بانک و بانکداری بین المللی

First of Exchange (Second Unpaid)

and Second of Exchange (First Unpaid)

        In practice, it is not uncommon that two drafts are drawn on the drawee bank in a letter of credit (L/C) to ensure that at least one draft reaches the drawee when they are dispatched separately. The issuance of more than one draft in a letter of credit follows the same logic as in the issuance of bill of lading in more than one original. At times even  three drafts may be drawn on the drawee bank, this practice was not uncommon before in certain countries.

        In contrast, normally one draft (sola bill) is issued in a documentary  collection where the draft is drawn on the importer.

        The sample draft shown above is the first draft, marked "First of Exchange (Second Unpaid)" and the number "1". In the second draft, if any is issued, is marked "Second of Exchange (First Unpaid)" and the number "2". Some drafts may not be numbered "1" or "2".

 The Letters of Undertaking Instead of the Drafts

        In certain exporting countries, the government levy a heavy tax on drafts. In such a circumstance, the exporter may request the importer to  specify in his/her letter of credit (L/C) application that "No drafts be issued". When the documents are presented to the negotiating bank, the bank issues a letter of undertaking indicating when and where the money  will be paid, instead of accepting a draft drawn by the exporter.

  'Avalised' Term Drafts

        The word "aval" in French means endorsement. A term draft accepted by the importer does not guarantee payment on maturity, hence it is not readily accepted for discounting or as collateral in a loan. The exporter may arrange to have the accepted draft to be 'avalised' by the importer's bank---the bank adds its endorsement as guarantee of payment. The 'avalised' term draft can be readily discounted, thus providing the exporter with immediate funds.

 Sight Drafts versus Term Drafts

Sight Draft

        The sight draft is most commonly used in international trade. In a sight draft, the payment is on demand or on presentation of the negotiation documents to the paying bank or the importer. In practice, the bank may pay within three (3) working days (not instantly) after the receipt and review of the negotiation documents and if they are in order, that is, the documents comply exactly to the letter of credit (L/C) stipulations.

        In certain countries where the business relationships between the exporter and the bank is well established, the bank may pay the exporter a few hours after the receipt of the negotiation documents that are in order.

Term Draft

        The term draft---time draft or usance draft---is used in a deferred payment arrangement. The payment is on the maturity date determinable in accordance with the stipulations of the letter of credit (L/C). The maturity date can be at a stated period after sight or after date:

·         after sight --- after the draft is presented to the drawee for acceptance, for example, "at 90 days sight" and "at 120 days after sight".

·         after date ---  after a specific date, for example, "at 150 days B/L date" (i.e., the maturity date is 150 days after the date of the bill of lading) and "at 180 days after date" (i.e., the maturity date is 180 days after the date of the draft).

        Unless the maturity date is tied to a specific date, the importer may refuse to accept the draft until the goods have arrived, such deferred acceptance can extend the maturity date.

           In other words, in a term draft the exporter extends the credit to the importer.

           If a term draft is accepted by the accepting bank (in the case of draft drawn on the confirming bank or the issuing bank or other bank stipulated in the letter of credit), such draft becomes what is known as banker's acceptance. The exporter may hold the banker's acceptance pending payment by the bank on the maturity date or discounts it with the bank, thus provides the exporter with immediate funds.

            If a term draft is accepted by the importer (in the case of draft drawn  on the importer) when it is presented to him/her by the collecting (presenting) bank, such draft becomes what is known as trade acceptance. In practice, the collecting bank usually holds the trade acceptance pending payment by the importer on the maturity date and advises the remitting bank of the date of acceptance. The drawee may default on the payment of a trade acceptance. Nevertheless, the trade acceptance has a better chance of being paid by the importer compared to a sales invoice.

        The usual way the drawee accepts a draft is by writing or stamping the word "ACCEPTED" on the face of the draft, plus the drawee's authorized signature and the date accepted.

        Unless the importer's integrity is irrefutable, using a term draft is risky, especially when the draft is drawn on the importer where the remitting bank and the collecting bank are merely acting as agents without guarantee of payment.

        In certain countries, the importer may have access to the customs warehouse or docks and examine the goods before accepting them. The risk is that the importer may intentionally reject the goods even when they are in good order and condition, without paying or accepting the draft.

        The importer may reject the goods, for example, if the local market prices of the goods have dropped. Unless the goods are shipped back or rerouted to other buyers, the goods may incur warehousing charges and be subject to foreclosure after a period of time and auctioned off by the customs. The importer, not surprisingly, could be one of the bidders at the auction and obtain the abandoned goods at a fraction of the import cost. A remedy to counter such rejection is to send the draft and documents immediately to the remitting bank, so that the remitting bank may relay them to the collecting bank and the collecting bank presents them to the importer for payment or acceptance before the goods arrive at the destination.

        The importer, however, has the right to reject goods that deviate from the contracted specifications and quality. The importer can instruct the collecting bank not to pay the draft.

 Clean Drafts versus Documentary Drafts in the Documentary Collections

Clean Draft

        In a clean draft, no shipping documents are attached to the draft sent to the remitting bank. The documents are sent together with the goods, directly to the buyer. Therefore, unless the credibility of the buyer is unquestionable, using a clean draft in the shipment of goods is risky. The clean draft is more often drawn for the collection of payment for the services, not goods.

 Documentary Draft

        In a documentary draft, the shipping documents are attached to the draft sent to the remitting bank. The buyer will be able to receive the shipping documents from the collecting bank only after he/she has  accepted the draft for payment later or after he/she has paid the draft.

 The Parties in the Collection of Drafts

 Drawer

        The drawer is the party who issues the draft and to whom the payment is made. The drawer is the seller (the exporter) and the payee of the draft. The payee could be another party rather than the exporter, or could be the bona fide holder (the bearer) of the draft.

 Drawee

        The drawee is the party who owes the money or agrees to make the payment and to whom the draft is addressed (made out). The drawee is the buyer (the importer), the acceptor and the payer of the draft in a documentary collection. In a letter of credit the drawee most often is the confirming bank or the issuing bank, which is the acceptor and the payer of the draft.

 Remitting Bank

        The exporter's bank to whom the exporter sends the draft, shipping documents and documentary collection instructions, and who subsequently relays them to the collecting bank in a documentary collection is called the remitting bank.

        The term remitting bank as used under a letter of credit may refer to a nominated bank from whom the issuing bank or the confirming bank, if any, receives the shipping documents.

 Collecting Bank (Presenting Bank)

        The bank in the importer's country (the importer's bank usually) involved in processing the collection---presents the draft to the importer for payment or acceptance, and thereafter releases the shipping documents to the importer in accordance with the instructions of the exporter---is called the collecting bank or the presenting bank.