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Supply Chain Management

 
 


Tong Yi Da


 

Introduction

On the request of customers, Bank of China conducts various credit businesses of trade finance and letter of guarantee (including standby L/C) (not including import factoring, domestic comprehensive factoring (the buyer) or financing type guarantee/standby L/C) for customers, with accounts receivable as the pledge under international/domestic L/C accepted by the issuing bank or its designated bank, or the account receivables under documents against acceptance(D/A) that have been accepted by the guarantee bank.

Functions

The product is applied to meet the financing needs of customers who have qualified account receivables but are confronted with credit bottleneck.  An effective channel is opened among accounts receivable pledge, trade finance and letter of guarantee.

Target Customers

The product is designed for corporate customers, who are unable to acquire banks' credit support due to shortage of valid pledges on one hand, and do not hope to conduct the international settlement business in banks by means of trade finance or fully paying deposits as considering financial cost control on the other hand, despite the fact that they have qualified account receivables.

Process

1. Customers of Tong Yi Da submit application letter/contracts for trade finance or letter of guarantee which is exclusive for Tong Yi Da business;

2. Bank of China assesses and determines the effective pledge amount of the accounts receivables for the customer, who signs the Accounts Receivable Pledge Contract under L/C or D/A Collection with Bank of China. With inadequate effective pledge amount failing to cover the amount of trade finance and letter of guarantee (if any), an additional deposit shall be charged , the credit line will be occupied, or other payment guarantees shall be implemented;

3. Bank of China conducts the pledge registration of the accounts receivable and guarantees the validity of the pledge right;

4. Bank of China conducts the businesses of trade finance and letter of guarantee for the customer;

5. Bank of China transfers the payment to the customers' deposit account, make payment or repay Bank of China the financing principal and interest as well as relevant charges directly from the account on outward payment date or maturity date of trade finance and letter of guarantee, as well as transfers the balance (if any) to the customer, if the maturity date of the accounts receivable is prior to the outward payment date or maturity date of the conducted trade finance and letter of guarantee, and the payment is received on the maturity date.

If the maturity date of the receivables is later than the outward payment date or maturity date of the conducted trade finance and letter of guarantee business, on the request of the customer, Bank of China can make payments with the financed fund, or conduct the financing business with the account receivables after cancellation of the account receivables pledge guarantee, make payment or repay the financed funds. After receiving the payment on the maturity date of receivables, the payment is used to repay the principal and interest and relevant charges to Bank of China, and the balance (if any) is transferred to the customer.

Case

As a joint venture established by a Fortune 500 enterprise, Company A runs its business mainly in chemical products.  Its overseas procurement and domestic marketing are both carried out by settlement means of L/C. With its rapid business development, Company A is confronted with two problems as follows:

1. The company' high credit line in Bank of China can not meet its demand for L/C due to its rapid business development;

2. With a lot of accounts receivables as a result of domestic sales, the company does not want to open the L/C or carry out negotiation businesses in banks by renewing trade finance or paying deposits in consideration of financial cost control.

Company A turns to Bank of China for solutions to the two problems above. After researching, Bank of China recommends "Tong Yi Da" product to Company A and designs a solution for Company A as follows:

(1) Bank of China accepts the account receivables under domestic letter of credit as a pledge which is accepted by Company A, conducts the issuance of international L/C for the company for purchasing materials from overseas;

(2) The accounts receivable under domestic L/C are withdrawn on the maturity date, and is deposited into the deposit account according to the previous agreement. The payment is made directly from the deposit account on the date of outward payment of the international L/C.

From the cases above, we can see that problems confronting Company A have been solved completely with the support from Bank of China "Tong Yi Da" product:

(1) By means of qualified accounts receivable as a pledge with collection guarantee, Company A's problem of inadequate credit line is solved effectively;

(2) The product helps Company A in revitalizing accounts receivables and reducing capital costs.

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