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requirements:use-cases:use-case-trade-finance-letter-of-credit

Use Case - Trade Finance Letter of Credit

Letter of Credit

A letter of credit (LoC) is a document, typically from a bank (Issuing Bank), assuring that a seller (Beneficiary) will receive payment up to the amount of the letter of credit, as long as certain documentary delivery conditions have been met.

In the event that the buyer (Applicant) is unable to make payment on the purchase, the Beneficiary may make a demand for payment on the bank. The bank will examine the Beneficiary's demand and if it complies with the terms of the letter of credit, will honor the demand.

The letter of credit states what documents the Beneficiary must present, what information they must contain, and the place and date it expires.

Beneficiaries who sell goods and utilize a letter of credit as the method of payment have the assurance of the issuing bank that if they present the documents stated in the letter of credit, the issuing bank will honor their demand for payment.

Bill of Lading

A bill of lading is a document generated by a shipping line or its agent, giving details of a shipment of merchandise. Alongside this principal purpose, the bill of lading also certifies that the goods have been shipped aboard a vessel (and in some cases certifies the condition of the goods at the point of loading), assigns title to the goods, and requires the carrier to release the merchandise to the holder of the title or a named party at the destination port.

User Stories

As a Seller, I want to be paid as soon as I have delivered the products according to the terms and conditions in the LoC. During the LoC contract agreement stage I want to make sure that the terms and conditions are acceptable to me.

As a Buyer, I want to pay only for products that have been delivered according to the terms and conditions specified in the LoC. During the contract agreement stage I want to make sure that the terms and conditions are acceptable to me.

As an issuing banker, I want to be able to verify that the seller has performed delivery according to the LoC before paying the seller.

As an advising banker, I want to be able to advise the seller regarding the LoC received from the Issuing bank during the contract agreement, and conveys the delivery documents from the Seller to the Issuing bank, and accepts payment from the issuing bank for the Seller.

Usage Scenario Examples

1. The Buyer finds a Seller/Supplier and executes a sales contract or pro forma invoice. The Buyer and Seller agree on the terms and conditions to be included in the LoC

2. The Buyer applies to the Issuing bank for a LoC in favor of the Seller with the agreed upon terms and conditions.

3. The issuing bank prepares an LoC and sends it to the Seller's bank aka advising bank.

4. The advising bank verifies authenticity of the LoC and advices the Seller on the terms and conditions in the LoC

5. Seller verifies the terms and conditions and if there are no discrepancies goes about supplying and delivering according to the agreement. If there are discrepancies Seller informs the Buyer to fix them.

6. On completing shipment/delivery, the Seller obtains the delivery documents specified in the LoC and gives it to the advising bank.

7. The advising banks sends the documents to the issuing bank.

8. The issuing banks verifies that the delivery documents satisfy the terms and conditions specified and if acceptable it sends payment to the Seller via the advising bank.

9. The issuing bank collects payment from Buyer, and provides the delivery documents to the Buyer.

Problem Definition

The process today is highly manual and requires the reconciliation between several independent records on each entity involved - Buyer, Issuing Bank, Advising Bank, Seller. The Blockchain could be the shared source of truth and work-flow engine to automate the process and provide cryptographic proof if actions and performance.

TBD

Opportunity/Justification

TBD

Requirements

TBD

External References

TBD

Glossary/Appendices

TBD

requirements/use-cases/use-case-trade-finance-letter-of-credit.txt · Last modified: 2016/11/01 20:23 by Jeremy Sevareid