Letters of Credit
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Letters of Credit
TEMENOS T24 Letters of Credit
User Guide
Information in this document is subject to change without notice.
TEMENOS T24 User Guide
Page 40 of 215 No part of this document may be reproduced or transmitted in any form or by any means,
electronic or mechanical, for any purpose, without the express written permission of TEMENOS Holdings NV. Copyright 2005 TEMENOS Holdings NV. All rights reserved.
Letters of Credit
Table of Contents Introduction.............................................................................................................................................. 4 Application Overview ........................................................................................................................... 4 PRODUCTS......................................................................................................................................... 4 Setting up the System ...................................................................................................................... 5 The definition of LC.TYPES ............................................................................................................. 9 LC.CLAUSES - Standard clauses for inclusion in letters of credit................................................. 11 LC.ENRICHMENT - Enrichments for codes used in Trade Finance ............................................. 12 LC.ADVICE.TEXT - standard narrative for use in Trade Finance ................................................. 13 LC.TXN.TYPE.CONDITION - Default Trade Finance charges ...................................................... 14 Delivery .......................................................................................................................................... 15 Letters of Credit – Soft Delivery ..................................................................................................... 34 LC Parameter ................................................................................................................................. 41 Appendix 1 - Trade Finance Delivery Setup .................................................................................. 44 LETTER.OF.CREDIT....................................................................................................................... 102 Overview of Input and Processing ............................................................................................... 104 Example Import LC from the Issuing Bank perspective ............................................................... 104 Export Letters of Credit ................................................................................................................ 116 Collections.................................................................................................................................... 116 Trade Finance accounting............................................................................................................ 118 Limits ............................................................................................................................................ 118 Collateral ...................................................................................................................................... 119 Delivery ........................................................................................................................................ 119 Enquiry Facilities .......................................................................................................................... 121 Reporting Facilities....................................................................................................................... 122 Special Facilities........................................................................................................................... 124 Multiple Debits.............................................................................................................................. 126 Tiered Rates and Sight Discount ................................................................................................. 158 Figure 87 – Discount Balances .................................................................................................... 166 Online Maturity ............................................................................................................................. 166 Backdated Maturity....................................................................................................................... 167 Collection Amendments ............................................................................................................... 169 On Amendment of an Export Collection....................................................................................... 176 LC Amendments........................................................................................................................... 177 Partial Confirmation...................................................................................................................... 181 Limit with Provision....................................................................................................................... 186 Expiry Date roll-over for Collection Documents ........................................................................... 187
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Pre-advice Limit............................................................................................................................ 188 Soft-Delivery for Operation ‘T’...................................................................................................... 188 Partial and Trans Shipment Tags................................................................................................. 189 Scheduling Messages .................................................................................................................. 189 Inward Processing of Letter of Credit........................................................................................... 189 Shipping Guarantee ..................................................................................................................... 193 Expiry Date roll-over for Collection Documents ........................................................................... 195 Trade Finance work files .............................................................................................................. 195 EB.DUPLICATE.TYPE ................................................................................................................. 197
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Introduction Application Overview The T24 Trade Finance application supports the recording and administration of Letters of Credit (LC) and documentary collections. The application is fully integrated with the rest of the T24 system, taking advantage of the T24 limits processing, accounting, position management, and customer portfolio and security features. It compliments other T24 banking applications such as foreign exchange, which support other aspects of Trade Finance.
Trade Finance transactions can be handled in any currency. Drawings made under an LC can also be in a different currency to the parent LC. Charges taken under an LC can also be denominated in a currency different from both the LC and the drawing. Foreign currency entries will automatically update positions where required.
Users can create many different types of LC’s using the LC.TYPES application, where combinations of the major features of an LC can be set up, e.g. Import or Export, sight or usance, payment or acceptance, confirmed or unconfirmed.
Discount accruals can be performed on a periodic frequency specified by the user. This can be daily, weekly, monthly, or any other frequency. Charge accruals are performed monthly.
The system will automatically produce and despatch all advices, covering letters, Letter of Credit documents, and S.W.I.F.T messages necessary for the type of LC, Documentary Collection or Drawing being processed. The advices, documents, and covering letters can easily be redefined or amended with the T24 Delivery application. Each LC type may have its own application format designed in DE.FORMAT.PRINT and selected in the LC.TYPES record.
Inward delivery of S.W.I.F.T message types is accommodated for message types MT700, MT710, MT705, MT710 and MT711 using the application LC.IN.PROCESSING. This process will create unauthorised contracts on the LC files ready for completion and (subject to any necessary corrections) authorisation.
The DRAWINGS application has a flexible payment and reimbursement mechanism whereby funds can be collected or paid via a number of intermediaries, and even be paid to parties not involved in the LC (third parties or agents). T24 will automatically produce the payment instructions necessary for these facilities.
PRODUCTS The Trade Finance application supports the following products and product characteristics.
Letters of credit Pre-advised Letters of Credit
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Export letters of credit revocable or irrevocable, confirmed or unconfirmed Import letters of credit revocable or irrevocable Transferable Letters of Credit Payments at sight, acceptance or deferred Discounting of acceptances Multiple drawings
Documentary collections Documents against payment Documents against acceptance Discounting of acceptance collections Clean collections
The Trade Finance module consists of two closely related applications, LETTERS.OF.CREDIT and DRAWINGS, which work together to provide a wide range of support for Trade Finance business.
The LETTER.OF.CREDIT application records the initial liability of an LC (i.e. the amount of the facility) or the request to make a collection. The DRAWINGS application makes the actual payments and drawings under the LC or collection.
If, for example, we were the bankers for an importer who wishes to finance a deal with an LC, it would be input, initially, to the LETTER.OF.CREDIT application. This would automatically check and update the customer’s credit limit, advise the various parties by S.W.I.F.T or printed advice, take any initial charges, etc. When we are then requested to make a payment under the LC this would be input in the DRAWINGS application, which will make any necessary accounting entries, send all required payment messages, advise the various parties and reduce the LC by the drawing amount.
Documents that will be printed via DELIVERY The outward messages for an LC may be previewed at input stage.
NB. A LETTER.OF.CREDIT has to exist before a DRAWING can be made.
Setting up the System It would be nice if we could provide a fully set-up system ready for use in any bank, but in today’s market it would be impossible due to the many specialist roles a bank can take in Trade Finance. Indeed it is the flexibility of the Trade Finance module that allows the bank to customise its files for the role(s) it intends to cover today, or in the future. The next section will give a brief indication of the setup order to implement a basic Trade Finance system.
The Parameter file - LC.PARAMETERS
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The first level file in most T24 modules is a parameter file which provides the user with the option to specify where in T24 accounting entries are passed; what accrual cycles are set; and the transaction codes to use. This file is called LC.PARAMETERS and there is just one record called SYSTEM.
Figure 1 – LC.PARAMETER
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Figure 2 - LC.PARAMETER
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Figure 3 – LC.PARAMETER file
Figure 4 – LC.PARAMETER file
The user can define at the product level, the type of rounding that should take place while debiting or crediting customer’s account in drawings application in the field ROUND.RULE.
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Figure 5 LC.PARAMETER
The definition of LC.TYPES This file is used to set the type of LC and the way T24 will treat the transaction through its various phases from opening, drawing and to maturity. The records provided with the T24 installation should be treated as a starting point and each one must be reviewed/amended and new ones entered according to the type of Trade Finance business you are involved in.
The LC.TYPES record defines:
•
Whether the transaction is:
o
Import or Export, Transferable, Confirmed or a Collection;
o
Back to back and with what type, Standby.
•
a payment method - by Payment, Acceptance, Negotiation or Direct Credit.
•
a group of message formats.
•
and exceptions to field defaulting rules.
For example as the bankers to an Importer we need to have an LC.TYPE for any pre-advices, an LC.TYPE for the actual advices, and possibly an LC.TYPE for adding confirmations. There are some screenshots below of some examples:
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Figure 5 – LC.TYPES Record
Figure 6 – LC.TYPES Record
In conjunction with the LC.TYPES key, T24 uses an operation type to decide the event, accounting and charges that need to be applied. The codes are entered both in the OPERATION field in the LETTER.OF.CREDIT transaction and as part of the key to the charges conditions file LC.TXN.TYPE.CONDITION covered later in this document. In a similar manner the DRAWINGS transaction uses the DRAWINGS.TYPE after the LC.TYPES to find a matching LC.TXN.TYPE.CONDITION.
These codes are:
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Figure 7 – LC.TYPES key codes So you can now see how the flexibility of the Trade Finance module begins to take place and empowers you to create the settings for the business you conduct now with the ability to expand to meet future business requirements. The use of the LC.TYPE is essential in building the foundation of the Trade Finance set-up to accommodate transactions from clean collections through to complex documentary credits. The following types of letter of credit are provided as an example:
Figure 8 – Types of Letter of Credit
LC.CLAUSES - Standard clauses for inclusion in letters of credit Standard LC clauses are held on this table, it holds static information for use in the mapping and construction of LC advices and documents generated by transactions within the T24. They can be included in a Letter of Credit or Collection by the use of a code, avoiding the need for retyping.
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Figure 9 – LC.CLAUSES Record
The clauses are input in the field ADDITIONL.CONDS where the user may enter free-format text. The codes defined in LC.CLAUSES can be invoked in CLAUSES.TEXT. These are then expanded into the actual text, which may be modified for the contract. Note it is the text itself, which is stored, so if the record is changed at a later date the text that was valid at data entry time is preserved. It is the full text from both the user input and a client or counter party would never see the LC.CLAUSES that appears on the delivery advices and the code words.
LC.ENRICHMENT - Enrichments for codes used in Trade Finance The Trade Finance application makes extensive use of short codes (such as O for open) to enable fast and accurate input. However these codes would not be understood if referred to elsewhere, for example if printed on CUSTOMER confirmations. The LC.ENRICHMENT application holds longer descriptions for these codes and abbreviations giving the opportunity to expand the meaning of each of these codes into the users own terms.
For example the response ‘Y’ to certain fields such as REVOCABLE Y/N. allows the user to create a transaction more speedily. But the text required for advices needs to be expanded to ‘This LC is Revocable’. The file is fully multi-lingual.
A single code may have different meanings when used in different places in the Trade Finance application. Each place where a code may be used is identified in the LC.ENRICHMENT application.
The screenshot below shows the texts substituted for ‘Y’ under several circumstances.
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Figure 10 – LC.ENRICHMENT
In the above example the code ‘Y’ when used in the REVOCABLE field on LETTER.OF.CREDIT means ‘revocable’, but when used in the PART.SHIPMENTS field it means ‘part-shipments allowed’.
NB: Some of the single letter codes, such as I, A, Y etc, must be input with a preceding full stop (.) because they can be confused by T24 function codes. For example to S(ee) the enrichment for ‘Y’ you must input:
LC.ENRICHMENTS.Y
LC.ADVICE.TEXT - standard narrative for use in Trade Finance The LC.ADVICE.TEXT application holds static narrative information data for use in the printed advices and documents. It enables the short codes to be entered (encouraging fast and accurate input) but full and descriptive text is substituted and may be modified within the contract. The application is fully multi-lingual.
Figure 11 – LC.ADVICE.TEXT application
We have now covered the major static data tables used for Trade Finance in T24.
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LC.TXN.TYPE.CONDITION - Default Trade Finance charges The LC.TXN.TYPE.CONDITION table is used to define default charges for Trade Finance products. In essence you would translate the table of charges and commissions that you apply for Trade Finance deals to this table. This would ensure that when a specific deal type is entered the correct charges, fees and commissions are applied in accordance with your scale of fees.
Charges can be defined for each product (as defined on the LC.TYPES application), for each operation on those products (such as pre-advising, opening and amending the letter of credit etc.), and for each drawing and type of drawing made under an LC product.
The key to an LC.TXN.TYPE.CONDITION record is the LC.TYPE followed by either the OPERATION for LETTER.OF.CREDIT, or the DRAWING.TYPE for DRAWINGS.
Figure 12 - LC.TXN.TYPE.CONDITION Record
Whenever a transaction is input via the LETTER.OF.CREDIT (including documentary collections) or DRAWINGS applications, a key is built up of the current LC.TYPE and the current OPERATION (for LCs), or the DRAWING.TYPE (for drawings). This key is then used to retrieve a record from the LC.TXN.TYPE.CONDITION file in order to set up all the default charges for the current transaction.
These settings are used for general customers. To amend the default charges for special clients or those belonging to a pre-defined group you need to set up the condition group files:
LC.GEN.CONDITION
The general conditions
LC.GROUP.CONDITION
The group conditions
These impact the file CUSTOMER.CHARGE where the effect of these can be seen and additional changes made. See the section later in this document for further details.
For DRAWINGS the LC.TYPE is from the parent LETTER.OF.CREDIT record. TEMENOS T24 User Guide
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Delivery Fixed message type production (Old method) The message types listed here are those incorporated in the original Trade Finance product. This section is maintained for backward compatibility. For details on the newer recommended method of operation using soft delivery consult 0 Flexible message type production (Soft delivery) (below)
The Trade Finance application automates the production of SWIFT messages in the 700 and 400 ranges (700 for Letters of Credit and 400 for Documentation Collections. The system also generates MT100 and MT200 series messages for payments.
The following SWIFT message types are available:
•
MT400 - Advice of Payment
•
MT410 – Acknowledgement
•
MT412 - Advice of Acceptance
•
MT700 - Issue of a Documentary Credit
•
MT701 – Issue of a Documentary Credit (second message)
•
MT705 - Pre - Advice of a Documentary Credit
•
MT707 - Amendment to a Documentary Credit
•
MT710 - Advice of a Third Bank’s Documentary Credit
•
MT711 – Advice of a Third Bank’s Documentary Credit (second messdage)
•
MT720 – Transfer of a Documentary Credit
•
MT732 - Advice of Discharge
•
MT734 - Advice of Refusal
•
MT740 - Authorisation to Reimburse
•
MT742 - Reimbursement Claim
•
MT747 - Amendment to an Authorisation to Reimburse
•
MT750 - Advice of Discrepancy
•
MT752 - Authorisation to Pay, Accept or Negotiate
•
MT754 - Advice of Payment / Acceptance / Negotiation
•
MT756 – Advice of Reimbursement or Payment
•
MT910 - Confirmation of Credit
Summary of messages generated The following messages are automatically generated in the circumstances defined:
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Figure 13 - Summary of automatically generated messages
Messages generated for a Letter of Credit The following messages are generated for the various types of Letter of Credit and Documentary Collection transactions:
If there are charges to be taken for each transaction, the system generates the following SWIFT messages.
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MT790 - Advice of charges debited MT791 - Request for payment of charges
Input of a new Letter of Credit When an Import Letter of Credit is opened, the system will produce an MT700 and a printed document (1700). If a third party Reimbursement Bank has been specified, then an MT740 will also be generated. For an Export Letter of Credit opened, the system will produce an MT730 and a printed acknowledgement (1730). If the LC is to be advised through another bank and this has been specified, then an MT710 is also generated. The system produces an MT705 for a Pre-Advised Letter of Credit.
Amendment of a Letter of Credit When an Import Letter of Credit is amended the system produces an MT707. If a third party bank has been specified, then an MT747 is also generated. An amendment to an Export Letter of Credit produces an MT707.
Input or amendment of a Documentary Collection There is no message generation on the input / amendment of a Documentary collection. Messages are only produced for this when a Documentary Collection Drawing is entered.
Messages generated for drawings under Letters of Credit The following messages are generated for the various types of drawings under Letters of Credit and Documentary Collection transactions.
If there are any charges to be taken for each transaction then the system will generate the following SWIFT messages: MT790 - Advice of charges debited MT791 - Request for payment of charges
For each Drawing type entered, the system will generate a standard covering letter to be sent to the relevant parties with the associated documents.
Input or amendment of an Acceptance or Deferred Payment On input of a Drawing relating to an Import Letter of Credit, an MT754 is generated. If a Drawing relating to an Export Letter of Credit is entered then an MT754 is generated unless reimbursement is from a third party reimbursement bank, in which case an MT742 is sent. If the Drawing is input as a Collection, then an MT752 is sent, or if the collection is to be paid under reserve an MT732 is sent. If the acceptance is discounted, then an MT910 is also generated.
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Input or amendment of a sight payment On input of a Drawing of an Import Letter of Credit, an MT752 is generated. If a Drawing of an Export Letter of Credit is entered then an MT754 is generated unless reimbursement is from a third party reimbursement bank, in which case an MT742 is sent. If the Drawing is input as a Collection, then an MT752 is sent, however, if the collection is to be paid under reserve an MT732 is sent
Input or amendment of a collection On input of a collection, an MT750 is sent. If the collection is to be paid under reserve then an MT910 will also be sent.
Input or amendment of a collection chase No messages will be sent for input or amendment of a collection chase.
SWIFT 2006 changes
LETTERS OF CREDIT application has been amended to incorporate the new SWIFT 2006 changes. The following messages have been amended to incorporate these changes, MT700,MT705, MT707, MT710, MT720 and MT740. Message Types
Short description of the modification
700, 710, 720
Addition of new mandatory field 40E Applicable Rules.
740,
Addition of new mandatory field 40F Applicable Rules.
700, 705, 707, 710, 720
Deletion of two fields 44A Loading on Board/Dispatch/Taking in Charge At/From and 44B For Transportation To
700, 705, 707, 710, 720
Addition of four fields: 1> 44A Place of Taking in charge/dispatch from place of receipt. 2> 44E Port of Loading/Airport of Departure 3> 44F Port of Discharge/Airport of Destination 4> 44B Place of Final Destination/For Transportation To/Place of Delivery
Two new fields have been added to the LC application to accommodate SWIFT Tag 40E.APPLICABLE.RULE.CODES, which will store a 6 digit code or the option of inputting OTHR . APPLICABLE.RULE.DESCRIPTION is a no-input field unless OTHR is used in APPLICABLE.RULE.CODES .APPLICABLE.RULE.DESC will describe the condition.
To accommodate SWIFT Tags 44E and 44F two new fields have also been added.
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Flexible message type production (Soft delivery) This is the preferred method of selecting message types to be produced at events in the life cycle of a LETTER.OF.CREDIT transaction. The above section on fixed message types can be used as a general guide to what is necessary, but each installation will have different requirements. Therefore, this is the method you should use if setting up a new Trade Finance system.
