You think your are closing a deal in three days?

One of the attributes of business is the transfer of funds from bank to bank.  We have talked to those that "think" they are going to get paid on a deal in three days. We ask "have you talked to your banker where the funds are going to be wired?" The answer is "No, I haven't." Our answer to them is they have no clue to what they are involved in or what they are doing.

For example, you happen to close a transaction and you have given all your banking information to the appropriate parties. You know for sure the deal is going to close and let's say you are going to get 1 million bucks in profit sharing arrangements. Of course, for those that understand this business the funds do go into an escrow account of a well established attorney. The question is you want your money wired to your account to a different bank. Have you told your banker about the transaction? Let's say you haven't. Now 1 million dollars is going to go to your account and you haven't informed your banker, what do you think he/she is going to do? One Million bucks came from where? Do I need to explain more? Unless you regularly do deals this large your banker is going to question the source of funds, bottom line. That is why, as contrary to jokers, these deals do not take place in three days as I have been told numerous times. Unless you already have the existing relationship and transactional history.

This is why asking for an "MFPA" otherwise known as a Master Fee Protection Agreement upfront is nonsense and just broker talk. You have to have the established relationship with those you are working with and also your Banker. The bank will need to know the source of funds - period. And not the quote that funds are clean, free, of all criminal origin. It does not work that way. If your banker has any doubts your funds will be in question if you do not inform him beforehand with documentation.

If you have any doubts and you think you have a deal that is closing call your banker today and tell him that I believe One Million Dollars may be deposited in my account in the near future. See what he/she says?

For more information please visit:  Professional Commodity Training

Borrowing Certificate of Deposits

Borrowing a CD or certificate of deposit is fairly easy when the client has the funds available.  The issuer is able to put a CD for you on DTC/Euroclear or delivered via SWIFT.  An important thing to keep in mind, DTC/Euroclear is typcally more cost effective for delivery of the instrument.

Once the instrument is placed on screen and validated by your banker, the placement charge is to be paid inside forty eight hours. The instrument will be issued for a term of one year to five years with an option to renew were the backend payment is due inside sixty days after placement of the instrument on screen and delivered to the client via MT-760 if using swift.

The issuers CD's as stipulated and agreed on by contract, are allotted in an individual or company name, and are basically used for supply of a project, commercial endeavors, and balance sheet and credit enhancement.

The typical time frame to complete a CD transaction for new clients is 45 to 60 days.

All instruments are AA rated from Top World Banks. The CD's may be employed for collateral purposes and permit lending. As a borrower, you may be allotted a quoted Bank Instrument from a major global financial institution, allotted straight in your name. Your instrument is placed on DTC with a one, three, or five year time for borrowing the instrument.  Over 90 percent of the clients borrow the instrument for five years as it is more cost effective to do so.

Transactions are from a minimum quantity of 10 million dollars if delivered via DTC/Euroclear and 50 million dollars if delivered vis swift.  However, the minimum can be agreed up with a cooperative and qualified client.  The Bank Instrument must be returned unencumbered to the Bank 15 days before its maturity date or the client may have an option to renew the term of the lease. It is easy to extend the lending period for another 5 years (annual cost remains the one of first year) with fifteen pre-advice days if issuance is via swift.  The CD's are available on DTC or they can have bank to bank (MT799 form) confirmation where they're cash-backed with repository receipt. The issuer CD's are in one to five year increments with low up front cost and structured payments. The client gets DTC info to determine the instrument when set up charge is escrowed. A set up charge gets the CD started and live for the first sixty days. Payment for the balance of the annual charge is based on the term of borrowing the instrument and is due inside sixty days with a payment guarantee from the bank.

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CC information

URC 522 Articles

As we have stated on our website if you see the LOI or BCL in the procedures you are wasting your time.  The best situation for the intermediary is to find the end supplier or principal and work the deal as we stated with the DCL. (This is primarily for bulk commodities). You can otherwise step back after sourcing the end buyer connect the end buyer to your source in return for protection in the deal. 

 

After you have the proper documentation in order it is time for collections.  You want to get paid on the guarantee of the presented IDCL.  The most widely used reference for collections is the ICC regulations URC 522.  The URC stands for Unified Rules for Collections. The URC's rules are of some concern to intermediaries because they govern the collection of the buyers' remittances on how one collects on getting paid and these regulations more or less reinforce the UCP (500 and 600) and detail how such payments are contractually required and are to be made.

 

The URC:  1) "Application of URC 522 applies to all collections as defined in article 2 where such rules are incorporated into the text of the 'collection instruction' referred to in article 4 and are binding on all parties thereto unless otherwise expressly agreed or contrary to the provisions of a national, state or  local law and/or regulation which cannot be departed from."  When the URC is referred to in a collection instrument, in a contractually binding situation between multiple parties, it directly applies to the direct collections  of payments in the mode specified on that collection instrument Incorporating URC rules into an offer or contract makes it binding on everyone (all parties) to obviously the buyer and seller. A bank is not irrevocably obligated to handle a particular payment collection or instruction relating to that payment collection. The reason this has to be considered is a bank can choose to handle a collection, or not to. If a bank elects, for any reason, not to handle a collection or any related instructions received by it; it must advise the party from whom it received the collection or the instructions by telecommunication or, if that is not possible, by other expeditious means, without delay. While banks are not obligated to handle a payment collection for a party, if it chooses, however, not to, it is required to inform the party sending  the collection instructions at once.

