9. Payment on letter of credit.—Our next visitor is Mr. Jackson, from London, England, bearing a letter of credit from one of our correspondents. He presents his letter for £500 and a letter of indication, with a request for £10. We see that the letter is in form in regard to dates, etc., compare it with the sample form and signatures of our correspondent on file, and add up the indorsements to see that there is a sufficient balance to meet the proposed withdrawal. Everything being in order we 1. Carefully indorse on the back of the letter the date and amount withdrawn and sign our own name.
2. We fill in a sterling draft, which Mr. Jackson signs, for the amount, in strict accordance with the instructions contained in the body of the letter of credit.
3. We then pay Mr. Jackson the equivalent of £10 at the rate of the day, say $48.20.
Letters of credit are sometimes fraudulent and great care should be taken in comparing them with the original copy and signatures. In the hands of private individuals they are intended only to pro vide funds for use in traveling from place to place, and any withdrawal of an unusual proportion of the face amount should be viewed with suspicion, unless some satisfactory explanation, such as the purchase of tickets for the homeward journey, can be given. The letter-of-credit form should be attached to the final draft when the withdrawal exhausts the credit.
Our customer, Mr. Brown, in using his letter of credit in foreign countries, will be treated as Mr. Jackson was.
10. Payment of a travelers' check.—We next have presented to us a travelers' check for $100. We ask for the letter of indication and request that the check be signed in our presence by the holder. After com parison of the signature and number of the check with the letter of indication we pay the exact amount of the check, $100. By arrangement with the issuing bank, for our trouble, we are entitled to 10 cents, which we add to the check. We then forward the
item for redemption as $100.10.
11. Commercial letters of credit.—Rogers and Barclay, tea merchants, next apply for a commercial letter of credit on London for £10,000 in favor of Williamson Brothers, Colombo, Ceylon, tea mer chants. The first thing to determine is Rogers and Barclay's financial standing and business experience. It is true that any transactions against letters of credit are protected by bills of lading and insurance, but it must be remembered that there are many risks in the import business, especially when the distance in volved is great, in the way of shrinkage in market value, loss in weight and depreciation.
If the financial standing of Rogers and Barclay is satisfactory we ask them to sign an application for a commercial letter of credit setting forth the particu lars and terms of the shipment and giving instruc tions in regard to insurance, etc., all of which are em bodied in the letter of credit addressed to Williamson Brothers. This letter, with instructions, is handed to Rogers and Barclay to be forwarded, and they in re turn give us a receipt in which is incorporated an agreement regarding the basis on which the bank is to be reimbursed, the amount of its commission (which varies according to the currency of the bills drawn) and a statement of the bank's rights in case of default in payment or other difficulties.
The letter of advice is forwarded to our London correspondents, and a copy is retained for our files. It does not necessarily follow that all the money repre sented by the letter of credit will be used at one time. There may be one shipment or more, but no matter how many there are they must all be made within the time limit mentioned in the letter.