Export L/C

Business Sector (‘LE’)

Introduction:

Export Letters of Credit are the most common trade finance method used to finance exports. They are versatile, secure and can be used for almost any international trade transaction. Export Letters of Credit are financial instruments issued by banks that represents the commitment of the bank on behalf of an importer that guarantees payment will be made to the beneficiary (exporter) provided the terms and conditions specified in the Letter of Credit have been met. Conditions which specified in Letters of Credit are typically evidenced by the presentation of specified documents.

In DOKA SaaS, the Export L/C business sector covers all transactions directly connected to the processing of export L/Cs. This includes generating subordinate contracts such as Export L/C Document Set, etc.

For each document presentation under an Export L/C, a subordinate contract is created under that letter of credit. It is created using the Advising Documents (LETDAV) or Receiving Documents (LETDRV) transaction. Transactions for processing document sets such as Settling a Document Value are handled under the subordinate sector Document Sets under an Export L/C (BE).

Besides Export L/C Document Set (BE), other subordinate types of contracts are Advance, Transfer under Export L/C and Export L/C Transfer Document Set. These latter three contracts are distinct business sectors which need to be purchased and installed separately.

Financing is possible related to letters of credit or document sets under L/C which will create a subcontract under the “Loan” (TR) and “Advance” (BP) sectors. However, these are not part of the “Import L/C” business sector but are separate business sectors and need to be purchased and installed separately.

To know more details on Financing, please refer the Financing article.

Documents Received

For documents submitted as part of the export L/C, the transaction establishes a so-called sub-contract for each document record. This sub-contract has its own reference number (made up of the reference number for the export L/C together with a counter). Such sub-contracts are called Documents Received in the application and are abbreviated as BE in the export L/C sector.

All transactions affecting a document set are processed as part of the relevant sub-contract. In a document set, transactions can only then be carried out when the corresponding BE has automatically been added by the Documents Received procedure.

The export L/C first must be accessed before working on transactions that affect it. If the Documents Received procedure has already been run and if relevant BEs are already available, the user will receive a selection list of these. After selecting a document record, a list of pertinent transactions is displayed from which the user can make his selection for processing.

The organization of this process makes sense because diverse single submissions of documents can take place in an export L/C. This division of the work allows each individual submission to be processed easily. The application calculates the total of all submissions against the original amount of the export L/C.

Confirmations

The business sector Export L/C (LE) is used to advise received letter of credits to the beneficiary of the L/C with or without confirmation. In the case of a confirmation of the L/C or a silent confirmation, this represents an independent liability on behalf of the confirming bank.

Within confirmations a distinction is made between the confirmed amount (within the contract) and the resultant liability. Confirmations always use either the maximum amount or a percentage of this maximum amount. Thus, the confirmation amount will NOT be changed after utilization.

The liability that is originally based on the confirmation amount will be reduced. In doing so, the amount to be booked out can freely be divided into the available liability types. The application keeps in mind whether the amount or the percentage has been confirmed and automatically adjusts the confirmation in the Advise an Amendment (LETAME) transaction.

The field Confirmation Instruct. Received shows the confirmation instructions received from the issuing bank or from the 1st Advising Bank. The field Confirmed by us displays the current status of the confirmation, whereupon the internal bookings are carried out. It shows whether a confirmation is at hand or not. If a silent confirmation is at hand (which is not to be announced to other parties), this status will also be displayed via this field.

The field Confirmation from 1st Adv. Bank shows whether the 1st advising bank has already given its confirmation to the L/C. It has only to be filled in if a 1st advising bank has been defined in the contract.

Amendments

Amendments are edited in Advise an Amendment (LETAME). If an amendment request is to be sent to one of the parties in advance, this is sent using the Request of Amendment (LETRAM) transaction. Amendments captured here are saved in an auto-registration for the amendment. If the amendment is to be finalized, the autoregistration is retrieved and the Amend transaction is saved. If a limit check is to be performed before the change, this is done using the Liability Approval for Amendment (LETAMR).

If an incoming message containing an amendment request (e.g., SWIFT MT707) is picked up, the corresponding free text contained in the transaction is copied to the CONTAG79 field. The text is not changed and remains the same as the text in the incoming message.

The Narrative (NARTXT) field compiles the changes that will comprise the outgoing message. The contents of CONTAG79 form the basis for this field and this text can be edited for the outgoing message. In particular, changes made to long text fields (e.g., descriptions of goods) are normally made in CONTAG79. To facilitate this, the application provides text fields to allow amendments to be assigned to the relevant original texts.

Flowchart Business Sector Export L/C

System Outgoing Messages (Swift/Letter):

Incoming Messages (SWIFT) and Possible Transactions which it will create in DOKA.