Delivery and Document production is one of the most important areas in the Trade Finance application. The bank has to send different messages to the different parties involved. For example, when the bank issues a Letter of Credit, the message MT-700 will be sent to the advising bank, and mail notification will be sent to the applicant, who is normally the bank’s client. T24 previously made assumptions about what messages were to be produced at various stages in the deal life cycle in the LETTER.OF.CREDIT and DRAWINGS application. Soft delivery allows the user to choose the messages to be triggered by activities in the life cycle of a deal.
LETTER.OF.CREDIT and DRAWINGS employ the delivery mechanism through EB.ACTIVITY and EB.ADVICES for the delivery process. With this method, you can have as many messages as you want for each type of operation. The new functions include:
You can also specify when a message should be produced.
Message types to be produced are based on the EB.ADVICES file. The key to this file is defined by a condition of activity code and LC.TYPE. Possible activity codes are listed in this document. This approach gives the users or implementers flexibility to add new messages or amend the existing messages with minimum effort.
EB.ACTIVITY, EB.MESSAGE.CLASS and EB.ADVICES records are released to ensure that existing messages continue to be produced and appear as before (backward compatibility). •
A button on the T24 browser triggers the print preview function.
•
The preview function will show all message types, including payments.
•
The user can control production of classes of message at transaction level.
•
For usance delivery, it is possible to specify a number of days prior to maturity at the activity level or transaction level. There is full audit trail of messages, which have been produced or inhibited.
• •
Additional message types required by SWIFT for very long messages (MT700 - 701, MT710 - 711 and MT720 - 721) are supported.
•
Tag Descriptions are displayed in the SWIFT message preview.
Concepts The LC application often involves messages to several parties using maybe different formats and media. Stages in the transaction life cycle affect messages to be sent. For example, when you issue a Letter of Credit, you have to send the MT700 SWIFT message to the advising bank and notification letter to the customer (Importer) and if there is a nominated reimbursing bank, you have to send an MT740 SWIFT message.
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Basic Concept The activities have been designed to satisfy foreseeable message requirements at each step in the life of the transaction. The activity is a 4-digit number, which is composed of three main parts:
•
First digit indicates Operation.
•
Second digit indicates Type of Application.
•
And the last two digits indicate detail activity related to that operation.
For example, 1000 is Opening, together with 800 for Import type of LC and 01 for opening Input/Authorisation function (1000+800+1 = 1801) signifies Import LC issuing activity when we should send message 700.
One Activity/One Meaning By doing this, it may appear that there will be many activities for each type and step of operations. Most of them are redundant. It is usually sufficient to concentrate on the last two digits. For example, LC opening (OPERATION = ‘O’) may produce an activity with 4 possible activities
1101 – Outward Collection 1201 – Inward Collection 1401 – Export LC 1801 – Import LC
LC and Drawing Activity Lists LC-1000 LC Pre-advice/Opening The 1000 series will represent the opening and pre-advice operation in LETTER.OF.CREDIT application.
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Figure 14 - LC and Drawing Activity List
Opening / Pre-advice Detail Activity (1000 series)
Figure 15 - Opening/Pre-advice Detail Activity (1000 series) LC-2000 LC Amendment / Charges / Tracing
The 2000 series is used for the Amendment and Collection Tracer operation in the LETTER.OF.CREDIT application.
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Figure 16 - LC 2000 LC Amendment/Charges Tracing Amendment/Direct Charges/Tracer Detail Activity (2000 series).
Figure 17 - Amendment/Direct Charges/Tracer Detail Activity (2000 series)
LC-3000 DR Sight Payment The 3000 series is used for the Sight Payment type in the DRAWINGS application. This is not only related to an SP drawing operation, but also the possible operations, which arise due to this nonusance payment.
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Figure 18 - LC 3000 DR Sight Payment
LC- 4000 DR Usance Payment The 4000 series is used for the usance Payment type in the DRAWINGS application. This is not just related to an ‘AC’ or ‘DP’ drawing operation, but rather the possible operations, which arise due to this usance payment.
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T
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Figure 19 - LC 4000 DR Usance Payment
Sight and Usance Drawing Detail Activity (3000 and 4000 series)
Figure 20 - Sight and Usance Drawing Detail Activity (3000 and 4000 series)
LC- 5000 Draw Negotiation
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Figure 21 - LC 5000 Draw Negotiation
Message Class Control in LC To capture every step and type of operation, you may end up with hundreds of activities which would eventually be difficult to set up and maintain. To address this problem, rather than using only activity, we keep the number of activities small but sufficient and employ message class to control required messages.
ACTIVITY and CLASS allow compromise between automatic (default) and user control (semiautomatic). The system will try to default a sensible CLASS to an activity, and populate the information on the LC transaction. You can then take control of the class to choose whether you want to produce the messages suggested by the system.
As far as delivery is concerned, the user will be liberated to send and preview the message under softdelivery, literally unlimited though. It was carefully designed to accommodate the message generation in accordance with the type of transaction and the party involved. Therefore, only specific class will be triggered if the condition falls due. The existing user may take this for granted, since the EB.ADVICES will be pre-set in the same way as the message used to be generated. A table shown below will indicate the usage of the internal class in the Trade Finance module:
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Figure 22 - Message Class Control in LC
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Figure 23 - Message Class Control in LC
LC.PARAMETERS To incorporate the LC message class keyword to EB.MESSAGE.CLASS, we have introduced three new fields, BACKWARD.DELIVERY, LC.CLASS.TYPE, and EB.CLASS.NO. The first one will notify the system whether backward compatibility is required. If set to YES or blank (default YES), the system will go through the old mapping program and make it available for the mapping process, in which case, the soft delivery will function seamlessly for the existing users and at the same time, its versatility is also available for them. The ‘NO’ option is recommended for a new implementation, since it will enable message production to run 200 – 400% faster.
LC.CLASS.TYPE and EB.CLASS.NO will retain a one-to-one mapping between the internal keyword and the user defined message class. In this way you can control message classes to be produced at transaction level.
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Figure 24 - LC Parameter Input screen
BACKWARD.COMPATIBILITY for LC Soft Delivery To maintain compatibility with the fixed delivery of LC's there is a switch in LC.PARAMETERS. When this is set to YES, then the handoff record is in the old format if the associated mapping record is of the form nnn.LC.1. If the mapping does not have "1" as its extension, then the rules for mapping are as described below. This makes it possible to migrate gradually from fixed message operation to full soft delivery.
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DE.MAPPING for LC Soft Delivery LC: Handoff Record 1
: contains the current record (R.NEW)
Handoff Record 2
: contains backup of LC record (R.OLD)
Handoff Record 3
:
Handoff Record 4
: contains the main or Parent LC records, if any
Handoff Record 5
: Changed Field during Amendment
Handoff Record 6
: contains the LOCAL.REF of the current record.
Handoff Record 7
: is assigned to the charge sets and the special SWIFT required fields.
Handoff Record 8
:
Handoff Record 9
: is left for user definition.
DR: Handoff Record 1
: contains the current record (R.NEW)
Handoff Record 2
: contains backup of DRAWINGS record (R.OLD)
Handoff Record 3
: Corresponding LC record
Handoff Record 4
: contains the main or Parent LC records, if any
Handoff Record 5
:
Handoff Record 6
: contains the LOCAL.REF of the current record.
Handoff Record 7
: is assigned to the charge sets and the special SWIFT required fields.
Handoff Record 8
:
Handoff Record 9
: User defined
The HANDOFF header information resides in REC8 with the following format:
REC8
: COMPANY
REC8
: CUS.COMPANY
REC8
: APP.FORMAT
REC8
: MESSAGE.TYPE
REC8
: CURRENCY
REC8
: DEPARTMENT
REC8
: TRANS.REF
REC8
: CUSTOMER
REC8
: LANGUAGE
REC8
: ACCOUNT
REC8
: VALUE.DATE
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REC8
: AMOUNT
REC8: REC8: REC8: REC8:
Customising printed delivery output All communication for third parties (called messages) generated by the Trade Finance module can be despatched using a number of techniques. The most common of which are via Swift and printed output. The use of printed output is particularly common in Trade Finance due to the number of parties to a contract who are not banks and thus are not on the Swift network.
Trade Finance takes full advantage of T24’s sophisticated ability to customise printed output in order to enable each user of the application to produce third party printed documentation that reflects their own requirements. Full information on customising printed delivery is in the Delivery section of the user guide (under DE.FORMAT.PRINT).
In the following example, an amendment has been made to a Letter of Credit. T24 has been set to produce both a printed amendment advice and a Swift 707 message. Both are shown below.
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Figure 25 - Customising printed delivery output
.{1:F01STDPLATXXXXX.SN:
ISN.}{2:I707ABCDGBXXXXXXN}{3:{108:xxxxx}}{4:
:20/TRANSACTION REFE:
TF9502000104
:21/REF.
TO RELATED:
NONREF
:31C/MATURITY DATE O:
950101
:30/DATE CONTRACT AG:
950120
:26E/: :59/BENEFICIARY CUST:
MANCO PLC 12 THE BULLRING BIRMINGHAM BH6 2EF
Delivery preview
There is a delivery preview button on the toolbar. It is active when the delivery preview is available.
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Figure 26 - Delivery Preview Screen
Letters of Credit – Soft Delivery Background Delivery and Document production is one of the most important areas in Trade Finance where the banks have to send different messages to different parties involved. For example, when the bank issues a Letter of Credit, the message MT-700 will be sent to the Advising Bank, and mail notification will be sent to the Applicant, which is normally the bank’s client. However, as far as the delivery is concerned, it has been difficult to produce the message, which T24 does not generate, due to the fact that it has already been pre-defined or hard coded inside the LETTER.OF.CREDIT and DRAWINGS application. To address this issue therefore, we have decided to incorporate the soft delivery concept into these applications to pass the delivery control to the user, which will elevate the difficulty of sending the new type of the message to the correspondences.
In our re-engineering process, we try to standardise how the applications produce their deliveries by introducing three new tables, so-called EB.ACTIVITY, EB.MESSAGE.CLASS and EB.ADVICES. The first one will contain all the possible activities related to that application, where the second one will retain message class description. Hence, it will also facilitate user’s control at transaction level, and TEMENOS T24 User Guide
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the last one will be tiding the activity and message class to delivery message, i.e. 700, 730, etc., which is going to be produced. By employing this new mechanism, the user can decide on which message, and when he/she wants it to be produced.
New Functionality
LETTER.OF.CREDIT and DRAWINGS will employ the new delivery mechanism through EB.ACTIVITY and EB.ADVICES for its delivery process. With this method, the user can have as many messages as he/she wants for each type of operation. Hence, the message can also be specified as and when it should be produced. So the new functionality will include:
•
Message types to be produced will be based on the EB.ADVICES file. The key to this file will be defined by a condition of activity code and LC type. A list of possible activity codes is contained in this document. This new approach will give the users or implementers flexibility to add new messages or amend existing messages in the way they want it to be with minimum effort.
EB.ACTIVITY, EB.MESSAGE.CLASS and EB.ADVICES records will be released to ensure that existing messages continue to be produced and appear as before (backward compatibility). •
The print preview function will be enhanced to trigger document previewing by a new preview button on the T24 browser.(Not available at the present time).
•
Preview Functionality will be available across the applications regardless of operation, type of instrument or payment.
•
User can control the class of the message at transaction level whether he/she wants to produce it or not.
•
For usance delivery, it is possible to specify number of days prior to maturity that the user wants the message to be produced at the activity level or even transaction level.
•
Providing full audit trail of message, which has or has not been produced.
•
Extra messages may be produced if the original message exceeds the limited size available for MT700, MT710 and MT720.
Providing the new generic application, EB.FREE.MESSAGE, where the user can produce any messages at any time, with or without underlying transaction information. Effectively this new capability will also allow sending the applicable message to unlimited of correspondence, if any. •
Displaying SWIFT Tag Description in correspond to SWIFT description on SWIFT preview.
LC Soft Delivery Conceptual Unlike other types of operations, the user of the LC application is usually involved with several parties with the need to produce different types of messages and media simultaneously. Each operation and type of transaction also contribute to this complex situation. For example, when the user issues an LC, he/she has to send the MT700 SWIFT message to the Advising Bank, and notification letter to his/her customer (Importer). If there is a nominated Reimbursing Bank, the user has to communicate with the bank via sending MT740 SWIFT message.
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Basic Concept Due to the mentioned fact, the activities have been designed based upon the needs of the message at each step of the operation. Moreover, it has to be flexible enough as well as covering almost every detail of the operation. To serve the requirement as such, the activity will be a 4-digit number, which is composed of three main parts:
•
First digit stands for Operation
•
Second digit stands for Type of Instruments
•
And the last two digit stands for detail activity related to that operation.
e.g. 1000 is Opening, together with 800, which indicate for import type of LC and 01, which is opening the Input/Authorisation function (1000+800+1 = 1801). It will result as an import LC issuing activity, where we should attach message 700. Effectively, the system will produce the MT700 and send it to the advising bank.
One Activity/One Meaning By doing this, it may look like there will be many activities for each type and step of operations. Most of them are somehow redundant in the way that it is sufficient to only concentrate on the last two digits. For example, LC opening (OPERATION = ‘O’) may produce an activity with 4 possible activities:
1101
- Outward Collection
1201
- Inward Collections
1401
- Export LC
1801
- Import LC
We will see that the first two digits are different to reflect the operation and type of instrument, but the last digit which is representing the real activity, in which case ‘01’, stays the same across the operation.
LC and Drawing Activity Lists LC-1000 LC Pre-advice/Opening The 1000 series will represent the opening and pre-advice operation in the LETTER.OF.CREDIT application.
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Figure 27 - LC-1000 LC Pre-advice/Opening
Opening / Pre-advice Detail Activity (1000 series).
Figure 28 - Opening / Pre-advice Detail Activity (1000 series)
LC-2000 LC Amendment / Charges / Tracing The 2000 series will represent the Amendment and Collection Tracer operation in the LETTER.OF.CREDIT application.
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Figure 29 - LC-2000 LC Amendment / Charges / Tracing
Amendment/Direct Charges/Tracer Detail Activity (2000 series).
Figure 30 - Amendment/Direct Charges/Tracer Detail Activity (2000 series)
LC-3000 DR Sight Payment The 3000 series will represent the Sight Payment type in the DRAWINGS application. This is not only a related ‘SP’ drawing operation, but rather the possible operations, which arise due to this nonusance payment.
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Figure 31 - LC-3000 DR Sight Payment
LC- 4000 DR Usance Payment The 4000 series will represent the usance Payment type in the DRAWINGS application. This is not only related to an ‘AC’ or ‘DP’ drawing operation, but rather the possible operations, which arise due to this usance payment.
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Figure 32 - LC- 4000 DR Usance Payment
Sight and Usance Drawing Detail Activity (3000 and 4000 series).
Figure 33 - Sight and Usance Drawing Detail Activity (3000 and 4000 series)
LC Parameter Although Soft delivery is a generic mechanism providing great flexibility of message producing, it is not entirely suitable to an application like LC’s. To capture every step and type of operation, it may end up with hundreds of activities, which will eventually be enormously difficult to set-up and maintain. To
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address this problem, rather than using only activity, we will keep the number of activities as small, but sufficient as possible and employing message class to represent the required message.
Class Control in LC The main driving concept of ACTIVITY and CLASS is that it lends itself to compromise between automatic (default) and user control, so-called semi-automatic. In a sense, the system will try to default a sensible CLASS tying to the corresponding activity, and populate the information on the LC transaction. Consequently, the user can take control of the class to choose whether he/she wants to produce the messages that are suggested by the system. Having mentioned that, the following LC.MESSAGE.CLASS.TYPE are introduced to allow user controlled of delivery.
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Figure 34 - Class Control in LC
SYSTEM Record To incorporate the LC message class keyword to EB.MESSAGE.CLASS, we have introduced three new fields, BACKWARD.DELIVERY, LC.CLASS.TYPE, and EB.CLASS.NO. The first one will notify the system that whether backward compatibility is required. If set to YES or blank (default YES), the
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system will go through the old mapping program and make it available for the mapping process, in which case the soft delivery will function seamlessly for the existing users and at the same time, its versatility is also available for them. The ‘NO’ option is recommended for a new implementation, since it will run 200 – 400% time faster in terms of message producing.
The second and third one will retain a one-to-one mapping between the internal keyword and the user defined message class. By matching as such, the message control will be made available to the user at transaction level, in which case the users can manipulate the LC document production to accomplish their tasks.
LC Soft Delivery Set-up In spite of obtaining the sample of activity and advices from T24 upgrading, the user may or may not follow up. However, it is worth knowing how to set LC soft delivery and its impact. Here is the implementation road map:
Define message class using EB.MESSAGE.CLASS Define LC activity using EB.ACTIVITY. Key consists of two parts, separated by dash (‘-‘). The first part is the EB.SYSTEM.ID, which is defined in COMPANY record. The second part will be the activity numbers, which are already mentioned elsewhere in this document. Match LC message class with EB.MESSAGE.CLASS.ID. Without specifying this, user will not be able to get the default message class returning by system or to manipulate the document production. Attached required message, i.e. 700, 730, together with message class and mapping key in EB.ADVICES. Key consists of two parts. The first part is the EB.ACTIVITY.ID. The second part is LC.TYPES.ID, separated by dash (‘-‘), i.e. LC-1401-ECSC. It is an optional part, presumably, where the user may tailor the message to a particular type of LC.
Appendix 1 - Trade Finance Delivery Setup
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Main
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MD 7xx series
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4XX
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MT700
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MT701
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MT705
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Letters of Credit
MT707
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MT710
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MT711
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MT720
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MT721
MT730
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MT732
MT734
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MT740
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Letters of Credit
MT742
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MT747
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Letters of Credit
MT750
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Letters of Credit
MT752
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Letters of Credit
MT754
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Letters of Credit
MT756
MT760
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MT767
MT768
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Letters of Credit
MT769
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Letters of Credit
MT400
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Letters of Credit
MT410
MT412
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Letters of Credit
MT420
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Letters of Credit
MT430
MT900
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MT910
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MT100
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MT100(MD)
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MT202
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MT202(MD)
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MT210
Soft delivery functionality is now available in DR.DISC.AMENDMENTS
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Appendix 2 – Trade Finance Accounting Detailed Trade Finance accounting entries This section outlines the accounting entries that can be passed for each event. The section has been split into three. The first covers Import Letters of Credit, the second covers Export Letters of Credit and the third covers charges.
