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Villamangca, Divine Christian C.

BBF 3-6N


Negotiation of the L/C

Negotiation means the giving of value for drafts and/or documents by the bank
authorized to negotiate, the nominated bank.

After the foreign bank has received the draft and the documents pertaining to the
L/C form which the seller can draw thereof, it is now the responsibility of the bank to
check and verify if the documents presented is in conformity with all the following terms/
conditions of the instrument before it pays the seller, specified as follows:

1. Shipment is within the validity of the L/C;
2. Merchandise/good stated in the bill of lading and in the invoice are the
same as appearing in the L/C; and
3. Amount in the invoice does not exceed the amount as indicated in the L/C.

Once the issuing bank receives the documents of the seller, it is understood that
the account of the buyers bank through its correspondent bank has been debited. As
such, the issuing bank expects to be paid before it releases the documents to the
importer/buyer to enable him to get the goods from the custom house.


Trust Receipt

Trust receipt is a method whereby a bank allows an importer to take delivery of
imported goods but retains the title to them. This arrangement allows the importer to
acquire and sell goods without making payment under a letter of credit.

This is an undertaking between the importer the bank whereby the former take
physical possession of the goods but the legal title remains with the latter on condition at
the proceeds coming from the sale of the merchandise shall be remitted to the bank to
settle the buyers obligation. Under this arrangement, the importer who defaulted through
nonpayment is criminally liable for estafa.

When the goods released under trust receipt are not paid upon maturity, they will
be transferred to past due under PAST DUE T/R ACCOUNT. Should it remain past due
and becomes inactive despite notice to the buyer to settle the same, it will be transferred
to ITEMS IN LITIGATION PAST DUE T/R ACCOUNT. This means that the
documents were transferred to the Legal Department for appropriate legal action.




Shipside Bond/ Bank Guarantee

Bank Guarantee is a guarantee from a lending institution ensuring that the liabilities of a
debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover
it.

The buyer who takes the guarantee or the bonds covers the following:

1. To pay the freight and other charges relative to the goods;
2. To indemnify and exempt the vessel/owner/agent from all claims, which
the steamship may sustain in releasing the goods prior to the receipt of the
original bill of lading; and
3. To see to it that the original bill of lading is properly endorsed and
surrendered to the vessel/ steamship.

Bill of Exchange or Draft

Bill of Exchange is an unconditional order issued by a person or business which directs
the recipient to pay a fixed sum of money to a third party at a future date. The future date
may be either fixed or negotiable.

Bank Draft- a document prepared by the bank official, ordering payment out of the
funds deposited in another bank.

Parties to a Draft
Drawer- the one who signs/draws the draft (exporter)
Drawee- the party to whom the draft is drawn (buyer)
Payee- the party to whom a draft is made payable (exporters account)

Bank Draft Classified
1. Date of Payment
Demand Draft- payable on demand or sight;
Time Draft- with a fixed term 30 60 90 days after presentation
or acceptance.

2. Character of Drawee
Bank Draft bank
Commercial Draft- business firm

3. Parties Place of Residence
Domestic- within the Philippines
Foreign- outside the Philippines

Mode of Acceptance

Ordinary
Accepted Drafts
o Trade Acceptance- purchaser/ importer write accepted on the
draft
o Banker Acceptance accepted by the drawee bank

4. Whether Documented or Not

Free/ Clean- when no documents are required in honoring the
document
Documentary- when accompanied by the required shipping
Documents

Bankers Acceptance

Bankers Acceptance is a bill of exchange drawn by customers to their order, payable on
a specific future date and accepted by the bank for the purpose of financing trade
transactions i.e. export, import or domestic

Trade Acceptance is when the drawee who accepts it is not a bank but a commercial firm
or individual.