1. How do I apply for the issuance of an Import Letter of Credit?
Talk to your Relationship Manager about your needs. To support the issuance of an Import Letter of Credit, you will have to set up a line of credit. Once approved, complete the Application for an Irrevocable Documentary Credit and bring it into your Relationship Manager.
If you will be issuing numerous Import Letters of Credit, CommLinc™ or Trade Workstation™ may be right for you and allow you to apply for and track your Import Letters of Credit online.
If you require assistance in completing the application, please contact our Trade Finance Client Support line at 1-877-905-0365 or your nearest Trade Finance Centre.
2. What is the Uniform Customs and Practice for Documentary Credits (UCP)?
The Uniform Customs and Practice for Documentary Credits (UCP) is a set of recognized and internationally accepted rules for documentary credits published by the International Chamber of Commerce (ICC) in Paris, France. These rules are used in the international trade community for determining the roles and responsibilities of all parties involved in Letters of Credit, including Standby Letters of Credit, where the Letter of Credit expressly stipulates that it is subject to the UCP.
3. What are the risks to the buyer in an Import Letter of Credit?
Under an Import Letter of Credit, the bank promises to make payment to the seller against the seller's presentation of pre-specified documents. However, it does not provide the buyer with protection if the seller presents documents that comply with the Letter of Credit but later prove to be fraudulent. If all appropriate documents are presented to the bank in absence of clear fraud, the bank will not be able to refuse payment should a dispute arise between the buyer and seller.
To reduce this risk, a buyer should thoroughly investigate prospective sellers. Your CIBC branch, Corporate Banking Centre or Trade Finance Centre may be able to assist you in compiling this information using public information available from their global contacts.
4. In what situations would I use a Standby Letter of Credit?
A Standby Letter of Credit provides security to a beneficiary in that CIBC promises to pay the beneficiary upon presentation of pre-specified documents. The following are some instances where Standby Letters of Credit are used:
- To enable the buyer to purchase goods without having to make a cash deposit
- To support performance promises being made during the tender process of a contract
- To support contractual obligations
- To support payment obligation
5. Can a Standby Letter of Credit be cancelled prior to expiry?
Yes. A Standby Letter of Credit can be cancelled prior to expiry by having the beneficiary return the original Standby Letter of Credit to the Trade Finance Centre along with a letter printed on the beneficiary’s letterhead addressed to CIBC that agrees to the cancellation of the Standby Letter of Credit because it is no longer needed. If the Standby Letter of Credit is irrevocable, the applicant or the issuing bank cannot cancel or alter the Standby Letter of Credit without the express written approval of the beneficiary.
6. A Standby Letter of Credit issued on my behalf has an "evergreen" or automatic renewal clause. What happens as the expiry date approaches?
As the applicant of the Standby Letter of Credit, you should advise your Trade Finance Centre whether or not you want the Standby Letter of Credit renewed, well before the expiry date. Otherwise, the Standby Letter of Credit will continue to automatically renew and you will be charged the corresponding fees.
Usually, the Standby Letter of Credit will specify that the bank must advise the beneficiary if it will not be renewed, 30 or 60 days prior to expiry. Otherwise, it will be automatically extended for the period indicated in the Standby Letter of Credit.
The Standby Letter of Credit will automatically be renewed (usually for a period of 1 year) if the Trade Finance Centre does not receive your instructions. It will also be automatically renewed if the instructions are received but do not provide the Centre with sufficient time to give the required 30-60 day notice of non-renewal to the beneficiary, as indicated in the terms of the Standby Letter of Credit.
If the Standby Letter of Credit will automatically renew and you wish to cancel it, you must ask the beneficiary to return the original Standby Letter of Credit to the Trade Finance Centre for cancellation as per the requirements in question 5.
It is important to note that even if the advice of non-renewal is received in time by the beneficiary, the beneficiary still has the right to draw on the Standby Letter of Credit any time up to the expiry date provided the drawing is in compliance with the terms of the Standby Letter of Credit.
7. What are CIBC's standard charges to issue Letters of Credit?
The commission rate is based upon the risk assumed by CIBC and influenced by the security provided by, and the financial strength of, the client.
In the case of a Standby Letter of Credit, the commission rate is also dependent on whether the instrument is classified as:
a) Financial (in which a client's underlying obligations can only be settled by a cash payment, or where the Standby Letter of Credit supports balance sheet liabilities such as accounts payable)
b) Non-Financial (in which a client normally settles the underlying obligation by performance of some act other than paying cash, such as constructing a building, or completing a project).
Financial Letters of Credit are priced higher than Non-Financial Letters of Credit. Please check with your Relationship Manager to find out the rate applicable to your company or transaction.
Commission is collected at the time of issuance of the Letter of Credit (and on the yearly anniversary date or automatic renewal date, if applicable).
Additional charges could also be incurred if the Letter of Credit is amended or transmitted by telecommunication. Other charges may include correspondent bank charges, consultation fees (if such service is requested), and any out-of-pocket expenses incurred by CIBC relating to the Letter of Credit, such as courier, telephone/fax charges, etc.