Charges may be taken at any time but are shown here in a separate section to avoid repeating the information against each transaction.
For each entry the following details are shown:
•
The sign followed by the account group being updated.
•
Entry type - Stmt, Categ or Special (see note below).
•
Amount.
•
Transaction code (see note below).
•
Asset type for Special entries.
The codes shown in the entry type column are as follows:
•
Stmt - statement entries on the STMT.ENTRY application.
•
Categ - P&L entries on the CATEG.ENTRY application.
•
Special - direct CRF entries on the RE.CONSOL.SPEC.ENTRY application.
Under the transaction code column the following is shown:
•
If the entry type is Special the transaction code is shown.
•
If the entry type is Stmt or Categ then one of the codes below will be shown. This indicates where the actual numeric transaction code will be obtained.
For the following, the transaction code will be taken from the LC.PARAMETER file:
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Figure 35 - Transaction Codes
For the following, the transaction code will be taken from the FT.CHARGE.TYPE or FT.COMMISSION.TYPE record:
Figure 36 - Transaction Codes
For the contingent entries, the single sided entry is shown. This has been done so that when the option for single sided contingent is used the entry shown will be the one raised.
Where the option to have self-balancing contingents is taken then the opposite signed entry will be raised. The sign will be different and the asset type will have BL at the end otherwise the details will be the same.
Special entries will always be raised as part of the Close of Business processing.
The Stmt and Categ Entries will either be raised online or as part of the Close of Business.
Detailed below are examples of the accounting movements the system generates in respect of the various types of letter of credit and documentary collection transactions.
The examples only indicate the basic ACCOUNT movements. Credit entries to "Profit and Loss" account have not been shown. However, to give an illustration of a transaction incorporating profit and loss entries please refer to Export Credit item "Sight Payment".
Import Letters of Credits Detailed below are the entries generated for the various types of Imports in the date of input or value date.
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Issue of an Import Letter of Credit An LC is issued for 1 million:
Credit "Outstanding Credit Unused" Special
1,000,000
NEW
ISSUE
INC
ISSUE
Amendment of an Import Letter of Credit A Letter of Credit value is increased by 125,000:
Credit "Outstanding Credit Unused" Special
125,000
Then an decrease of 110,000 on the LC value is made: -
Debit "Outstanding Credit Unused" Special
110,000
DEC
ISSUE
Sight payment under an Import Letter of Credit On the value date a drawing for 300,000 is paid:
Debit "Outstanding Credit Unused" Special
300,000
LIQ
ISSUE
The following entries will always be raised online.
Credit nostro for payment to the remitting bank, beneficiary or customer Stmt
300,000
PAYCR
Debit customer account for whom Letter of Credit was opened. Stmt
300,000
PAYDR
Usance Acceptance Documents (a drawing) for 100,000 payable in 90 days is accepted.
On the day of notification of acceptance received:
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Debit "outstanding credit unused". Special
100,000
LIQ
ISSUE
100,000
NEW
ACPTCONTRA
100,000
NEW
ACPTBANK
100,000
NEW
ACPTHO
100,000
NEW
ACPTSUBS
100,000
MAT
ACPTCONTRA
100,000
NEW
ACPTBANK
100,000
NEW
ACPTHO
100,000
NEW
ACPTSUBS
Debit "customer’s liabilities for acceptance". Special
Credit "outstanding acceptances" Special
or "Acceptances executed by Head Office and branches" Special Or "Acceptances executed by subsidiaries" Special
On the Maturity date of 90 Days :
Credit "Customer’s liabilities for acceptance". Special
Debit "Outstanding acceptances" Special
or "Acceptances executed by Head Office and branches" Special Or "Acceptances executed by subsidiaries" Special
The following entries will be raised online if the status is changed to MA online. Otherwise entries will be raised as part of the Close of Business processing.
Credit nostro through which payment will be made to the other bank. Stmt
100,000
PAYCR
Debit customer account for whom the letter of credit was opened. Stmt
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PAYDR
Letters of Credit
Sight collection - paid A drawing for 350,000 payable at sight is sent for collection/acceptance by the customer for whom the Letter of credit was opened.
On the day the item is sent for collection:
Credit Items sent for collection" Special
350,000
NEW
COLL
350,000
NEW
TRCOLL
350,000
LIQ
ISSUE
350,000
LIQ
ISSUE
350,000
PAY
COLL
If the documents (drawing) were to be sent ‘In Trust’:
Credit Items sent for collection" Special
Debit "Outstanding credit unused". Special
On day payment received :
Debit "Outstanding credit unused". Special
Debit "Items sent for collection" Special
On day payment received if the documents were under Trust:
Debit "Items sent for collection" Special
350,000
LIQ
The following entries will always be raised online.
Credit nostro through which payment will be made to the other bank. Stmt
350,000
PAYCR
Debit customer account for whom the letter of credit was opened. Stmt
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PAYDR
TRCOLL
Letters of Credit
Sight collection - not paid A drawing for 225,000 payable at sight is sent for collection to the customer for whom the Letter of Credit was opened and it is not paid.
On the day it is sent for collection:
Credit "Items sent for collection" Special
225,000
NEW
COLL
225,000
NEW
TRCOLL
225,000
LIQ
ISSUE
NCP
COLL
225,000
LIQ
TRCOLL
225,000
REV
ISSUE
On the day the documents are sent ‘In Trust’:
Credit "Items sent for collection" Special
Debit "Outstanding credit unused". Special
On the day that the notice of non-payment is received:
Debit "Items sent for collection" Special
225,000
On the day that the documents sent ‘In Trust’ are rejected:
Debit Items sent for collection" Special
Credit "Outstanding credit unused". Special
Usance collection - accepted or paid A drawing for 150,000 payable in 90 days is sent for collection to the customer for whom a Letter of Credit was opened and is accepted or paid.
On the day that it is sent for collection:
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Credit "Items sent for collection" Special
150,000
NEW
COLL
On the day the documents are sent for collection if the documents were ‘In Trust:
Credit "Items sent for collection" Special
150,000
NEW
TRCOLL
150,000
LIQ
ISSUE
Debit "Outstanding credit unused". Special
If payment is received on or after payment date the process will be the same as for a sight collection paid.
If acceptance is received before payment date then process will be as follows.
On the day the acceptance is received:
Debit "Items sent for collection" Special
150,000
PAY
COLL
150,000
LIQ
ISSUE
150,000
NEW
ACPTCONTRA
150,000
NEW
ACPTBANK
150,000
NEW
ACPTHO
150,000
NEW
ACPTSUBS
Debit "Outstanding credit unused". Special
Debit "Customer’s liabilities for acceptance". Special
Credit "Outstanding acceptances" Special
or "Acceptances executed by Head Office and branches" Special Or "Acceptances executed by subsidiaries" Special
On the day the acceptance is received where the documents have been sent ‘In Trust’:
Debit "Items sent for collection" Special
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LIQ
TRCOLL
Letters of Credit
Debit "Customer’s liabilities for acceptance". Special
150,000
NEW
ACPTCONTRA
150,000
NEW
ACPTBANK
150,000
NEW
ACPTHO
150,000
NEW
ACPTSUBS
150,000
MAT
ACPTCONTRA
150,000
NEW
ACPTBANK
150,000
NEW
ACPTHO
150,000
NEW
ACPTSUBS
Credit "Outstanding acceptances" Special
or "Acceptances executed by Head Office and branches" Special Or "Acceptances executed by subsidiaries" Special
On the Maturity date of 90 Days:
Credit "Customer’s liabilities for acceptance". Special
Debit "Outstanding acceptances" Special
or "Acceptances executed by Head Office and Branches" Special Or "Acceptances executed by Subsidiaries" Special
The following entries will be raised online if the status is changed to MA online, otherwise entries will be raised as part of the Close of Business processing.
Credit nostro through which payment will be made to the other bank. Stmt
PAYCR 150,000
Debit customer account for whom the letter of credit was opened. Stmt
150,000
PAYDR
Usance collection - not accepted or paid A drawing for 175,000 payable in 90 days is sent for collection to the customer for whom the Letter of Credit was opened and it is not accepted or paid.
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On the day the documents are sent for collection:
Credit "Items sent for collection" Special
175,000
NEW
COLL
On the day that the documents are sent ‘In Trust’:
Credit "Items sent for collection" Special
175,000
NEW
TRCOLL
175,000
LIQ
ISSUE
Debit "Outstanding credit unused". Special
On the day that the notice of non-payment/acceptance is received:
Debit "Items sent for collection" Special
175,000
NCP
COLL
On the day that the notice of non-payment/acceptance is received if the documents have been sent ‘In Trust’:
Debit Items sent for collection" Special
175,,000
LIQ
TRCOLL
175,000
REV
ISSUE
Credit "Outstanding credit unused". Special
Maturity of letter of credit When an LC matures with a balance of 250,000 yet to be drawn, then on the maturity date:
Debit "Outstanding credit unused". Special
250,000
Collection Documents On the day that the documents are received:
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MAT
ISSUE
Letters of Credit
Credit "Items sent for Collection" Special
100,000
NEW
COLL
On the day that the documents are received and are sent ‘in Trust’:
Credit "Items sent for Collection" Special
100,000
NEW
TRCOLL
On the day that the documents sent under Trust are accepted:
Credit "Items sent for Collection" Special
100,000
NEW
COLL
100,000
LIQ
TRCOLL
Debit “Items sent for Collection” Special
On the day that the documents sent ‘In Trust are rejected:
Debit "Items sent for Collection" Special
100,000
DEC
TRCOLL
100,000
LIQ
COLL
On the day that the documents are paid:
Debit "Items sent for Collection" Special
Export letters of credit The split for Head Office or subsidiaries will be obtained from the sector code of the customer record for bank for whom we are processing the Letter of Credit.
Request to advise only Requested to advise a Letter of Credit which has been opened for 2 million. On the day that the Letter of Credit is input to T24:
Credit "LC advised" Special
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NEW
ADVICE
Letters of Credit
Request to Confirm Requested to confirm a Letter of Credit, which has been opened for 1.5 million. On the day that the Letter of Credit is input to T24:
Credit "Outstanding credit unused" Special
1,500,000
NEW
CONFIRM
Request to open A Letter of Credit is issued for 1 million. On the day it is input to T24:
Credit "Outstanding credit unused" Special
1,000,000
NEW
OPEN
Request to change an Export Letter of Credit from Advised to Confirmed We are originally requested to advice a Letter of Credit for 2.5 million. We are subsequently asked to add our confirmation to the Letter of Credit.
On the day that the original Letter of Credit is input to T24:
Credit "LC advised" Special
2,500,000
NEW
ADVICE
On the day that the confirmation is added the Letter of Credit is amended:
Debit "LC advised" Special
2,500,000
CON
ADVICE
2,500,000
ADV
CONFIRM
Credit "Outstanding credit unused" Special
Amendment of an Export Letter of Credit A letter of credit is increased by 125,000. On the day of increase:
Credit "LC advised” or "Outstanding credit unused" Special
INC 125,000
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ADVICE/CONFIRM/OPEN
Letters of Credit
A letter of credit is decreased by 110,000 on the day of decrease:
Debit "LC advised" or "Outstanding credit unused" Special
D
ADVICE/CONFIRM/OPEN
110,000
When the Letter of Credit is partially confirmed for 1,000,000:
If the Original entry were:
Credit "LC advised" Special
2,500,00 0
NEW
ADVICE/CONFIRM
1,500,00 0
NEW
ADVICE
1,000,00 0
NEW
CONFIRM
2,500,00 0
REV
ADVICE/CONFIRMN
It would now appear as:
Credit "LC advised" Special Credit "LC advised" Special Debit "LC advised" Special
Sight payment under an Export Letter of Credit A drawing for 300,000 payable at sight is made then on the day payment is made:
Debit "Outstanding credit unused" Special
LIQ
ADVICE/CONFIRM
300,000
A drawing for 300,000 payable at sight is made where the available confirmed portion under a partially confirmed LC is 200,000, then on the day payment is made:
Debit "Outstanding credit unused" Special
LIQ 200,000
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CONFIRM
Letters of Credit
Debit "Outstanding credit unused" Special
LIQ
ADVICE
100,000
These entries will always be raised online.
Credit account of customer requesting payment. Stmt
PAYCR 300,000
Debit nostro through which payment will be received from the other bank. Stmt
PAYDR 300,000
Note: A message (Swift, telex, etc.) will be sent to this bank to advise that payment has been made under a letter of credit and requesting reimbursement.
Usance acceptance of an Export Letter of Credit A drawing for 100,000 payable in 90 days is accepted.
On day of acceptance:
Debit "Outstanding credit unused". Special
100,000
LIQ
CONFIRM/ADVICE
100,000
NEW
ACPTCONTRA
100,000
NEW
ACPT
Debit "Customer’s liabilities for acceptance". Special
Credit "Outstanding acceptances" Special
A drawing for 100,000 payable in 90 days is accepted where the confirmed portion available under a Partially confirmed LC is 75,000.
On day of acceptance:
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Letters of Credit
Debit "Outstanding credit unused". Special
75,000
LIQ
CONFIRM
25,000
LIQ
ADVICE
100,000
NEW
ACPTCONTRA
100,000
NEW
ACPT
100,000
MAT
ACPTCONTRA
100,000
MAT
ACPT
Debit "Outstanding credit unused". Special Debit "Customer’s liabilities for acceptance". Special
Credit "Outstanding acceptances" Special
On the expiry date of 90 Days:
Credit "Customer’s liabilities for acceptance". Special
Debit "Outstanding acceptances" Special
The following entries will be raised online if the status is changed to MA online. Otherwise entries will be raised as part of the Close of Business processing.
Credit account of customer requesting payment. Stmt
100,000
PAYCR
Debit nostro through which payment will be received from the other bank. Stmt
100,000
PAYDR
Discount of own acceptance A drawing for 200,000 is accepted payable in 90 days and is then presented for discount.
On day of acceptance:
Debit "Outstanding credit unused". Special
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200,000
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LIQ
ISSUE
Letters of Credit
Debit "Customer’s liabilities for acceptance". Special
200,000
NEW
ACPTCONTRA
200,000
NEW
ACPT
Credit "Outstanding acceptances" Special
On day of discounting assume this to be the same as acceptance day and that the amount for discount is 75 per day, which gives a total of 6,750 over the 90 days:
The special entries will be raised as part of the Close of Business, but the Stmt entry will be raised online.
Note, for the "Own acceptances discounted" and "Discount received not yet earned" the CRF key will need to be created using the customer to whom the discount has been given.
Debit "Own acceptances discounted". Special
200,000
NEW
LIVEDB
Credit "Discount received not yet earned". Special
6,750
CAP
Discount category from LC Parameter.
Credit Account of customer request discount or suspense account. Stmt
193,250
DISPY
At the first month end as part of the Close of Business run an accrual will be made for the current month assuming 10 days in month 1:
Debit "Discount received not yet earned". Special
750
ACC
Discount category from LC Parameter.
Credit profit and loss for discount earned using the discount category code from LC.PARAMETER. Categ
750
DISPL
At the other two month ends as part of the Close of Business run an accrual will be made for the current month assuming 31 days in each of the months:
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Debit "Discount received not yet Earned". Special
ACC
Discount category from LC Parameter.
2,325
Credit Profit and loss for discount earned using the discount category code from LC.PARAMETER. Categ
2,325
DISPL
On day expiry of 90 Days:
These entries will be raised as part of the Close of Business run:
Credit "Customer’s liabilities for acceptance". Special
200,000
MAT
ACPTCONTRA
200,000
MAT
ACPT
1,350
ACC
Discount category from LC Parameter
Debit "Outstanding acceptances" Special
Debit "Discount received not yet earned". Special
Credit P&L for discount earned using the category code from LC.PARAMETER. Categ
1,350
DISPL
200,000
MAT
Credit "Own acceptances discounted". Special
LIVEDB
Debit nostro through which payment will be received from the other bank. Stmt
200,000
PAYDR
Discount of own acceptance.
A drawing for 400,000 is accepted payable in 90 days and is then presented for discount.
On day of acceptance:
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Debit "Outstanding credit unused". Special
400,000
LIQ
ISSUE
400,000
NEW
ACPTCONTRA
400,000
NEW
ACPT
Debit "Customer’s liabilities for acceptance". Special
Credit "Outstanding acceptances" Special
On day of discounting assume this to be the same as acceptance day and that the amount for discount works out at being 150 per day giving a total of 13,500 over the 90 days and the extra load amount is 50 per day giving a total of 4,500 over the 90 days:
The special entries will be raised during Close of Business, but the Stmt entry will be raised online.
Note for the "Own acceptances discounted" and "Discount received not yet earned" the CRF key will need to be created using the customer to whom the discount has been given.
Debit "Own acceptances discounted". Special
400,000
NEW
LIVEDB
13,500
CAP
Discount Category Parameter.
Credit "Discount received not yet earned". Special
from
LC
Credit "Discount (load) received not yet earned". Special
CAP
Load Category from LC Parameter.
4,500
Credit account of customer request discount or suspense account. Stmt
DISPY 382,00 0
At the first month end as part of the Close of Business run an accrual will be made for the current month assuming 10 days in month 1:
Debit "Discount received not yet earned". Special
ACC 1,500
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Discount category from LC Parameter.
Letters of Credit
Credit profit and loss for discount earned using the discount category code from LC Parameter. Categ
1,500
DISPL
Debit "Discount (load) received not yet earned". Special
500
ACC
Load category from LC Parameter.
Credit profit and loss for discount (load) earned using the load category code from LC Parameter. Categ
500
DISPL
At the other two month ends as part of the Close of Business run an accrual will be made for the current month assuming 31 days in each of the months:
Debit "Discount received not yet earned". Special
ACC
Discount category from LC Parameter.
4,650
Credit Profit and loss for discount earned using the discount category code from LC Parameter. Categ
4,650
DISPL
Debit "Discount (load) received not yet earned". Special
ACC
Load category from LC Parameter.
1,550
Credit Profit and loss for discount (load) earned using the load category code from LC Parameter. Categ
1,550
DISPL
On day of expiry, of 90 Days, these entries will be raised as part of the Close of Business run:
Credit "Customer’s liabilities for acceptance". Special
400,000
MAT
ACPTCONTRA
400,000
MAT
ACPT
Debit "Outstanding acceptances" Special
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Debit "Discount received not yet earned". Special
2,700
ACC
Discount category from LC Parameter.