 

We are not going to into much more and bore you with procedures and regulations.  If you have the chance review URC 522 at your leisure.  One important aspect is you will soon realize the ICC gives little protection to intermediaries.

 

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Standby Letters of Credit Part II

Letter of credit traits are letters of credit which are customarily debatable. The issuing bank is obliged to pay not just the beneficiary, but also any bank designated by the beneficiary. Debatable instruments are passed readily from one party to another just about in a rather similar way as cash. To be debatable, the letter of credit must include an unconditional guarantee to pay, on demand or at a definite time. The designated bank becomes a holder in due course. As a holder in due course, the holder takes the letter of credit for value honestly, without warning of any claims against it. A holder in due course is treated favourably under the UCC or the Uniform Commercial Code.

 

The exchange is thought of as a straight negotiation if the issuing bank's payment requirement extends only to the beneficiary of the credit.

 

If a letter of credit is a straight negotiation it is referenced on its face by "we engage with you" or "available with ourselves". Under these conditions the guarantee doesn't pass to a shopper of the draft as a holder in due course. Revocability letters of credit might be either revocable or irrevocable. A revocable letter of credit might be revoked or altered for whatever reason, at any point by the issuing bank without notification. A revocable letter of credit can't be confirmed. If a private bank is engaged in an exchange that involves a revocable letter of credit, it serves as the advising bank.

 

Once the documents have been presented and meet the T&Cs, or Times and Credits, in the letter of credit, and the draft is honoured, the letter of credit can't be revoked.

 

The revocable letter of credit isn't a generally used instrument. It is typically used to provide laws for shipment. If a letter of credit is revocable it would be referenced on its face. The irrevocable letter of credit would possibly not be revoked or amended without the accord of the issuing bank, the confirming bank, and the beneficiary. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the mandatory documents are presented and the terms are went along with, payment will be made. If a letter of credit is irrevocable it is referenced on its face.

 

The beneficiary has the right to transfer or allot the privilege to draw, under a credit just when the credit states it's transferable or assignable. Credits ruled by the Uniform Commercial Code (Domestic , or the United States) perhaps transferred a vast number of times. Under the Uniform Customs Practice for Documentary Credits (World) the credit may be transferred only once. But whether or not the credit specifies that it's nontransferable or nonassignable, the beneficiary may transfer their rights before performance of conditions of the credit. 

 

All letters of credit need the beneficiary to give a draft and stipulated documents to receive payment. A draft is a written order by that the party making it, orders another party to pay money to a 3rd party. A draft is also known as a bill of exchange. There are two kinds of drafts: sight and time. A sight draft is owing as fast as it is presented for payment.

 

The bank is authorized a fair time to review the documents before making payment. A time draft isn't due till the lapse of a selected time period stated on the draft.

 

The bank is needed to accept the draft as fast as the documents go along with credit terms. The issuing bank has a fair time to look at those documents. The issuing bank is responsible to accept drafts and pay them at maturity. The standby letter of credit serves a different function than the commercial letter of credit in obvious cases stated above.

 

The commercial letter of credit is the first payment mechanism for an exchange. The standby letter of credit is a secondary payment mechanism. A bank will issue a standby letter of credit for a buyer to provide assurances of his capability to perform under the provisions of a contractual arrangement between the beneficiary. The parties concerned with the exchange don't expect the letter of credit will ever be drawn on. The standby letter of credit assures the beneficiary of the performance of the customer's duty. The beneficiary is able to draw under the credit by presenting a draft, copies of invoices, with proof the buyer hasn't performed its requirement. The bank is obliged to make payment if the documents presented go along with the details of the letter of credit. Standby letters of credit are issued by banks to stand behind financial duties, to insure the refund of upfront fee, to support performance and bid needs, and to insure the completion of a sales contract.

 

The usage of the letters of credit as a tool to reduce risk has grown significantly over the last decade.

 

Letters of credit do their purpose by replacing the credit of the bank for that of the customer, for the sake of facilitating international trade. The credit pro should be acquainted with two kinds of letters of credit: commercial and standby. Commercial letters of credit are used essentially to aid foreign trade. The commercial letter of credit is the first payment mechanism for an exchange.

 

The standby letter of credit serves a different function. The standby letter of credit is a secondary payment mechanism. The bank will issue the credit for a purchaser to provide assurances of his capability to perform under the conditions of a contract. On invoice of the letter of credit, the credit pro should review all items meticulously to insure that what's predicted of the vendor is totally accepted and he can comply with all of the terms. When compliance is in query, the customer should be asked to modify the credit.

 

For more information please visit:  Professional Commodity Training