Page 64 - Export and Trade

Exchange by a bank which guarantees payment should
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at maturity. After acceptance of a term bill the importer
may request the bank to avalise the bill in accordance
with the terms of a previously agreed banking facility for
this purpose.
Avalisation can help importers to establish new
trading relationships with overseas suppliers or negotiate
improved terms because, like a documentary credit, it
provides an assurance of payment which the supplier can
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Documentary Credits
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methods for settling international trade transactions
because they offer security to both buyer and seller and
because they are honoured through the banking system.
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some countries, settlement by documentary credit is
insisted upon by the authorities who may wish to control
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undertaking by an issuing bank, on behalf of an importer
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provided that the exporter complies with all the terms
and conditions established by the credit”. DCs are
to the importer. Where goods have been dispatched to usually issued in irrevocable form, which means that
the importer by air, road or rail transport, documents of WKH\ FRQVWLWXWH D GH¿QLWH XQGHUWDNLQJ DQG FDQQRW EH
title are not issued and the goods are usually delivered revoked or amended without the agreement of all parties
directly to the consignee. In countries where foreign to the credit.
currency is limited, delays in the receipt of proceeds may DCs are completely separate transactions from
be experienced pending allocation of foreign exchange the underlying commercial contracts and banks are
by the authorities. not concerned with, or bound by, the terms of such
If delivery of goods were to be refused by the contracts. An important provision of UCP (rules which
importer for any reason, the exporter would have to JRYHUQ '&V LV WKDW DOO '& WHUPV DQG FRQGLWLRQV VKRXOG
consider arranging storage of the goods, shipping them be covered by the documents called for in the credit. In
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the consignment, all of which could be expensive. and not with the goods, services or other performances
Although exporters can request the collecting bank to to which the documents relate.
protect their interest in case of default, there may not be '&V DUH QRUPDOO\ VHQW WR WKH EHQH¿FLDU\ H[SRUWHU
adequate facilities at the port of discharge to protect the YLD DQ DGYLVLQJ EDQN LQ WKH EHQH¿FLDU\¶V FRXQWU\
goods and legal action overseas can be both expensive The advising bank may also be requested (by the
and ineffectual. The exporter’s local agent is usually best LVVXLQJ EDQN WR µFRQ¿UP¶ WKH FUHGLW ± L H DGG LWV RZQ
placed to take action to protect the goods if problems undertaking to that of the issuing bank. In such cases,
are experienced. WKH FRQ¿UPLQJ EDQN DVVXPHV WKH FUHGLW ULVN RI WKH
overseas issuing bank and the political risk associated
Avalised Bills ZLWK WKH LPSRUWLQJ FRXQWU\ 2Q DQ XQFRQ¿UPHG FUHGLW
$YDOLVDWLRQ LV WKH VSHFL¿F HQGRUVHPHQW RQ D %LOO RI the advising bank does not make any commitment to

62 NZ Export & Trade Handbook 2018