Credit profit and loss for discount earned using the discount category code from LC Parameter. Categ
2,700
DISPL
Debit "Discount (load) received not yet earned". Special
900
ACC
Load category from LC Parameter.
Credit profit and loss for discount (load) earned using the load category code from LC Parameter. Categ
900
DISPL
Credit "Own acceptances discounted". Special
400,000
MAT
LIVEDB
Debit nostro through which payment will be received from the other bank. Stmt
400,000
PAYDR
Sight collection – paid A drawing for 350,000 payable at sight sent for collection to the Bank that opened the LC and payment is made.
On day sent for collection:
Credit "Items sent for collection" Special
350,000
NEW
COLL
350,000
LIQ
ISSUE
350,000
PAY
COLL
On day payment received:
Debit "Outstanding credit unused". Special
Debit "Items sent for collection" Special
The following entries will always be raised online: TEMENOS T24 User Guide
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Credit account of customer requesting payment. Stmt
350,000
PAYCR
Debit nostro through which payment was received from the other bank. Stmt
350,000
PAYDR
Sight collection - not paid A drawing for 225,000 payable at sight is sent for collection to the bank that opened the letter of credit but it is not paid.
On day sent for collection:
Credit "Items sent for collection" Special
225,000
NEW
COLL
225,000
NCP
COLL
On day notice of non-payment is received:
Debit "Items sent for collection" Special
Sight collection - paid and payment made under reserve A drawing for 350,000 payable at sight sent for collection to the bank that opened the letter of credit. Payment is made to the Exporter under reserve and payment is received from the opening bank.
On day sent for collection:
Credit "Items sent for collection" Special
350,000
NEW
COLL
350,000
NEW
PAYRES
Debit "Payments made under reserve" Special
The following entry will always be raised online:
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Credit customer presenting the drawing. Stmt
350,000
RESCR
350,000
LIQ
ISSUE
350,000
PAY
COLL
350,000
PAY
PAYRES
On day payment received:
Debit "Outstanding credit unused". Special
Debit "Items sent for collection" Special
Credit "Payments made under reserve" Special
The following entry will always be raised online:
Debit nostro through which payment was received from the other bank. Stmt
350,000
PAYDR
Sight collection - not paid A drawing for 225,000 payable at sight is sent for collection to the bank that opened the LC. Payment is made to the Exporter under reserve and the payment is not received from the opening bank.
On day sent for collection:
Credit "Items sent for collection" Special
225,000
NEW
COLL
225,000
NEW
PAYRES
Debit "Payments made under reserve" Special
The following entry will always be raised online:
Credit customer presenting the drawing. Stmt
225,000
On day of notice of non-payment is received:
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RESCR
Letters of Credit
Debit "Items sent for collection" Special
225,000
NCP
COLL
225,000
NCP
PAYRES
Credit "Payments made under reserve" Special
The following entry will always be raised online:
Debit customer presenting the drawing. Stmt
225,000
RESDR
Usance collection - accepted or paid A drawing for 150,000 payable in 90 days is sent for collection to the customer for whom the letter of credit was opened and is accepted or paid.
On day sent for collection:
Credit "Items sent for collection" Special
150,000
NEW
COLL
If the payment is received on or after the payment date then accounting is the same as for a sight collection paid. Otherwise if the acceptance is received before payment date then process as follows.
On day acceptance received:
Debit "Items sent for collection" Special
150,000
PAY
COLL
150,000
LIQ
ISSUE
150,000
NEW
ACPTCONTRA
150,000
NEW
ACPT
Debit "Outstanding credit unused". Special
Debit "Customer’s liabilities for acceptance". Special
Credit "Outstanding acceptances" Special
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On the expiry date of 90 Days:
Credit "Customer’s liabilities for acceptance". Special
150,000
MAT
ACPTCONTRA
150,000
NEW
ACPT
Debit "Outstanding acceptances" Special
The following entries will be raised online if the status is changed to MA online. Otherwise entries will be raised as part of the Close of Business processing.
Credit customer requesting payment. Stmt
150,000
PAYCR
Debit nostro through which payment was received from the other bank. Stmt
150,000
PAYDR
Usance collection - not accepted or paid A drawing for 175,000 payable in 90 days is sent for collection to the customer for whom the letter of credit was opened and is not accepted/paid.
On day sent for collection:
Credit "Items sent for collection" Special
175,000
NEW
COLL
NCP
COLL
On day notice of non-payment/acceptance is received:
Debit "Items sent for collection" Special
175,000
Payments under reserve For export letter of credit it is possible that payment can be made to the customer at the time the documents are presented. This payment is made under reserve meaning that if there is any problem the money can be claimed back.
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For sight collections the entries that will be raised are shown.
Similar processing can happen in Usance collections.
Maturity of letter of credit When a Letter of Credit matures with a balance of 250,000 yet to be drawn, then on the maturity date:
Debit "Outstanding credit unused". 250,000
MAT
ISSUE
Special
Charges Charges applied immediately and not accrued Where a charge for 500 is applied directly and not accrued then the following entries are raised on the date of the charge. These entries will be raised online, when the charges are entered.
Debit Customer paying Stmt
500
FTDR
Credit profit and loss using the category code from the charge (see note 1) Categ
500
FTCR
Charges applied immediately and amortised Where a charge for 600 is applied directly and accrued over 3 months then the following entries are raised.
At time of charge (stmt entry raised online, special entry raised as part of the Close of Business run):
Debit Customer paying Stmt
600
FTDR
600
CAP
Credit "Charges received not yet earned". Special
Category code from charge (see note 2)
At each month end, as part of the Close of Business run, assuming charges accrued over three equal months:
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Debit "Charges received not yet earned". Special
200
ACC
Category code from charge (see note 2)
Credit profit and loss for charges using the category code from the charge (see note 2) Categ
200
AMRT
Charges claimed from beneficiary and paid Where charges for 700 are claimed from a third party then the following entries are raised.
At time of claiming charge (Categ raised online, special during Close of Business):
Debit "Charges claimed" Special
700
CLM
Category code for claiming charges (LC.PARAMETER.)
Credit profit and loss for the charges using the category code for charge (see note 1) Categ
700
CENCPL
When charges are paid (Stmt raised online, special during Close of Business):
Credit "Charges claimed" Special
700
PAY
Category code for claiming charges (LC. PARAMETER)
700
CENCPY
Customer paying charge.
Debit customer paying charge Stmt
Charges claimed from beneficiary and not paid Where charges for 800 are claimed from a third party but are not paid.
At time of claiming charge (Categ raised online, special during Close of Business):
Debit “Charges Claimed” Special
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800
CLM
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Category code for (LC.PARAMETER)
claiming
charges
Letters of Credit
Credit profit and loss for the charges using the category code for charge (see note 1) Categ
800
CENCPL
Category code for charge
When charges are paid (Categ raised online, special in Close of Business):
Credit “Charged claimed” Special
800
NOP
Category code for (LC.PARAMETER)
claiming
charges
Debit profit and loss for the charges using the category code for charge (see note 1) Categ
800
CENCPL
Customer paying charge
Notes for charges accounting
Note 1
Note 2
The FT.CHARGE.TYPE and FT.COMMISSION.TYPE allow for either a CATEGORY (P/L) or an internal ACCOUNT to be issued. This document has shown the category being used, but it can easily be an internal account in which case an Stmt type of entry will be raised but the amount, sign and TRANSACTION code will be the same. The FT.CHARGE.TYPE and FT.COMMISSION.TYPE allow for either a CATEGORY (P/L) or an internal ACCOUNT to be issued. Where charges are being accrued then only the CATEGORY option can be used for the particular charge.
LETTER.OF.CREDIT The LETTER.OF.CREDIT application captures and maintains LC and Documentary Collections. It records the full details of the Credit including amounts, dates, parties involved, charges, etc. All LETTER.OF.CREDIT transactions can be handled in local and foreign currencies and charges taken under a LETTER.OF.CREDIT can also be denominated in a currency different from the Letter of Credit. All foreign money entries automatically update foreign exchange positions if necessary
A large number of example VERSION records are supplied with T24. These should be used as a basis for the user’s own customisations. Typically a different VERSION will be created for each trade finance product, however additional versions are recommended for the various actions that may be performed on a Letter of Credit during its life, for example an amendment or a direct charge. VERSION records supplied with the core system include:
Sight Confirmed Letter Of credit Sight Unconfirmed Letter Of Credit Acceptance Confirmed Letter Of Credit Acceptance Unconfirmed Letter Of Credit Deferred Payment Confirmed Letter Of Credit
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Deferred Payment Unconfirmed Letter Of Credit Mixed Payment Confirmed Letter Of Credit Mixed Payment Unconfirmed Letter Of Credit Import Letter Of Credit Sight Confirmed Import Letter Of Credit Sight Unconfirmed Import Letter Of Credit Acceptance Confirmed Import Letter Of Credit Acceptance Unconfirmed Import Letter Of Credit Deferred Payment Confirmed Import Letter Of Credit Deferred Payment Unconfirmed Amendment Under Import Letter Of Credit Pre-Advice of Import Letter of Credit From Pre Advice to Import Letter Of Credit Pre Advice of Export Letter of Credit From Pre-Advice to Export Letter of Credit Amend an Export Letter of Credit Direct Charge Processing Reversal of a Letter of Credit Sight Payment Drawing under an Export Letter of Credit Deferred Payment Drawing under an Export Letter of Credit Acceptance Drawing under an Export Letter of Credit Discount of Acceptance / Deferred Payment Drawing under an Export Letter of Credit Straight Discount of Deferred Payment Drawing under an Export Letter of Credit Straight Discount of Acceptance Drawing under an Export Letter of Credit Deferred / Acceptance On-line Maturity Drawing under an Export Letter of Credit Drawing under Import Letter of Credit Sight Drawing under Import Letter of Credit Acceptance Drawing under Import Letter of Credit Deferred Payment Documents sent for Collection Documents sent for Acceptance Collection Tracer Collection Rejection From Collection to Sight Payment From Collection to Acceptance From Collection to Deferred Payment Incoming Collections Outgoing Collections Amendments to Collections
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Overview of Input and Processing Example Import LC from the Issuing Bank perspective In our example we will follow the life of an LC from the Issuing Banks perspective. We shall:
•
Issue a Pre-advice by S.W.I.F.T.
•
Issue the actual LC based on the Pre-Advice
•
Amend the LC terms and conditions
•
Receive and pay the first drawing
•
Authorise a reimbursement
•
Amend a reimbursement
•
Authorise a payment
•
Send advice and effect a payment
These stages are for illustration purposes and not every LC needs to go through every one of these stages.
Issuing a Pre-Advice We have in our set-up the LC.TYPES record used for Pre-Advising Import LCs, in this case it’s called LIP, this is tied into the LC.TXN.TYPE.CONDITION record LIP.P and will ensure that we charge an advice charge together with a percentage based advising fee. The next few screens show the LC.TYPE record, the LC.TXN.TYPE.CONDITION record with the charges and a VERSION especially created for this kind of operation.
Figure 37 – LC.TYPES Record
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This is now linked to the LC.TXN.TYPE.CONDITION record:
Figure 38 – LC.TXN.TYPE.CONDITION Record
When we create a VERSION for Import LCs - Pre-Advising we will have the LC.TYPES record LIP default in the field LC.TYPE and as the OPERATION field will be also be defaulted as ‘P‘ this will select the LC.TXN.TYPE.CONDITION record LIP-P and apply the charges and conditions.
The screens below show a very basic LC and the charges calculated by T24.
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Figure 39 - LC and the charges calculated by T24
The basic shipment information:
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Figure 40 – Basic Shipment Information
The last screen shows the defaulted charges based on the deal type we are doing:
Figure 41 - Defaulted charges based on deal type
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When entering the details of the LC there are some useful time-savers. Document descriptions can be entered as freeform text or, if there is a standard type, the document details can be entered as a codeword from LC.ADVICE.TEXT. Full text details appear in the contract record, can be modified, and will be written to the advices (whether printed or S.W.I.F.T). A similar feature exists for clauses; these can be entered as freeform text or as a codeword from LC.CLAUSES.
Preview of the LC messages It is possible to review the LC messages by activating the preview icon in the Browser. This will present a preview of the document(s) resulting from the contract.
Figure 42 – Preview of LC messages
Issuing the import LC The transaction we entered was identified as a Pre-Advice by the fact that the OPERATION field was marked ‘P’ for pre-advice and the LC.TYPE value of ‘LIP’ used for the charge conditions. The next stage in our example is to issue the LC, any errors or changes raised from the pre-advice can be taken into account and entered now. We keep the same LC transaction and thereby audits trails of the LC.
There are different charges and commissions to be taken for the issuance and these are defaulted according to our scale of charges. Again the decisions are made according to the OPERATION field TEMENOS T24 User Guide
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and the LC.TYPE field. In our example we are using the ‘O’ (for opening) operation and the LC.TYPES record LISU. Of course we can add extra charges or amend the system generated ones at our discretion either as an amount or a percentage (use % sign), and the party who is deemed responsible for the charges can also be defined.
The screen below shows the main record (without VERSION) to illustrate the OPERATION and the LC.TYPE fields which, on a custom VERSION, would be set by default and would not normally need to be seen by the end user.
Figure 43 – Issuing the import LC
Customer Advice Expiry Date When a Letter of Credit expires at the counters of the negotiating bank for an Import LC, there is a possibility that the documents may be received a few days after the LC Expiry Date at the counters of the issuing bank.
The customer advices and the charge calculation processing use the customer ADVICE.EXPIRY.DATE, which will normally be a couple of days before the EXPIRY.DATE. However, the accounting and liability reversal takes place on the EXPIRY.DATE.
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Credit Provision Account When a provision is taken on a Letter of Credit, the provision may be credited to an account on which the applicant may earn interest (e.g. customer account) while it is used for the Provision/Margin processing. This account is credited when opening a Letter of Credit (Import only) and is debited back when either a Sight Drawing is processed or on maturity of an Acceptance Drawing.
Both CREDIT.PROVIS.ACC and PROVIS.ACC may have default values set up in LC.CUSTOMER.CONDITION. If neither of the accounts is entered (nor has a value set via LC.CUSTOMER.CONDITION) then an internal account based on the provision category (PRO.CATEGORY) in LC.PARAMETERS is used.
LC Clauses The entry of clauses for a Letter of Credit now takes two different forms. Upon entry of an LC.CLAUSES code, the field will be automatically expanded and populated with the LC.CLAUSES text. In Desktop, the LC.CLAUSES.TEXT field is a text box into which the user may either type free-format text or ‘click and drag’ clauses from the LC.CLAUSES file. An enquiry of LC.CLAUSES may be launched, by performing a ‘right-click’ on the LC.CLAUSES.TEXT field. An example screenshot of entry into this field is shown below.
Figure 44 – LC clauses
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Figure 45 – LC Clauses
Making a simple Amendment There are two basic classifications of amendments; the internal one where no advices are needed and the external amendment where changes need to be sent to external parties involved in the LC. Using a field called AMENDMENT.DEL, which accepts an input only when the OPERATION type is for an amendment, makes this decision. Yes indicates that delivery is required and hence this is an external amendment type. The counter of amendments is only incremented for ‘real’ (external) amendments. Using this field allows for corrections to the LC where the external parties do not need to know of the change of circumstances where the advice(s) have not actually been sent first. Let us assume that we have received a request to increase the LC (an external type), this may have been agreed by all parties or just requested by the applicant, and wish to amend the LC.
Using the example entered earlier we can make the amendment via a customised VERSION set-up specifically to cater with amendments. However, there are many things that may require amending so we could have one large VERSION detailing all fields or we could set-up a VERSION that dealt with specific types of amendments. The GBP 10,000.00 LC is being increased to GBP 15,000.00 as shown below:
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Figure 46 – LC Amendments
The first Drawing on our LC Our example LC is for USD10,000 at which time the required payment of charges was taken from the opener. So for a simple illustration the first drawing is made in USD and will mark the LC as fully utilised.
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Figure 47 – LC Drawings
The goods have now been despatched and the appropriate documents have been presented to us for payment (perhaps via an advising bank). If the documents are correct then we will input a drawing. This will record the transaction, update the credit limits and accounting appropriately. It will automatically make the required payment(s), perhaps via S.W.I.F.T., and advise the various parties if required. Charges may also be taken at this point.
As you will see the details entered, in our drawing, were minimal. As a result of authorising this transaction a payment instruction will be sent to the correspondent bank to pay the drawing amount. In reimbursement we have debited the applicant with the amount plus any outstanding charges.
The drawings may be made more complex and involve different settlement instructions; and may be at sight, acceptance or a deferred payment
In order to provide for functionality whereby a Reimbursement Claim message (MT740) may be generated a specified number of days prior to the debit value date, separate debit and credit value date fields have been provided for within the Drawings application.
Various operations can be performed on a letter of credit or documentary collection using the
DRAWINGS application, depending on the stage in the life of the transaction. The code input in the DRAWING.TYPE field on the application determines the purpose of the drawing.
The following DRAWING.TYPEs are available on a new drawing:
AC
Acceptance. Used when conforming documents have been presented and the terms of the Letter of Credit indicate that payment will be made by the acceptance of a bill of exchange. The bank may discount this.
DP
Deferred payment. Again conforming documents have been presented and payment will be made at a future date.
RP
Release payment. For an Export LC, will acknowledge documents were presented in accordance with the terms of the Credit and generate a claim for reimbursement. Alternatively, an Import LC will generate the release of a payment, to the beneficiary, in the
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form of a customer transfer. SP
Sight payment. Conforming documents have been presented and payment is made immediately to the beneficiary or collecting bank with reimbursement being claimed from the applicant or opening bank.
CO
Used when there are discrepancies in documents drawn under a Letter of Credit. Can also be used when processing Documentary Collections. The documents will be passed from the remitting bank through to the drawee via the collecting bank, for collection. Once the collection has been accepted or paid by the drawee, then the DRAWING.TYPE is changed to AC, DP, SP. Changing the DRAWING.TYPE from AC,SP, and DP to CO even at unauthorised stage (after input) is disallowed.
The following DRAWING.TYPEs are available when amending an existing drawing.
CC
Used to chase drawings that have been sent for collection. This done by changing the existing type (from CO to CC).
