17 March 2009

Letter of Credit In Electronic Trade Transaction


Somewhere in 1990s some 40 bankers, carriers and multinational companies have joined together in the BOLERO project. BOLERO aims at providing an electronic Bill of Lading for use in export transactions. Banking software packages and specialized telecommunications networks such as SWIFT have already taken a lot of paperwork out of the business of preparing and transmitting letter of credit details. eUCP has been introduced by the ICC to focus on the presentation of electronic or partial electronic documents.

Internet, undoubtedly has become an important medium for business community to get connected and to carry out their business transactions safely with the help of digital signature authentication system. The internet facility also makes buying a large business abroad possible through the internet franchise service. This electronic medium has also made the status inquiry and the due diligent process completed much faster without exchanging papers back and forth. By clicking on computer franchise for example, buyer or seller can obtain information and get connected. Internet franchise or computer franchise provides a focal point for trading community in search for business diversification.

When the idea of electronic trade transaction takes a full swing, the quality of the evidence provided by the seller with regard to the goods is very important. The buyer, in his instructions to the bank, specifies what the bank is to accept as evidence. In practice, this is a set of documents issued by the seller and by the independent parties.

A letter of credit consists of a series of flows; instructions, money, evidence regarding the goods and the title to the goods. Most of the flows are already dematerialized, or could be. For example, instructions with regard to the letter of credit can be passed from buyer to bank, and from bank to seller by electronic means and many banks have implemented systems to allow this to happen. Indeed, there is even a North American Bank which is prepared to accept applications for letter of credit over the World Wide Web. Within the banking system, this type of instruction can be handled through SWIFT, using its MT700 message format.

The issues seem to be concentrated in the field of evidence and of title to the goods. If we concentrate on the evidence, there seems to be no reason why a buyer could not call for the bank to accept a certain set of electronic messages instead of the equivalent set of documents. There exist internationally accepted standard EDIFACT messages, which can carry all the data the buyer may require, and which correspond in every way to the documents normally used.



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