3. Under a third form the credit must be drawn against in one bill for the full amount, whereupon it becomes immediately available again for a similar drawing, and so on until the time limit is reached.
4. A fourth form is credits under which the beneficiary can draw a certain maximum amount within any one month or week or whereby a shipper can draw up to a certain amount covering shipments by any one steamer.
There are many minor subdivisions in the above classifica tions of commercial credits, as the credits are always made to fit the peculiar conditions under consideration and a great variety of adaptations is possible.
Authority to Purchase Exports to the Far East are largely financed by means of au thorities to purchase, whereas very few imports are thus covered. Accordingly, American banks rarely, if ever, issue authorities to purchase, but act as notifiers of authorities and payers of drafts under them. Only the banks of New York and San Francisco are well acquainted with authorities to purchase, the large majority of which are drawn on a time basis—to run 6o, 9o, or 120 days' sight, and are made payable in United States currency.
The development of the authority to purchase was forced by the inadequate banking facilities of the Orient, where until re cently it was almost impossible for an importer to secure a bank credit to finance his importations. As a letter of credit was not used, it was necessary for the American exporter to draw di rectly on the Chinese importer, who, in order to create a market for the exporter's bills in America, informed his local Chinese bank that he had authorized the exporter to draw drafts, and requested it to. arrange for the negotiation of these bills by a branch or correspondent bank in the exporter's vicinity. The importer undertook to provide funds to retire these drafts at maturity, to provide collateral to secure the bank's interests, and to compensate the bank for its services. This letter given by the importer to the Chinese bank is properly called a "letter of guaranty," and functions both as an application and guaranty. If the Chinese bank approves the application it cables instruc tions to its American bra.nch or correspondent to negotiate the drafts drawn.by the American exporter on the Chinese importer,
and follows this up with a letter reciting the instructions in de tail. This letter, known as the " authority to negotiate" or "advice to purchase," constitutes the real authority to the American banking house, which then issues to the exporter an 'advice of authority to purchase," informing him that he may draw on the importer and that it will negotiate the drafts pre sented together w:th the proper shipping documents. In some cases the advice of authority to purchase is sent directly by the Chinese bank to the exporter, and not through its American agent. The importer sends to the exporter an "authority to draw," reciting the terms of sale and the right to draw on the former, but the banks are not concerned with this com mercial contract between buyer and seller. But to the other three documents—the letter of guaranty, the authority to pur chase, and the advice of authority to purchase--the banks are parties.' While authorities to purchase may be: (i) irrevocable by issuer and confirmed by notifier, or (2) irrevocable by issuer and unconfirmed by notifier, or (3) revocable by issuer and uncon firmed by notifier; and while, in case the importer dishonors the drafts drawn on him: (t) the Chinese bank may reserve full re course on the drawer, if it issues the authority directly to the drawer; (2) the American bank may have full right of recourse on the drawer, if the authority is placed through it as agent of the Chinese bank; and (3) the American bank may have full recourse on the issuing Chinese bank until final payment; the majority of authorities are revocable in form and call for drafts carrying full recourse on drawers.
It will be observed that, like letters of credit, these authorities shift the burden of financing the transaction from exporter to importer or his bank. They are somewhat similar to letters of credit drawn documents against payment, for the exporter is paid upon the presentment of the draft and the surrender of the documents. Like a letter of credit, an authority to purchase is based on a conferment upon the exporter of a right to draw, and both require the same shipping documents.