CR
Used to signify that a drawing sent for collection and has been rejected by the applicant or issuing bank. If payment had been made under reserve, then this will be claimed back.
FR
Final Rejection. This is used when the Sender considers the documents, not to be in accordance with the terms and conditions of the Credit, and consequently, refuses them. Note that this drawing type may only be used following a Collection Rejection (CR).
MA
Allows on-line Maturity of Acceptances. Note discount acceptances drawings cannot be changed.
MD
Allows on-line Maturity of Deferred payments. Note discount acceptances drawings cannot be changed.
AD
Allows amendment to a SP drawing in a limited way.
In Drawings application, the user can define the type of rounding that should take place while debiting or crediting the customer’s account, in the field ROUND.RULE. This is a no change field. The value input in this field overrides the condition defined at the product level i.e., in LC.PARAMETERS. If no value is input in this field, then rounding will take place ad defined at the product level.
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However, rounding of local equivalent will take place as per T24 default standard.
Brokerage Agency charges may be taken in the Drawings application. An agent is a Broker or middleman between the Importer and the Exporter and obtains his fee or commission from the Drawing amount as a percentage or a flat amount.
The Brokerage details are entered on the Drawings contract where required. In common with other T24 applications, the Brokerage may be settled in any currency defined on the Broker record. The amount of the Brokerage is held in three places, which may be in three different currencies.
BROKERAGE
- Held in the currency of the Drawing.
BROKER.AMOUNT
- Held in the Broker currency.
BROKER.AMT.LCY
- Local currency equivalent of the BROKER.AMOUNT.
The payment amount of the Drawing is reduced by the BROKERAGE taken on the contract and the brokers’ account is credited with the broker amount. The date on which this credit entry has value is always the date on which the payment and reimbursement is made.
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Export Letters of Credit Export Letters of Credit are of course handled and are in treated in a similar fashion to the Import LCs we have already discussed.
The Issuing Bank will have requested the us to advise (with or without adding our confirmation) and in due course we may undertake to accept documents from the beneficiary under the terms of the Credit.
T24 supports the creation of the LC manually or on a semi-automatic basis on the receipt of an incoming S.W.I.F.T message. The same processing is made as in the example we used for Import, but in this instance we would be in the opposite role.
The same conditions can apply in as much as the Credits can be at sight, acceptance or deferred payments and our scale of charges is related to the role of the Exporter's bank.
Collections Collections are handled in T24 by the Trade Finance module. These can be Inward or Outward Collections consists of documents, Clean or as part of an LC.
We shall begin with Outward Collections with the simplest collection, a clean one. Again there is a VERSION supplied as an example but using the LC.TYPES you can create a database of Collection types with the charges defaulted per your scale of charges.
Initially, the input is made through the LETTER.OF.CREDIT application.
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Figure 48 – LC Collections
Once a payment is received from the receiving bank a simple DRAWING VERSION is used to debit the NOSTRO and credit our client (or our own account).
Figure 49 – LC Collections
Using the same facilities for Collections as for LCs allows you the flexibility to set-up the type of transaction required by your business. TEMENOS T24 User Guide
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Inward collections are treated in the same manner.
Direct Export Collection References You may wish to give a customer a series of pre-allocated reference numbers or pre-printed documents to use for sending direct to Buyers. The T24 internal reference number can only be assigned when the details of the collection are known. The DIR.COL.ALL application allows sets of numbers to be pre-allocated to a customer and used as alternative references to collections.
The reference consists of an optional alphabetic prefix and a serial number. If you use an alphabetic prefix in one series for a customer then you must use a prefix (not necessarily the same) in all series for that customer. A reference from the allocated series can be entered in the DIRECT.COLL.NO field of a LC. Then the customer number and reference number can be used as a key to the deal record.
Collection Tracers There is an extra feature to collections not used by other LC transactions. This is the tracer feature, basically the EXPIRY.DATE contains a rolling date, which is used to monitor the outstanding collections and feeds a report/enquiry designed for that purpose.
Enquiry LIAB.LC This enquiry is used to extract the total exposure for a specific Beneficiary in the case of Export Letter of Credit for a given Issuing Bank.
Trade Finance accounting This section that detailed accounting entries for Trade Finance has been re-located into a new chapter that deals with Accounting for all T24 modules. Refer to the User Guide chapter on Application Accounting.
Limits For an Import Letter of Credit this is the Importer. For an Export Letter of Credit this is the bank that "opened" the LC.
For an Export Letter of Credit where the bank that "opened" the LC is either the Head Office or branch or subsidiary company the limit customer will be ourselves.
Limits can be updated in several ways; it is possible to define default limits where the Drawing (issuance drawings) under an LC uses the same limit. Hence, as the contingent liability of the LC itself is reduced, the DRAWINGS create a corresponding increase. Of course separate limits can also be defined.
For an Advised Letter of Credit limits are not applicable.
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Collateral LCs can be used as items of Collateral either individually or via a portfolio.
Individual LCs A COLLATERAL item can be created using a single LC. This achieved by creating the relevant data in COLLATERAL.TYPE, COLLATERAL.CODE, COLLATERAL.RIGHT and then entering the details in COLLATERAL itself.
Portfolio Where a LC contract is a customer’s asset it may be included in a SECURITIES portfolio. This may be used as a convenient way to use LCs as COLLATERAL without having to specify each contract individually.
Delivery Fixed Delivery The Trade Finance application automates the production of S.W.I.F.T messages in the 700 and 400 ranges (700 for letters of credit and 400 for documentation collections.) The system also generates MT100 and MT200 series messages for payment under transactions.
The following S.W.I.F.T message types are available: MT400 - Advice of Payment MT410 - Acknowledgment MT412 - Advice of Acceptance MT420 – Tracers MT430 – Amendment Instructions MT700 - Issue of a Documentary Credit MT701 - Issue of a Documentary Credit MT705 - Pre - Advice of a Documentary Credit MT707 - Amendment to a Documentary Credit MT710 - Advice of a Third Bank’s Documentary Credit MT711 - Advice of a Third Bank’s Documentary Credit MT720 – Transfer of Documentary Credit MT721 – Transfer of Documentary Credit MT730 – Acknowledgement. MT734 - Advice of Refusal
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MT740 - Authorization to Reimburse MT742 - Reimbursement Claim MT747 - Amendment to an Authorization to Reimburse MT750 - Advice of Discrepancy MT752 - Authorization to Pay, Accept or Negotiate MT754 - Advice of Payment / Acceptance / Negotiation MT756 – Advice of Reimbursement or Payment MT790 - Advice of charges debited MT791 - Request for payment of charges MT910 - Confirmation of Credit
Soft Delivery There are more flexible options available by using soft delivery. Although compatibility with fixed delivery is maintained we recommend that you gradually migrate to using soft delivery throughout and switch off the compatibility option. Details of Letter of Credit soft delivery can be found in the Application Delivery section of this guide.
Customising printed delivery output All communication for third parties (called messages) generated by the Trade Finance module can be despatched using a number of techniques the most common of which are via S.W.I.F.T. and via printed output. The use of printed output is particularly common in Trade Finance due to the number of parties to a contract who are not banks and thus are not on the S.W.I.F.T. network.
Trade Finance takes full advantage of T24’ sophisticated ability to customise printed output in order to enable each user of the application to produce third party printed documentation that reflects their own requirements. Full information on customising printed delivery is in the Delivery section of the user guide (under DE.FORMAT.PRINT).
Previewing printed delivery output Documents (i.e. S.W.I.F.T. messages and print advices) may be displayed at both the input and authorisation stages of LETTER.OF.CREDIT and DRAWINGS processing.
The button on the Desktop toolbar in for delivery preview. It is available in LETTER.OF.CREDIT (and Collections) and in DRAWINGS for Input and Authorisation to preview the messages that will be generated by delivery. If using this function on Input take care when making further changes. The messages will not be rescheduled. After preview, the assumption is made that you have approved the delivery schedule or amended it manually. If you want the system to recalculate the delivery schedule then remove all multi-values in the delivery schedule information and blank the one remaining value.
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The DRAFT.PRINT field in LETTER.OF.CREDIT specifies that the document display is required and its contents can be defaulted from LC.PARAMETERS. When the preview of the message is displayed then the record input has not been completed. To complete the input ensures that the DRAFT.PRINT field is set to “N” and repeat the or “Commit”. At the authorisation stage (since no input may take place), the user is presented with the offer of displaying preview. Replying “N” will proceed with authorisation while replying “Y” will invoke message preview. At this point, the user may reject the displayed preview by entering in Classic or [Cancel] in Desktop after which authorisation will not take place.
The DRAFT.PRINT field in DRAWINGS performs the same function and all preview processing takes place as defined above.
Enquiry Facilities The T24 ENQUIRY application may be used to write enquiries for the Trade Finance application. An example enquiry is provided, LC.SUMMARY, shown below. For further information on the ENQUIRY application see the System Administration guide.
Events summary - LC.SUMMARY The LC.SUMMARY ENQUIRY provides an overview of an individual Letter of Credit including its Drawings history.
Figure 50 – LC Summary
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This ENQUIRY may be customised for local requirements using the ENQUIRY application.
Events Summary – DR.DISC.SUMMARY The Enquiry DR.DISC.SUMMARY provides an overview of all the amendments made under a Discounted Drawing. It takes the ID of the Drawing and fetches all the amendments made under that Drawing.
Figure 51 – Enquiry DR.DISC.SUMMARY
This ENQUIRY may be customised for local requirements using the ENQUIRY application.
Reporting Facilities The Trade Finance application provides a variety of example printed reports. All the reports are written using T24’ Repgen facility. Consequently they may all be modified to suit user requirements or used as a base for defining new, customised reports.
List of all Letters of Credit by type and currency This report shows a full listing of all Letters of Credit, sorted by type and currency. It is written in the T24 Repgen facility and thus may be modified to suit user requirements.
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Figure 52 – Report showing listing of Letters of Credit
Customer and Issue date The user can obtain a report which lists all outstanding Letters of Credit by Applicant/Beneficiary. It is written using the T24 Repgen facility and thus may be modified to suit user requirements.
List of Letters of Credit by beneficiary The user can obtain a report which lists all outstanding Letters of Credit by Beneficiary. It is written using the T24 Repgen facility and thus may be modified to suit user requirements.
Letters of Credit by expiry date The user can obtain a report which lists all outstanding Letters of Credit listed by expiry date.
Collections Due Report The user can obtain a report which shows Collections due. It may be modified to suit user requirements.
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Special Facilities Mixed Payments Mixed payment functionality allows one to handle Letters of Credit that have payments partly on sight basis and partly on deferred basis. This functionality is permitted in Export as well as Import Letters of Credit.
To enable this functionality, the following fields may be input in the LETTER.OF.CREDIT DRAW.TYPE, PAYMENT.PCT, PAY.PORTION, ACPT.TM.BAND. Input to these fields will be permitted only if the LC.TYPE is having the PAY.TYPE as ‘M’ for mixed payment. This would then update different limit records for the various payment bands. If the LC is payable 30 percent at sight, 40 percent at 30 days sight, and 30 percent at 90 days sight, the use of the above field s will ensure that different limits are updated for different portions.
When documents are received under such LC, different drawings may be created for the different portions so that limits are updated correctly. An alternative method is to use the application DRAW.NEGOTIATION. The details of this application are explained in a later section.
Figure 53 – Mixed Payment functionality
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Assignment of Proceeds from Export Drawings The Trade Finance application allows assignment of proceeds. If the beneficiary informs the bank of assignment, this may be noted in the LC itself by use of the fields ASSN.REFERENCE, ASSN.CUSTNO, ASSN.ADD, ASSN.AMOUNT, and ASSN.NOTE. As a beneficiary may assign proceeds to multiple persons, this set of fields is multi valued.
Figure 54 – Assignment of Proceeds
The actual assignment and payment of proceeds happens only when a drawing is input. Entering the information in the LETTER.OF.CREDIT makes the input in drawings simpler. Where the information is already available in LC, it is sufficient to key in the ASSN.REFERENCE from LC to the ASSIGNMENT.REF field in DRAWINGS. This will automatically default other information from LC.
Figure 55 – Drawings input
The next frame shows the information being defaulted from LC.
Figure.56 – Drawings input
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Wherever an assignee has not been specified in the LETTER.OF.CREDIT but has to be introduced in DRAWINGS, the reserved word TPPAY can be used in the field ASSIGNMENT.REF to effect the assignment.
Multiple Debits
To enable input of a Drawing under a Letter of Credit, where a part of the Drawings could be under Forward Contract rate and the rest in Spot rate, the assignment related fields have been opened up. This can be achieved by input of TPRECV in ASSIGNMENT.REF. The system understands this as multiple-debit, i.e., part debit coming from the DRAWDOWN.ACCOUNT and the rest from these assignments related fields. In other words Drawings supports multiple Debits from one or multiple customer accounts at different exchange rates.
The amount to be debited from the regular DRAWDOWN.ACCOUNT is definable by use of fields APP.DRAW.AMT and MULTI.DR.AMT, which are expressed in the currency of the Drawings. The default value in the field APP.DRAW.AMT is that of DOCUMENT.AMOUNT.
When the user desires to choose this multiple debits option, the amount to be debited from the DRAWDOWN.ACCOUNT is to be input in the field APP.DRAW.AMT. The system calculates the MULTI.DR.AMT, which is the difference between DOCUMENT.AMOUNT and APP.DRAW.AMT.
Figure 57 - Identify a multiple debit.
This amount defined in MULTI.DR.AMT is to be defined as multiple debits using the assignment related fields. The ASSIGNMENT.REF would be TPRECV. Input of exchange rate is permitted for this component. An MT900 would be generated for each of such multiple debits.
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Figure 58 - Defining a multiple debit
Where the user opts to raise such multiple debits, the assignment related fields have to be multivalued and ASSIGNMENT.REF is to be input as TPRECV. Such debits can also be raised from an account whose currency is different from that of Drawings. However sum ASSN.AMOUNT of all such multiple debits defined under TPRECV shall be equal to MULTI.DR.AMT.
Once such multiple debits are defined the DRAWDOWN.ACCOUNT is debited with the amount outstanding in the field APP.DRAW.AMT. `
Figure 59 - Original debit for a portion of Document Amount.
Provision The Trade Finance application allows for provision (also known as margin or collateral or cash cover) up to and exceeding 100% of the L/C amount. Frequently, a L/C provision is required in excess of 100% in cases where there is a tolerance or an additional amount specified for the L/C or where a
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shipping guarantee against the L/C has been issued. This is also the case where the fluctuation between provision account currency and the LC currency is high.
Provision may be credited to an interest bearing account of the customer himself if the bank so desires. Alternatively, it may be credited to an internal account. The Trade Finance module also provides for a refund or release of the provision at the time of settlement or as required at any time earlier.
Provision may be taken for an Import or Export Credit.
In Trade Finance provision is closely linked with the limit. The limit is updated only to the extent it is not covered by provision.
The system will automatically refund the provision for SP drawings on value date and for AC or DP drawings on maturity date.
In a mixed payment LC the provision is distributed among different portions.
Figure 60 – Mixed payment LC
Special Rules in DRAWINGS During a normal drawing, proportionate provision will be refunded to the original account from which it was taken. If it involved an exchange operation, the bank may input the rate at which it should be converted by using the field PROV.EXCH.RATE.
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Alternatively, the bank may use the original account to which the provision was credited as the DRAWDOWN.ACCOUNT. If the amount of provision is insufficient to cover the document amount, the field PROV.COVER.ACCT may be used to indicate where the additional money should be taken from.
Transfer (Export L/C) The Trade Finance application allows a beneficiary of Export LC to transfer it. This is possible only where the first LC is transferable (in LC.TYPES the field TRANSFERABLE is set to yes).
This is how to enter a transferable L/C:
1. Enter the details for the original, or parent, transferable Export L/C. 2. Authorise the parent, or original, Export L/C. 3. Open the transferred L/C by inputting the field PARENT.LC.NO in the child L/C. This will default all information except beneficiary and amount from the parent L/C.
4. The beneficiary of the second L/C and the amount of transfer should be completed and the transaction committed.
In the parent L/C:
The system updates following fields for information and validation – TRANSFERRED.LC and TRAN.PORT.AMT.
Figure 61 - Transfer (Export L/C)
Drawings under Transferable LCs There are two methods for inputting drawings in case of Transferred L/Cs.
1.
A drawing may be input and authorised under the parent L/C. Subsequently, a drawing under the child L/C may be input. In the child drawing, by inputting the parent drawing number in PARENT.DRAWING field, all information will be defaulted from parent drawing. Account numbers and amount may be amended as required and authorised. This would meet the requirement of a bank, which needs to show the money passing through the first beneficiary’s account.
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2.
Alternatively, a drawing under the child L/C may be input directly. In such case, PARENT.DRAWING field should not be entered.
Figure 62 - Drawings under Transferable LCs
In the L/C drawing (child):
You must make the following entries in these fields (child only):
PARENT.DRAWING
Enter the L/C number of the parent L/C
Figure 63 - Enter the L/C number of the parent L/C
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Special Rules in LETTER.OF.CREDIT
1. The limit of the child L/C is shared with the parent L/C. 2. The drawdown amount of the child L/C cannot exceed the parent-drawing amount. 3. Serial control exists between the child L/C and the parent L/C. Hence, if any child L/C is in process, the other child has to wait. Modification of the child and the parent L/C is mutually exclusive.
4. If partial shipment is allowed on the parent L/C, more than one transfer is allowed; otherwise only one is allowed. If more is attempted an override will appear.
5. The child L/C cannot be further transferred. 6. Drawing of the child L/C will update the outstanding amount of the parent L/C.
Special Rules in DRAWING 7.
Where a parent and child drawing is done, an override will be raised, if the child L/C’s DEBIT ACCT is not the same as the parent's credit account.
Revolving or Reinstatement L/C The Trade Finance application allows you to set up revolving or reinstatement L/Cs. T24 supports both cumulative and non-cumulative types of revolving credits. A cumulative credit will carry forward unutilised L/C amount to the next period.
The information about revolving L/C is entered in the following fields – REVOLVING.TYPE, NO.OF.REVOLVING, and REVOLVING.FQY.
One can make the following entries in these fields:
In DRAWINGS, the field REVOL.PERIOD.NO will default to the current period. This may be changed to the previous period where required.
