawee) on acceptance/payment/written undertaking to pay on due date of the bill. Documentary collections are governed by internationally accepted guidelines published by the ICC 522 OF 1995- Uniform Rules for Collection (URC 522).

For further assistance please mail: tradefinance@bankmuscat.com

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