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In LC.PARAMETERS a field has been added REVOL.ADVICE.DAYS wherein we may mention when the revolution advice should be generated.
Based on the above parameter, the system will generate an advice of revolution those many days before.
On the revolution date, the Close of Business process will re-adjust the limits and release provisions. To generate the debit and credit advices relating to this function, the bank needs to set up an EB.ADVICES record.
Revolving limits Irrespective of a Revolving Letter of Credit, being cumulative or not, the limit is impacted for the entire liability of the Letter of Credit. This is despite the fact that for a non-cumulative Letter of Credit, the amount available for utilization at any point of time cannot exceed the individual cycle’s amount.
Figure 64 – Revolving Limits
But now in the event of a revolving non-cumulative Letter of Credit being issued, it is possible to define the extent of limit to be impacted, either for the entire liability or for the current revolution only.
Setting the field LMT.FOR.REVOLVING to SINGLE can do this. The LIABILITY.AMT would continue to display the entire amount of liability under the Letter of Credit, but the new field CUR.REVOL.LIAB would display the liability under the current revolution.
This field once set, cannot be amended after authorization of the Letter of Credit. If provision were to be taken then it would be calculated on the entire LIABILITY.AMT and not on that of the current revolution.
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Figure 65 – Revolving Limits
The field LMT.FOR.REVOLVING accepts either SINGLE or NULL. This field in an input field only if the Letter of Credit is revolving and non-cumulative in nature. The consol entries that would normally be raised for the entire Liability amount would now be restricted to the Liability under the current revolution.
Figure 66 – Consol Entries
At each revolution the unutilised portion of the cycle would be dropped and the new entries would be raised as a part of the Close of Business operation.
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Drawings – pre-process, different maturities It is now possible to handle documents with different payment terms in T24. This would require generation of multiple drawings. But to the Importer we need to generate a single forwarding letter, which includes the different drawings.
In some drawings with discrepancies, the bank may wish to enter the information in a different application and return the documents to negotiating bank, without recording an actual drawing.
To enable the above functionalities DRAW.NEGOTIATION has been introduced. This has the facility to generate advices for each of the statuses – CHECKED, HOLD, RETURNED, and SETTLED different advices may be set up through soft delivery. When the status in the field DISCREPANT.STATUS is made SETTLED, then the system will generate the related drawing on hold for the bank to complete and authorise.
Soft Delivery The Trade Finance application allows the user to control all message output in commonly used trade finance message formats (S.W.I.F.T., hard print copy, Telex, etc.). There are several fields in the LETTER.OF.CREDIT and DRAWINGS modules that relate to the input of the various message codes and short names. These generate the various types of documents and electronic transmissions used with the Trade Finance business. The purpose of this function is to give the user greater flexibility over the set up, input, and production of the different types of messages that may be required at different stages throughout the L/C workflow.
This is how to configure the Trade Finance module for messages used with L/Cs and Drawings:
Set up the following application files in T24:
1. Go to the EB.MESSAGE.CLASS application and set up individual files for the various message classes that you need (i.e., ADVICE, CONFIRMATION, etc.).
EXAMPLES of these are:
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2.
Make entries in the following fields after you have created record(s) with unique name in step 1:
3. Go to the LC.PARAMETERS application and make the following entries in the fields listed below: a.
b.
In the field named BACKWARD.DELIVERY enter either a Y or N for Yes or No.
•
If you enter a NO, then you will have no hard-coded delivery, and delivery will be completely under user control meaning you will have to set your own delivery system and workflow.
•
If you enter a YES, then you will have hard-coded delivery (i.e., system controlled with defaulted message type selection), but the user will be able to OVERRIDE the system defaulted message selections provided they are set up. For T24 backward release compatibility, you MUST enter a YES in this field.
In the field named LC.CLASS.TYPE enter the name of the L/C class type of message. There are different message classes pre-defined in the T24 system. Expand this field, as many times as necessary to input all of the L/C message class types that you need.
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EXAMPLES of message class types are:
c. In the field named EB.CLASS.NO in LC.PARAMETERS type the name of the class message from the list (located in the EB.MESSAGE.TYPE application) that you have pre-defined in the T24 system. (These are user created messages and are not pre-defined in T24 as are the LC.CLASS.TYPE message entries above in step b.).
Note that the EB.CLASS.NO field will have expanded along with the expansion of the LC.CLASS.TYPE field, which is explained in step b above.
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The entry in the EB.CLASS.NO
complements the LC.CLASS.TYPE
field.
EXAMPLES of these are:
4.
Go to the DE.FORMAT.PRINT application and set up the various message advice types that you need. Either enter new numbers for new formats that you need (note that you will also have to set up corresponding files with the same number in DE.MESSAGE and DE.MAPPING if you enter new message numbers OR use the existing file formats in the DE.FORMAT.SWIFT, DE.FORMAT.TELEXF, and DE.FORMAT.PRINT, DE.FORMAT.TELEXP applications as supplied with the T24 system.
NOTE: Go to the DE.MAPPING application for the respective message number you want to use and make sure that the following MANDATORY fields are present:
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NOTE: See the DELIVERY manual for specific instructions related to the use of all DE.XXXX.XXXX type delivery applications.
Go to the EB.ACTIVITY application and identify the message activity code for which you want to create a corresponding message code under the EB.ADVICES application.
NOTE: For any message that you want to have under EB.ADVICES you must have a code set up that corresponds to it in the EB.ACTIVITY application.
NOTE: For certain message types that are frequently generated a number of days BEFORE the actual event takes place; you may enter the number of days beforehand on which to create that message.
(OPTIONAL) To enter a message creation date in the EB.ACTIVITY application make entries in the following field:
EXAMPLES of EB.ACTIVITY message types are (the codes in the table below are delivered with the T24 system):
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See the Application Delivery User Guide for a table EB.ACTIVITY codes.
7. need.
Go to the EB.ADVICES application and set up the various message advice types that you
See the Application Delivery User Guide for a table EB.ACTIVITY codes.
8.
To enter a message type in the EB.ADVICES application make entries in the following fields:
Sample Activity Set up for a Transferable L/C An Export Transferable L/C is a special type of Export L/C where the message MT720 will be generated rather than MT730. To produce the message we have to make use of the Export activity by adding an L/C type to the activity code. For example, LC-1401 is for opening an Export L/C. If the transferred L/C type is CESC (CESC stands for, Child Export Sight Confirm), the advice code will be LC-1401-CESC. Consequently, the message type, i.e. MT720, MT721, and other related messages can be attached to that advice record. Below is the EB.ADVICES sample record:
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Figure 67 – EB Advices sample record
To control message output in the L/C and DRAWINGS applications 1.
For L/Cs, enter information in the fields as shown in the table below:
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2.
For DRAWINGS, enter information in the fields as shown in the table below:
Free format S.W.I.F.T. and Telex messages You may also set up free format messages for S.W.I.F.T. and Telex in the Soft Delivery system of T24. The application name for this process is EB.FREE.MESSAGE. To make a free format message, call this application and make entries in the fields as shown in the table below:
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Sample entries shown below:
Charges and Amendments The Trade Finance application allows you to set up charges either at the time of L/C issuance or Advising, at any time afterwards, or at the time of L/C payment or negotiation (or afterwards as long as the record is still available for drawing). On AC or DP drawing types, one can take additional charges until they mature.
Also, there is a function now to make amendments to certain fields in the DRAWINGS application.
To enter charges you must first have created a list of charge codes in the FT.CHARGE.TYPE and/or FT.COMMISSION.TYPE applications. There you will have the details related to each type of charge or commission.
It is now possible to take charges at one exchange rate and document amount at a different exchange rate. It is possible to use different accounts for collection of charges. One also has the flexibility to take the charges immediately on an acceptance / deferred payment drawing instead of waiting till maturity.
The following table provides explanation of various fields used in L/C application.
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1.
Enter the details for the L/C Issuance or Advising.
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DRAWINGS:
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If a charge is not recorded in the LETTER.OF.CREDIT but has been deferred, you can take it at the time of making DRAWINGS against the LC. All the uncollected charges are brought into the Drawings contract on input of the Drawings-ID. You can decide at the time of Drawings whether to take the charge, if so whether to add it to reimbursement amount or deduct it from the payment amount. You can also post it to a third party account or defer it further. These charges become charges taken out of the Drawings and are reversed if the Drawing is reversed.
Where the uncollected charges are brought from LC into DRAWINGS and if there are additional charges defined for the DRAWINGS in LC.TXN.TYPE.CONDITION, these additional default charges will be taken only when the charge set is incremented and charge code field is activated (by pressing enter).
However, the defined charges will be taken in DRAWINGS by default if there are no uncollected charges of LC being brought into the DRAWINGS record.
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Figure 68 – Charges and Amendments
Similar facilities exist in the DRAWINGS application.
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Figure 69 - Drawings
Making Amendments to Drawings (SP/MA/MD, MA & MD type only) A new DRAW.TYPE AD has been added to enable inputting information like receipt of regulatory compliance forms on drawings after they have been processed. This is only allowed on drawings with the type code set to SP/MA/MD, MA & MD.
Fields that can be amended are:
Figure 73 -
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All LOCAL.REF fields can also be amended when using this function.
Trust release (For import LC and Inward Collections) This function is provided for documents received under Import LCs and Inward Collections.
For Inward Collections the functionality is provided in LC application. This is enabled only when the DOC.COLLECTION field in LC.TYPES is set to YES. The user will input RELEASE in TRUST.REL field in LC application indicating that the documents have been are released under trust.
At this, an entry will be raised with new asset type TRCOLL and limit will also be updated based on the LIMIT.PARAMETER set up. When the value in TRUST.REL field is set to ACCEPT, the entry and limit will be reversed out and the collection will become a normal Inward Collection. When the value in TRUST.REL is set to REJECT, the collection will be reversed and no further input will be allowed into that record.
When the values are RELEASE or REJECT in TRUST.REL field, no DRAWINGS will be allowed under that collection.
APPLICANT is a mandatory input for processing any TRUST.LIMIT.
For documents received under Import LCs, a similar field is provided under DRAWINGS application. For trust release under DRAWINGS the DRAW TYPE has to be CO and the value in TRUST.REL field has to be RELEASE. This field will accept RELEASE, ACCEPT and REJECT as in the case of LC application and the functionality is as similar to the one described above.
In case a collection with value RELEASE (in TRUST.REL field) is expiring, then the value will be changed to EXPIRED and the collection will reverse out the limit and the entries.
Discrepant processing Normally when Export documents are negotiated under RESERVE, the LC issuing Bank is held as the risk party. In some cases, the negotiating BANK may wish to hold the presenting person as the risk party. This is enabled in DISCREPANT PROCESSING.
A table DR.DISCREPANT.TYPE needs to be set up initially defining the risk party, payment under reserve required or not. The following three fields are provided in DRAWINGS for the said functionality.
DISCREPANT.TYPE
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This will be a valid value from the DR.DISCREPANT.TYPE table. Not a mandatory field. Non input of a value will be processed as a normal collection.
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DISCREPANT.TYPE
This will be a valid value from the DISCREPANT.TYPE table. Not a mandatory field. Non-input of a value will be processed as a normal collection.
IN.DISCREPANCY
This field is provided for noting internal discrepancies (Discrepancies which may be communicated to the presenting party alone)
PAYRES.PARTY
The party against whom the risk is to be held. Normally the ISSUING BANK. The user can specify the risk party as Presenting party by selecting the appropriate DISCREPANT TYPE.
Once a RISK PARTY is specified, there will be a limit against that party for the full document amount of the DRAWINGS. This is an additional limit and no set-off will be done against the LC limit. When the Drawing is changed to SP, AC or DP, the additional limit update will be reversed and usual limit update will be done for LC and DRAWINGS.
It is also possible to generate required ACTIVITY for each DR.DISCREPANT TYPE With soft delivery, it is possible to generate required delivery outputs for various ACTIVITIES.
The additional feature since G12.1 is where a Discrepant document is processed with Payment being made under reserve in the case of Exports or when Reimbursing instructions are sent in the case of Import documents, the control on the liability of the Letter of Credit, is available with the introduction of the field REDUCE.LIAB in DR.DISCREPANT.TYPE table. Setting this to ‘Yes’ will generate a LIQ entry under the Letter of Credit and the liability of the Letter of Credit is correspondingly reduced. Similar impact will be on the limit line as well, to the extent of the Drawing done, albeit of a CO type. The additional feature since G12.1 is where a Discrepant document is processed with Payment being made under reserve in the case of Exports or when Reimbursing instructions are sent in the case of Import documents, the control on the liability of the Letter of Credit, is available with the introduction of the field REDUCE.LIAB in DR.DISCREPANT.TYPE table. Setting this to ‘Yes’ will generate a LIQ entry under the Letter of Credit and the liability of the Letter of Credit is correspondingly reduced. Similar impact will be on the limit line as well, to the extent of the Drawing done, albeit of a CO type.
Tracers This is in addition to the existing tracing operations available in LC and DRAWINGS application. By inputting the TRACER.DATE with a date greater than the Bank date, the automatic generation of Tracers during the Close of Business operation is enabled. As soon as a tracer is generated the next date for tracer generation is automatically decided by the EB.FREE.PARAMETERS or COUNTRY file input. Any time during the life cycle, changing the status to STOP in EB.FREE.MESSAGE can stop the scheduled tracer.
Alternately, removing the TRACER.DATE in the application can stop any scheduled tracer.
EB.FREE.PARAMETERS has Company as Id. Setting up of this becomes mandatory if Tracers are to be scheduled. A set of Model routines are also released.
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Figure 70 –EB.FREE.PARAMETERS
Ticklers Tracers are those, which are sent to counter parties outside the Bank. Ticklers are those, which are meant for internal upkeep. A user can have a tickler scheduled for him/herself or for any other person. There will be a Close of Business report giving the details of ticklers sent and the person received the tickler. On completion of the task mentioned therein (Tickler), the receiver or the sender can STOP the ticklers by accessing the EB.TICKLER application and changing the value of SCHED to STOP. This is a general utility and not restricted to Trade finance activities alone.
Direct Collection Allotment In Trade Finance practice it is very common for Export documents on Collection to be sent directly by the Exporter himself to the importer or his banker. When doing this, the reference number allotted by him may not mean much to his banker. Also when the same are realised the reference number of the realisation transaction may be unclear.
To overcome this, banks allot a range of numbers to a customer to be quoted on all the collection documents. This application makes the process simpler.
DIR.COL.ALL The application is for use with LC.TYPES with the field DOC.COLLECTION set to “Yes”. CUSTOMER is the record ID. The field REMARKS may hold any text or any user-defined remarks. PREFIX is input if the customer chooses to have text an alphabetic prefix to the reference, up to a maximum length of 6, preceding the range of numbers. But once used a prefix is mandatory for every subsequent addition of the multi-value set of the application. There is also a START.RANGE and an END.RANGE. These denote numbers.
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Figure 71 – Direct Collection Allotment
Figure 72 – Direct Collection Allotment
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Figure 73 – Direct Collection Allotment However a blank PREFIX can only be used if all the ranges for a customer have a blank PREFIX.
Figure 74 – Direct Collection Allotment : blank Prefix
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The numbers in the range may be duplicated only if a different PREFIX is attached. So if a range is defined without PREFIX, then the range should not be duplicated. On authorisation of the direct collection allotment, these may be input in DIRECT.COLL.NO of the LC. This can however be done only if the APPLICANT is the same as the Id of DIR.COLL.ALL record.
Figure 75 – Letter of Credit record
Figure 76 – Letter of Credit record
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Now on authorisation of the above LC record, the same may now be fetched by its alternate Id, i.e., 100112.ALLEN09 from the command prompt. Where 100112 is the customer number.
Figure 77 – Letter of Credit Record
Alternatively, the record may also be retrieved, by using the Customer mnemonic. In this case it is AAA.
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Figure 78 – Letter of Credit Record
The value in DOC.COLL.NO of the LC may also be used as reference in all the delivery messages relating to this LC.
Tiered Rates and Sight Discount When discounting a contract it is now possible to link PERIODIC.INTEREST table for calculation of Interest from the DRAWINGS application. With the Id of the PERIODIC.INTEREST table being Key:Currency:Date, of the three components, the first component to be input in the Parameters file in INTEREST.KEY, the second and the third are picked up from the Drawings record.
Figure 79 - Key and Routine attached to the Parameter file
For the purpose of calculating this rate a routine DR.CALCULATE.INTEREST has been released. This has to be attached to the Parameters file. When a Drawing is done, the system provides an option for the user to select this Tiered rates of interest calculation. Such a calculation is automatically triggered when CURRENCY.REF is input in the Drawings record. This value along with the INTEREST.KEY in the Parameters file is used to fetch the relevant PERIODIC.INTEREST table with the date being the VALUE.DATE of the DRAWINGS record.
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The following is an example of a Periodic interest table. If interest were to be calculated on this for a period of 45 days (VALUE.DATE to MATURITY.REVIEW) the routine DR.CALCULATE.INTEREST would return the value as 6.18.
The logic being:
1 day @ 6.50 =
6.50
31 days @ 6.25 =
193.75
13 days @ 6.00 =
78.00 ---------------
Product total
278.25 for 45 days ---------------
This when translated to 1-day returns (278.25 / 45) 6.18, effectively being the interest on the Drawings.
A similar routine may be used to calculate as appropriate to a user’s local needs.
Figure 80 - A Sample Periodic Interest table
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In the DRAWINGS record there is an option to specify the currency of the PERIODIC.INTEREST table and whether the rates should be calculated on the Lending rate or the Offer rate. The default would be that of MLR in the DRAWINGS record, denoting the equivalent of OFFER.RATE in the PERIODIC.INTEREST table. Where the User chooses to use BID.RATE in the PERIODIC.INTEREST table, the same needs to be specified in the DRAWINGS record as MOR in the field INT.MLR.MOR. Such Tiered rates may be used for Usance or Sight Discounting.
Figure 81 – Drawings Record
It is now possible to discount Sight Drawings. The rates may either be user input or calculated using the Tiered rates as in the screenshot shown above. It may be seen above that DR.DEBIT.TO.CUST has been set as NOTDEBITED. When set, it effectively means that a sight Drawing is input and the same is being discounted. This flow is not for usance drawings.
For discount of Sight Drawings, a new ACCOUNT.CLASS account, viz., CUSDEBIT is being introduced, which needs to be opened in the Local currency in the Internal CATEGORY. When a Drawing is set to NOTDEBITED the system uses CUSDEBIT, as DRAWDOWN.ACCOUNT to post the reimbursing entry. It can be seen that when set to NOTDEBITED the MATURITY.REVIEW opens up for Sight Drawings. This needs to be input to enable the system to calculate the number of days for which interest is to be charged. The calculation of interest shall however flow from DISC.EFF.DATE to MATURITY.REVIEW. DISC.EFF.DATE by default shall hold the VALUE.DATE.
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Figure 82 - Input of Maturity Review and CUSDEBIT
However, where the User intends to provide Grace time for calculation of interest component the DISC.EFF.DATE may be input with an effective date or simply “NND” where “NN" would indicate the number of days of Grace, which would be translated to a date, being number of days from the VALUE.DATE and amortization would happen only from that date. DISC.EFF.DATE can neither be less than the VALUE.DATE nor greater than the MATURITY.REVIEW.
It is important to note that the currency of the CUSDEBIT needs to be the same as that of the account that would be used for final settlement.
When the payment is eventually made the same is realized using DR.DISC.AMENDMENTS. There are two options available for final settlement of Sight discounted Drawings that is to be carried out using DR.DISC.AMENDMENTS viz., DEBITED and TRFLOAN.
In the normal course although the sight discounted drawing may not be extended, the option for such extension is available using DR.DISC.AMENDMENTS as it would permit for Usance Drawing. When Tiered rates are chosen, the period would be calculated using EFFECTIVE.DATE and NEW.MATURITY.DATE.
When the final settlement is to be done, the User has to do an online maturity using DR.DISC.AMENDMENTS. The customer may either be debited or a Loan may be arranged, in the case of the latter the Draw down account of the loan has to be input as the settlement account in the field RECEIV.SETT.ACCT.
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It is important to note that when the customer account is DEBITED, the system may either return the un-amortized portion of the discount amount to the account of the Discount party charged or book it into P&L, depending on the value input in the field RETURN.INTERST.
When DR.DEBIT.TO.CUST is set to TRFLOAN, the entire interest component, both the ones amortized and the balance to be amortized, are credited to the account of the Discount party charged. The reason for such reversal is that when a Loan at such instances is extended, the same would be back-valued, thus the customer would not be charged twice.
The input in the field RECEIV.SETT.ACCT shall bear the same currency as that of the CUSDEBIT used to debit in the original Drawings.
Discount Amendments Previously discounting was allowed only on Export Drawings. Once authorised, the discounted drawing could not be amended. The maturity date of the discounted drawings can now be amended with a new interest rate.
Discounting Import drawings is now possible.
The application DR.DISC.AMENDMENTS has the following features.
•
Ability to change the maturity date of the discounted drawing.
•
Apply a new rate from an effective date if the maturity date is extended.
•
Facility to mature the drawing online and allow backdated maturity.
•
Facility to take charges on amendments.
•
Option of retaining extra interest or returning it to the customer.
•
Raising activities for delivery messages based on amendments.
DR.DISC.AMENDMENTS On Authorisation of discounted drawings and for subsequent amendment of drawings, a live file LC.DISCOUNT.BALANCES gets updated. It holds the details of the discount and load rate changes over the life of the drawings. After discounting a Drawing, the user can change the maturity date of the Drawing. The following are the possibilities if you change the maturity review date.
1. Extending the Maturity Review Date 2. Rescheduling Maturity Review to an earlier date 3. Closing the contract online 4. Back Dated Maturity
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For all amendments you can specify charges. Only Charge status 2 (Charges Collected) is allowed for all amendments. However, when the Drawings are discounted using the DR.DISC.AMENDMENTS application, the Amortisation is carried out only as per the original input maturity period in the Drawings. So if a Drawing is Discounted with Foreclosure or Online maturity, the entries of LCAMORT account move into P&L account according to the original maturity date of the Drawings and not on the new maturity date or online.
The following is the flow and implications of all the four options.
Extension of Maturity Date If you intend extending the maturity date of the DRAWINGS, then a new discount rate and load for the extended period may be specified or it may be continued with the existing rate. When load is specified in DRAWINGS then during amendment, NEW.LOAD.RATE or NEW.LOAD.AMOUNT is mandatory. Similarly, if no load is specified in DRAWINGS you cannot input new load rate in amendments. Extending the maturity date will result in extra interest to be paid by the customer.
Figure 83 – Discount Amendments Record
On extension of maturity date NEW.DISC.RATE and NEW.LOAD.RATE will open for input. The EFFECTIVE.DATE can be specified as the date from which new discount rate/amount and/or new load rate/amount will be effective, which can either be the current day or a forward date.
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Discount Charges for the Beneficiary •
Payment Account will be debited online for the extra interest.
•
A new CAP entry will be raised for the effective discount amount.
•
Maturity Date will be extended to the specified date.
•
Revised discount amount will be calculated and a new daily accrual amount till the maturity date is arrived at.
Discount Charges for the Opener •
Reimbursement amount will be added with the extra interest.
•
CAP is raised for the effective discount amount.
•
LIVEDB entry is created for the effective reimbursement amount.
•
Maturity Date is extended to the specified date.
•
Revised discount amount is calculated and a new daily accrual amount till the maturity date is arrived at. Daily accrual will take place at the specified amount till the maturity date.
On authorisation of amendment the corresponding LC.DISCOUNT.BALANCES will be updated.
Figure 84 – Discount Balances Record
Earlier Maturity If a Drawings contract is rescheduled, bringing the maturity date forward, this will result in the interest amount being reduced. You have the option to either return the extra interest to the customer or retain the extra interest, which will be posted to the category specified in DIS.RETAIN.CODE field in LC.PARAMETERS. If not specified it will be posted to the default discount Category code.
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Figure 85 – LC Parameters Record
Figure 86 – Discount Amendments Record
Except for extension of maturity date NEW.DISC.RATE and NEW.LOAD.RATE fields will not be opened for input. Revised discount amount will be calculated with the existing discount and load rate. The user has an option of either retaining excess interest by specifying ‘NO’ in RETURN.INTEREST, which is then posted to the category specified in LC.PARAMETERS, or specifying ‘YES’, where the excess interest is added to PAYMENT.ACCOUNT amount, if the discount party charged is the opener.
The implications will be as follows:
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Discount Charges for the Beneficiary •
If the user wishes to return the interest to the customer, payment amount is credited for the extra interest collected else the extra interest is credited to the P&L category specified by the user.
The CAP entry is raised for the effective discount amount. •
Maturity Date is extended to the new maturity date.
Discount Charges for the Opener If you wish to return the interest to the customer then reimbursement amount is reduced for the extra interest collected otherwise the extra interest is credited to the category specified in LC.PARAMETERS.
The CAP entry is raised for the effective discount amount.
The LIVEDB entry is created (DOCUMENT.AMOUNT + Revised Discount Amount).
Maturity Date is extended to the new maturity date and daily accrual will happen till then.
Figure 87 – Discount Balances Online Maturity User can close the discounted contract online. This is results in excess interest which can be Returned to the customer or retained with the bank.
Discount Charges for the Beneficiary If the user wishes to return the extra interest collected, the interest is returned to the payment account else the interest is credited to the category specified by the user.
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The CAP entry is raised for effective discount amount.
Manual Maturity happens for the contract.
Discount Charges for the Opener •
If the user wishes to return the extra interest collected the reimbursement amount is reduced accordingly else the extra interest is credited to the category specified by the user
•
The CAP entry is for the effective discount amount.
•
The LIVEDB will be raised for revised amount.(DISCOUNT.AMOUNT + DOCUMENT.AMOUNT)
•
Manual Maturity will happen for the contract.
Backdated Maturity In this option the user closes the discounted Drawing contract with a backdated maturity. This also results in excess interest, which could be credited to the customer, or the category specified by the customer. Reversal of accruals done from the new maturity date to date also takes place.
Discount Charges for the Beneficiary •
Based on the user’s preference, excess interest is returned to the payment account or credited to the category specified.
•
CAP is raised for effective discount amount.
•
Backdated maturity happens online
•
Reversal of extra accruals is done from the new maturity date till date.
Discount Charges for the Opener •
Based on the user’s preference excess interest is reduced from the reimbursement amount or credited to the category specified.
•
CAP is raised for effective discount amount.
•
LIVEDB is raised to reflect the current discount amount + document amount
•
Backdated maturity happens online
Reversal of extra accruals is done from the new maturity date till date. On Authorisation of amendment corresponding DRAWINGS will be updated with new maturity and Discount rate.
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Delivery Messages For Discount Amendment Three new activities are generated for discount amendments.
1) LC-4477 (Extension(for extension of maturity date). 2) LC-4488 (Pre-closureLC-4488 (for pre closure of contract). 3) LC-4499 (Back datedLC-4499 (for backdated maturity).
MT-754 in drawings will be rescheduled based on amendments.
Grace Days When a Drawing is discounted using a rate, the user is provided with an option to recover additional interest for a specific number of days, Grace days, as input. This is typically true for walk-in customers, where the delay in reimbursement may be encountered.
When Grace days is input the relevant Grace amount is calculated. This amount is proportionately added to the DISCOUNT.AMT and LOAD.AMOUNT, depending on their rates and for the period specified in MATURITY.REVIEW. The important aspect here is the amortization for the Grace amount happens only until the MATURITY.REVIEW, irrespective of the number of days of Grace. This Grace amount component is updated in LC.DISCOUNT.BALANCES.
Just as amortization of the Discount and Load amount happens, the same relating to Grace amount happens concurrently. This number of Grace days is a one-time input in Drawings and therefore cannot be input in DR.DISC.AMENDMENTS. The existing flow in Discount amendments continues to be the same, only that the Grace component is always loaded into it.
When a Discounted drawing is amended through DR.DISC.AMENDMENTS, the balance lying in the contract as Grace component to be amortized, is credited to the P&L account on the date of Amendment, irrespective of whether the contract is foreclosed or closed backdated or extended. Thus when the user decides to return the interest component on account of the above, it is done without the Grace amount. As the Grace days and the Grace amount are available in the Handoff, the same may be used for delivery as required by the user.
Different Exchange Rates When a Drawing that is done in a Currency other than the local currency is discounted, the discount component that is always in the Draw currency is arrived using the MRR in absence of a rate in the contract. The User does not have any option to specify the rate that has to be applied on the discount component nor is there an option to specify whether the discount amount is to be calculated by converting the amount into local currency and the rate applied on the same.
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It is now possible to address this scenario using DR.INT.CALC.COND. For effecting this change in the computation of the Discount component, the requisite Id of this table has to be input in INT.CALC.COND of the Drawings record.
Figure 88 – Setting different exchange rates
As it can be seen, INT.CALC.CCY can either be DRAW.CCY or LCCY. When DRAW.CCY is input the system is designed to calculate the discount component on the Draw currency with a rate other than that in the contract. In this case the calculation of interest is the same as earlier as far as the DISCOUNT.AMT is concerned. However, to arrive at the local currency equivalent, DISC.AMT.LOCAL, the User may accordingly set up the CONV.RATE as Buy or Sell or Mid.
Likewise if the INT.CALC.CCY is selected as LCCY, the calculation of Discount amount is altogether different. Here the entire Drawing amount is converted into local currency at a rate as specified in CONV.RATE in DR.INT.CALC.COND. This would now form the amount on which DISCOUNT.RATE would be applied and Discount component calculated. On arriving at the Discount amount the same CONV.RATE as mentioned in the DR.INT.CALC.COND would be applied to calculate the Drawing currency equivalent that is populated in DISCOUNT.AMT.
It is worthwhile to note that use of this table could be done only in the case of discounted contracts. However in cases where the DISCOUNT.AMT is entered without a rate, only those records of DR.INT.CALC.COND can be used that have INT.CALC.CCY as DRAW.CCY. When Discounted contracts using DR.INT.CALC.COND are amended using DR.DISC.AMENDMENTS the system would continue to calculate the interest in the same logic as done at the first instance. If the INT.CALC.COND were not input in the DRAWINGS the system would continue with the old flow.
Collection Amendments In Collection Amendments, we allow amendment of the buyer in case of Export collections when the original Buyer is not interested in the goods any more. This could lead to change of Collecting Bank if the new buyer has relationship with another Bank. Similarly, in the case of Export LC the limit can be reset against Reimbursing and confirming bank.
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Ability to change the Issuing bank field. In other words is the change of Collecting/Reimbursing bank. Reversal of Contingent Liability and re-booking it against the new Issuing/Reimbursing bank. Reversal of Limit risk and re-booking against new Issuing/Reimbursing bank. Change of Buyer in Export collections.
Amendment of a Letter of Credit Let us assume that the LC Issuing Bank is 100188.
Figure 89 – CAL entry
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Figure 90 – RE.CONSOL.SPEC.ENTRY
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Figure 91 – Amendment of a Letter of Credit
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Figure 92 – Amendment of a Letter of Credit
And the Limits:
Figure 93 – Limit Transactions
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Figure 94 – Trade Finance setting the Risk Party
Figure 95 – RE.CONSOL.SPEC.ENTRY
After a Close of Business the CONSOLIDATE.ASST.LIAB would have been built for the new Reimbursing Bank and the following entries would have been produced:
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Figure 96 – RE.CONSOL.SPEC.ENTRY Record
Accordingly, the limit would be reversed out for the original ISSUING.BANK and would be rebooked for the new Reimbursing Bank (100071).
(100189).
Figure 97 – Limit Transaction
The CONSOLIDATE.ASST.LIAB file will be re-built for this contract change during the Close of Business.
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On Amendment of an Export Collection In an Export Collection scenario, when the Issuing bank is 100190, on committing the record the “Info” Limit being hit for the Issuing bank.
Figure 98 – Limit Transaction
Now, amend the Issuing Bank to 100192, the Limit would be hit as:
Figure 99 - Limit Transaction
Accordingly, the Original limit line is reversed out and rebooked for the new Issuing Bank.
Now, when the Issuing Bank is not a Customer, the Text field is used. By inputting in the ISSUING.BANK text field and deleting the Existing Customer number, the Limit line of the original Issuing Bank would be reversed out in this case there would not be any new Limit hit.
We extend this facility for Export Collections to amend the Buyer, the BENEFICIARY also in case the original buyer is not interested in the goods any more.
In the case of Deliveries, the instructions relating to the Reimbursing Bank is picked up from the field RISK.PARTY. Importantly, as the CON.CUS.LINK is now rebuilt with the value from the field
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RISK.PARTY, all the delivery messages to the Issuing Bank in an Export Letter of Credit that hitherto were getting the values from the CON.CUS.LINK would have their addressee as RISK.PARTY. So the mapping relating to this has to be reviewed. But in the case of Collection Documents the instructions to the new Bank is sent from the value stored in ISSUING.BANK.NO or ISSUING.BANK if it is a text field.
LC Amendments Introduction In business there is a possibility of amendment being rejected by the beneficiary. Currently the Trade Finance module does not have the facility to reject an amendment. This Amendment application records them and updates the Letter Of Credit based on the decision taken by the beneficiary.
So this front end LC.AMENDMENTS does the following:
Ability to record the amendments in LC.AMENDMENTS •
To change the LC amount, maturity dates, effect increase of tolerance. In general MT707 related fields.
•
Do multiple amendments without deciding on the previous amendment.
Send MT707 from LC.AMENDMENTS. •
Ability to hit and reverse the limit with a separate line for the increased amount of LC and increased tolerance.
LC.AMENDMENTS The following detail helps us to analyse the flow and implications of this application.
After a LETTER.OF.CREDIT contract is input, using the new application LC.AMENDMENTS, one can change the values of the fields relating to MT707 which are given below:
EXTERNAL.REFERENCE LC.AMOUNT
INC.DEC.AMOUNT
EXPIRY.DATE
NEW.EXP.DATE
ADV.EXP.DATE
NEW.ADV.EXP.DATE
PERCENTAGE.CR.AMT
INC.CR.AMT
MAXIMUM.CR.AMT ADD.AMT.COVERED SHIP.DESPATCH TRANSPORTATION
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LATEST.SHIPMENT SHIPMENT.PERIOD NARRATIVE
Limit Update For every first amendment under each Letter of Credit, the LIMIT.UPDATE field is mandatory with values (YES / NO) and every subsequent amendment retains this value input at the first amendment. Only if the LIMIT.UPDATE is 'YES' and if the INC.DEC.AMT has a positive amount or INC.CR.AMT has an increase in tolerance, then a new Limit line is hit with the Id of LC.AMENDMENTS. The user can now choose the impact of the limit amendment.
Figure 100 – LC Amendments Record : Limit update
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Figure 101 – Limit Transaction
When an LC.AMENDMENT record is input the AMEND.STATUS holds the default value as PENDING, meaning decision awaited. At this stage there are some validations, in LETTER.OF.CREDIT and DRAWINGS.
When AMEND.STATUS is PENDING in LC.AMENDMENTS for that Letter of Credit:
Reversal of Letter of Credit not permitted.
Figure 102 – Trade Finance Reversal Record
The DRAWINGS are however permitted when LIMIT.UPDATE is set to NO. In this scenario, the limit is not hit with any new line.
Charges in LC.AMENDMENTS It is now possible to recover charges along with tax through LC.AMENDMENTS with the status of '2' or NULL. However, if the charge amount is not input and has to be calculated by the system, then the CHARGE.BASE.AMT is mandatory. This is to enable the system to calculate the quantum on which the charge is to be calculated. If CHARGES.ACCOUNT is input in the LETTER OF CREDIT,Letter of Credit, the same is now defaulted in LC.AMENDMENTS.
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If tax is set for the CHARGE.CODE input, it is calculated and stored in the same multi-value. The tax however will be calculated only if the CHARGE.STATUS is set to 2.
In the event of LC.TXN.TYPE.CONDITION defined for Amendment of a LC.TYPE, it is defaulted when an amendment is done. These charges are appended LC.ACCOUNT.BALANCES with the LC number as the reference.
Decision using Operation 'D' When the Operation 'D' is used, only two fields are allowed to input during this operation, AMEND.NO, AMEND.STATUS. There can be only two decisions on an amendment either APPROVED or REJECTED. If APPROVED, the values input using LC.AMENDMENTS is being mapped to appropriate fields in LC else not.
When the value of AMEND.STATUS is APPROVED. APPROVED, AMEND.STATUS cannot be changed even with the RECORD.STATUS is INAU, but the vice-versa is possible, i.e., a REJECTED amendment can be APPROVED with the RECORD.STATUS at INAU.
If the LIMIT.UPDATE is 'YES', then new limit line is hit for the positive amounts entered in INC.CR.AMOUNT and/or for INC.CR.AMT (increase in tolerance percentage).
Figure 103 – Letter of Credit Record : Operation ‘D’
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Figure 104 – Limit Transaction Record
LC.AMENDMENTS is built with the MT707 related fields. This does not have the negative tolerance. Care should however be taken when the decision is taken at the amendment level itself whether to hit the limit or not. Because once the LIMIT.UPDATE is set to ‘Yes’, then DRAWINGS are not permitted. A functional decision is very important, when this application is invoked as operation ‘A’ is not permitted when the AMEND.STATUS is pending in the LC.AMENDMENTS (However, since G12.1 release, despite AMEND.STATUS being Pending, Operation “A” in LC is permitted and irrespective of the LIMIT.UPDATE status, DRAWINGS are permitted). (However, since G12.1 release, despite AMEND.STATUS being Pending, Operation “A” in LC is permitted and irrespective of the LIMIT.UPDATE status, DRAWINGS are permitted). To meet the delivery requirement, as this is built around the MT707 related fields, on authorisation of the LC.AMENDMENTS the relevant message is generated as seen, when such an amendment is done, with operation as ‘A’.
Partial Confirmation When the advising/nominated bank will confirm adding confirmation to an Export Letter of Credit, sometimes due to the non-availability of credit lines or due to some other business reasons, only a part amount. This means the amount that has been confirmed needs to be updated in credit limit of the issuing bank, and not the full amount of the LC.
This could either be a fixed amount or a percentage of the L/C amount. The limit-check and liability booking at time of confirmation is for the percentage of the L/C-amount respectively, for the amount stated in this additional field. Upon drawing by default the drawing amount is used up for the confirmed portion first and then the unconfirmed portion Thus, the liability is drawn down only for the confirmed part of the drawing.
Parameter setting In an Unconfirmed Letter of Credit the limit line defaults to the info line unless and otherwise defined in the LIMIT.PARAMETER. Likewise in the case of Confirmed Letter of Credit the limit line goes as per the definition in the LIMIT.PARAMETER. But with partial confirmation, an option is available with the user to choose to hit the info line or not for the unconfirmed portion of the Letter of Credit. This can be set up in the LC.PARAMETERS using UNCONFIRMED.LIMIT.
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Figure 105 – Limit Parameter Record : Unconfirmed Limit
This option with "NO" does not create the info limit line when the LC is partially confirmed, that is when a value is entered in the field CONFIRMATION.AMT.
The existing functionality continues if otherwise.
When the value of UNCONFIRMED.LIMIT is set to NO in LC.PARAMETERS, the limit line is hit only for the confirmed portion and the unconfirmed limit line is not displayed. displayed.
When the value is input as NO in the LC.PARAMETERS and if the LC is not partially confirmed the existing workflow of limit hitting the info line continues.
Work flow Consider the following where an Unconfirmed L/C is opened for GBP 800,000.00.
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Figure 106 – Unconfirmed Letter of Credit Record
Prior to a partial confirmation, the CONSOL entry would have been raised for GBP 800,000 with ADVICE as the Asset type. If a partial confirmation were done on this L/C for 40%, it would entail generation of 2 CONSOL entries, 40% for the confirmed portion and the balance of 60% for the unconfirmed portion. In the process the original ADVICE entry is liquidated.
Figure 107 – Letter of Credit Record
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The original amount of ADVICE for GBP 800,000 has now been recalculated for 60% of the amount.
Similarly the CONFIRM portion is represented below, which is for 40% of the original LC amount.
As stated the CONFIRMATION.AMT is input either as a percentage or a fixed amount. But if input as a percentage the PERCENTAGE.CR.AMT and ADD.AMT.COVERED are not accounted for. In other words these are always in relation to the LC amount only.
Drawings When a DRAWING is done on the above Letter of Credit, the confirmed portion has to be used up first. If the drawing amount is less than the CONFIRMATION.AMT, the drawing amount is defaulted in the field CONFIRMED.AMT in DRAWINGS, on the contrary if the drawing amount is greater than the CONFIRMATION.AMT, then the entire CONFIRMATION.AMT is defaulted. It is possible to define portions of Confirmed and Unconfirmed.
Figure 108 – Drawings Record
When drawings are made more than the CONFIRMATION.AMT, the system prompts using up the entire portion. This is done typically from the business perspective. perspective.
Provision Accounting In the case of provision the current functionality accounts it for the LC.AMOUNT as input in the LETTER.OF.CREDIT, but with partial confirmation, the amount considered for the provision accounting is from the value input in CONFIRMATION.AMT in LETTER.OF.CREDIT.
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With this the confirmed limit hit that takes place on partial confirmation is done on the CONFIRMATION.AMT after taking into account the provision input.
As seen above, when the confirmation amount is at 40% of GBP 800,000 the limit is as shown:
Figure 109 – Limit Transaction Record
But in cases where provision is already taken, and then the Letter of Credit is to be partially confirmed, the entire provision has to be released first.
Liability Once the Letter of Credit is committed the CONF.LIAB.AMT and UNCONF.LIAB.AMT are populated as defined in the CONFIRMATION.AMT. These fields are system maintained and they reflect at any point of time, the available portion for a given Letter of Credit under these references.
Figure 110 – Letter of Credit Record : Confirmation Amount
The UNCONF.LIMIT.REF. Represents the defaulted value from the LIMIT.PARAMETER. This is however an input field for the user.
In the case of DRAWINGS, the CONFIRMED.AMT is mandatory, but there is also another system maintained field that keeps track of the drawing in the LC currency
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The user may now define the amount to be designated against the Confirmed and the Unconfirmed portion of the Letter of Credit. This can be done when Drawings are made under Partially confirmed Letter of Credit. The Drawings under one portion can never be overdrawn if the other is outstanding. If both the portions are fully drawn, the Unconfirmed portion is impacted for the Overdrawn part.
The input of the Confirmed or Unconfirmed portion can be done only if the Letter of Credit is not of Revolving or Mixed Payment in nature.
Maturity In the case of maturity of drawings under partially confirmed Letter of Credit, the same has to be done manually. The relevant CONSOL entries are raised depending on the portions unutilised under the confirmed and unconfirmed portion. Thus even if a LC.TYPE is chosen as a confirmed one, if a value is input into the CONFIRMATION.AMT, the drawing has to be manually matured.
Charge Base Amount In LETTER.OF.CREDIT the charges when defaulted accounts for the entire amount of the LC plus credit tolerance. The option of recovering charges for a portion of the LC amount is supported by use of the field CHARGE.BASE.AMT.
Figure 111 – Letter of Credit Record : Charge Base Amount
In the above scenario, the default charges that would otherwise have been calculated for the LC.AMOUNT plus PERCENTAGE.CR.AMT will now be calculated for the value input in CHARGE.BASE.AMT.
Limit with Provision When a Cash Margin is taken under a Letter of Credit, the limit, be it LC or Drawings is impacted after netting out the margin amount taken or adjusted as the case may be. Now optionally a facility is made TEMENOS T24 User Guide
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available in the Parameter of LC, as to whether the margin is to be considered for limit impact or not. This is controlled from the field LIMIT.WITH.PROV that accepts Yes/No. The default value is however YES, meaning netting of limit with provision, which is the current flow.
When set to Yes, the existing workflow of netting of Provision happens. When a 60% provision is taken on a 100,000 amount, the limit line is impacted for 40,000.as under.
At the parameter the value of this field may also be left as NULL, which is considered as YES. Although the value of such limit impact may be defined in the parameter, yet this can be overridden at the Letter of Credit, in the field LIMIT.WITH.PROV.
This field in Letter of Credit is a one-time input and it cannot be changed once committed. So the treatment to that particular Letter of Credit and all the Drawings done under it shall have the limit treatment as defined in the LC and not as in Parameter.
Expiry Date roll-over for Collection Documents To prevent a collection document from expiring and subsequently moving into history even in scenarios where the proceeds are yet to be realized, a field has been introduced in the LC.PARAMETERS, viz. COLL.EXTN.DAYS.
This field accepts any numeric value, which defines the period up to which the collection document is kept live in the system, in other words the new Expiry date, if the Payment has not materialized fully and rolls over a collection document on the Expiry date.
Figure 112 – LC Parameter Record : Coll Extn Days
In the process, the CLOSING DATE in the collection document is also reset along with the ACPT.TM.BAND in the Draw set and date defined in the LIMIT.TXNS. The ADVICE.EXPIRY.DATE however will not change. On the date of roll over a pair of consol entries are generated as Application Change (APP) one each with the Old and New Expiry date.
However, this is an optional input field. Use of Operation T in LC, will now permit change of Expiry date and Closing date.
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Pre-advice Limit For a Pre-advice Letter of Credit, the user now has the option to impact the limit line as defined in the LIMIT.PARAMETER. This input can be done in the LC record.
Figure 113 – Letter of Credit : Pre-advice limit
This facility is available for both Export and Import Letters of Credit. The default value would be NO and this is an optional field.
Soft-Delivery for Operation ‘T’ For a given activity in operation T, it is now possible to access the Delivery related fields, providing the User the option to input Carrier, Addressee and controlling dispatch of a message. As Tracer generation is an online activity, no scheduling is permitted.
Figure 114 – Letter of Credit : Message Type
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Partial and Trans Shipment Tags In view of providing compatibility to SWIFT standards on the above fields, the field lengths have been suitably modified. Similarly, the Tag 40B in MT710 and MT720 permits input of two mandatory lines with a maximum of 24 characters, with the second line being restricted to two codes.
Figure 115 – Trade Finance : Additional instructions
This issue relating to the second line is also addressed with pick-list providing the options for the user to select.
Scheduling Messages For Drawing type SP, RP and AD, it is now possible to schedule a message for a future date. Such a scheduling is done as they get duly updated in their respective DRAW.SCHEDULES. However, if such a date is after the expiry of the Letter of Credit or its closing date, then unless such a scheduled message is sent, the LC and the respective Drawing shall not move to history.
Inward Processing of Letter of Credit Whenever Letters of Credit, even if Pre-advice in nature, received from other banks via SWIFT as MT700/MT701 or MT705 the same shall be captured automatically by the system and put on IHLD status in LC application for the bank to repair, verify and authorize. However in the case of amendments, MT707, it is captured as LC.AMENDMENTS and kept in IHLD status. The relevant inward mapping keys are also released.
This facility of capturing inward messages has now been extended (G13.1.00) to MT710, MT711, MT720 and MT721 in the 7xx series and for MT410 and MT412 in the 4xx series.
Following need to be set-up to address Inward Processing of Letter of Credit.
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DE.INTERFACE
Figure 116 – Delivery Interface Parameter Record
DE.CARRIER
Figure 117 – Delivery Carrier Parameter Record
VERSION Separate versions of LETTER.OF.CREDIT and LC.AMENDMENTS need to be created to bring the records from the inward queue to the Application queue in IHLD status. The NO.OF.AUTH must be 1 and GTS.CONTROL must be NULL. The system validates for requisite status of the inward record processed.
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PGM.ENTRIES The PGM.FILE records for the two programs to be added to the OFS.SOURCE and DE.MESSAGE record are:
Figure 118 – Program File Record
Figure 119 – Program File Record
DE.MESSAGE
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Figure 120 – DE Message Record
Likewise, the same needs to be created for messages 701, 705, 710, 711, 720, 721, 410 and 412. For 707, the version shall relate to LC.AMENDMENTS.
EB.PHANTOM This is created to attach the OFS.SOURCE and to initiate the inward mapping process.
Figure 121 – Phantom Control Record
OFS.SOURCE
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Figure 122 – OFS Source Record
FILE CONTROL and CREATE FILES Create two FILE.CONTROL records DE.I.MSG.LC for holding message queue and DE.I.PRI.LC for holding the priority queue of messages.
Running a CREATE.FILES in T24, this would create the above-mentioned two files.
Shipping Guarantee Where a Bank collects a Cash Margin for Issuance of a LETTER.OF.CREDIT and if a Shipping Guarantee were to be issued under this Letter of Credit, through MD.DEAL, the system can now set aside proportionate or the entire Cash Margin, or if need be, permit additional Provision to be recovered besides the LC Margin. Likewise, in the event of a Drawing being done under the LC relating to this shipping guarantee, then the system releases the entire Cash Margin taken in MD.DEAL.
Once the Provision (Cash Margin) is taken in LETTER.OF.CREDIT, such an LC has to be linked to the Guarantee. When establishing this link, the User has to input the relevant LC reference, from which the Provision is to be apportioned along with the Provision amount. The system defaults the Credit Provision account of LC. This input cannot be changed on authorisation. This LC link however is for an Import Letter of Credit with Provision only.
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Figure 123 - LC linked in MD.DEAL
On committing the MD.DEAL, the system updates the Provision related fields in LC and impacts the limit line of LC. It is however mandatory that the currency of the LC Margin account should be the same as PROV.CR.ACCOUNT of MD. The relevant MD details are updated in LC along with the Provision amount apportioned.
Figure 124 - MD details updated in LC.
When DRAWINGS is done under the Letter of Credit that has been linked to MD, the input of the requisite guarantee reference has to be done in the field GTEE.REFERENCE. The Drawing amount cannot be greater than the Guarantee amount.
Figure 125 - MD linked in Drawings
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It is imperative that the DRAWDOWN.ACCOUNT of the DRAWINGS needs to be the same as PROV.CR.ACCOUNT in MD.DEAL. Depending on the Cash margin available in Guarantee, the system releases or recovers the additional provision through the PROV.COVER.ACCOUNT.
Invocation under such a guarantee shall be permitted only as long as no Drawing is done under it. No two DRAWINGS can have the same shipping guarantee reference. But any number of shipping guarantees may be issued under one LC reference as long as Cash Margin under the LC is available. Reversal of LC cannot be done if a shipping guarantee were outstanding under it. Although a guarantee linked LC may mature, it shall not move to history if the underlying guarantee is live. Likewise, a LC linked shipping guarantee shall not mature unless a Drawing is done under it even if set to Automatic expiry.
Expiry Date roll-over for Collection Documents To prevent a collection document from expiring and subsequently moving into history even in scenarios where the proceeds are yet to be realized, a field has been introduced in the LC.PARAMETERS, viz., COLL.EXTN.DAYS.
This field accepts any numeric value, which defines the period up to which the collection document is kept live in the system, in other words the new Expiry date, if the Payment has not materialized fully and rolls over a collection document on the Expiry date.
Figure 126 – LC.PARAMETERS
In the process, the CLOSING DATE in the collection document is also reset along with the ACPT.TM.BAND in the Draw set and date defined in the LIMIT.TXNS. The ADVICE.EXPIRY.DATE however will not change. On the date of roll over a pair of consol entries are generated as Application Change (APP) one each with the Old and New Expiry date. However, this is an optional input field. Use of Operation T in LC, will now permit change of Expiry date and Closing date.
Trade Finance work files There are some further files used in Trade Finance, which may be of interest when setting up the system and/or building reports and enquiries.
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LC.ACCOUNT.BALANCES - History of a letter of credit The LC.ACCOUNT.BALANCES file is automatically created, updated, and maintained by the Trade Finance application. It holds all the authorised charges under a LETTER.OF.CREDIT transaction. For each new authorised LETTER.OF.CREDIT deal the charges are moved from the contract to a new record in this file. This is to reduce the size of the LETTER.OF.CREDIT file, which can become excessively large with all the charges generated. For each authorised change to the LETTER.OF.CREDIT, additional charges produced are appended to the record, and any charges taken in DRAWINGS under this LETTER.OF.CREDIT are also appended to this record. Any claimed charge can be settled using this application. Charges can also be reversed using this application.
LC.GEN.CONDITION The LC.GEN.CONDITION application defines groups of customers for whom specific trade finance conditions are to be applied. The conditions are specified on the related application LC.GROUP.CONDITION.
Figure 127 – LC Gen Condition Record
For example it can be used identify a group of our customers with whom we do business on special terms. The LC.GROUP.CONDITION is then used to define those special conditions.
The two applications files are similar in structure and content to the other ‘gen condition’ and ‘group condition’ applications such as ACCT.GEN.CONDITION and GROUP.DEBIT.INT.
For a customer to be selected, it must conform to every field value defined within the record to qualify for a specific group. Amending a customer or account record may therefore result in re-classification of the customer (or account) into another group or even return to ‘normal conditions’
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LC.GROUP.CONDITION - Special conditions for TF customers The LC.GROUP.CONDITION application defines special conditions applicable to specific groups of customers or individual customers and overrides the normal conditions otherwise used by the Trade Finance application. The ID of the record must be an existing record on the LC.GEN.CONDITION file if the conditions are for a group of customers. An individual customer can be specified by using the ID format of 'C-customer number', e.g. C-100014 would be used to specify an individual charge regime for customer 100014.
Figure 128 – LC Group Condition Record
The special conditions that apply can be divided into four categories:
Exchange Spread - The CURRENCY table contains the conditions applicable to the exchange spread to be taken on transactions involving conversion of currencies. Commissions - The FT.COMMISSION.TYPE table contains the standard conditions applicable to all types of commissions that can be used in the Letters of Credit application. Charges - The FT.CHARGE.TYPE table contains the standard conditions applicable to all types of charges that can be applied in the LETTER.OF.CREDIT application. Value Date - The Transaction Type Condition table contains standard customer value date conditions according to each Transaction Type existing in the LETTER.OF.CREDIT application. This file also allows the user to indicate if charges have to be booked as a separate entry. If fields are left blank, the defaults will be taken from the Transaction Type and CURRENCY files.
EB.DUPLICATE.TYPE This Core feature of validating duplicate input is now available in LETTER.OF.CREDIT for ones that are classified as Export.
After defining the EB.DUPLICATE.TYPE, the same needs to be recorded in the LC.TYPES appropriately. The field in LC.TYPES, viz., DUPLICATE.CHECK accepts a valid
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EB.DUPLICATE.TYPE and based on the definitions to be validated the overrides are raised when the transaction is input.
Figure 129 - Field Duplicate Check in LC.TYPES
For more information on EB.DUPLICATE.TYPE, please refer FUNDS.TRANSFER User Guide under the heading Duplicate Contract Checking.
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