a letter of credit its characteristics and details PDF

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a letter of credit its characteristics and details along with valid types and details supporting with all necessary data...

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A letter of credit There are number of factors which are involved which are involved in the overseas business 1. The exporters are uncertain of the importer’s capacity to pay 2. The importers are unwilling to pay the amount unless the goods are actual shipped and the documents received by the bank. 3. In case of non-payments, the seller should be assured to legal rights in foreign country 4. There should be an agency which should meet the sellers need of finance when the goods are shipped to the importers.

What is a commercial letter of credit (L/C) Foreign trade payment problem is mainly solved by a commercial letter by credit. A letter of credit is issued by the importer’s bank. It guarantees payment to the exporter up to specified amount of money provided the terms and conditions laid down in the L/C are fulfilled. A letter of credit (L/C) is a document issued by the importing country’s banker authorizing the exporter country’s banker to honor the cheques of the exporter to the extent of the amount mentioned therein.

A letter of credit is a commitment on the part of buyer’s bank to pay or accept draft drawn upon it provided draft don’t exceed a specified amount. Parties to a letter of credit: There are four parties involved in a letter of credit namely…..

Account party: the buyer or the importer on whose account and request and letter of credit are opened is known as account party or opener.

Issuing banks: the bank which issues or opens a letter of credit at the request of the customer (importer) is called the issuing bank. Exporter or seller: the seller or the party in whose favor the L/C is drawn is the third party. He is also known as beneficiary.

Paying or negotiating bank: the paying bank in the exporter’s country on which the draft is drawn is called the “paying” or “negotiation bank”.

How to commercial letter of credit is opened The following step is involved in opening a letter of credit.

1. Application for a letter of credit The first step is to get him registered with the export promotion bureau. Ensure the membership of trade body and then approach the authorized bank for registration.

2. Scrutinizes of the application Before issuing a letter of credit, the bank takes all kinds of necessary precautions for securing its credit. The bank first scrutinizes the application examines the customer’s credit standing.

3. Cash margin The importer is asked by his bank to deposit cash or securities with it before a letter of credit is opened. The amount of cash or security to be offered by the importer depends upon the credit worthiness of the importer.

4. Opening of the letter of credit The letter of credit can be opened by the mail or by cable. When it is opened by mail the buyer bank sends letter to credit and two copies to the importer.in case of cable, the buyer bank sends a telegram to the corresponding bank in the foreign country with a request to notify the exporter of the letter of credit and the term and condition lay therein.

5. Handling of the document When the letter is received by the exporter, he after shipping the goods present the required documents and the draft to the bank in his own country.

6. Payment by the importer to the bank When the bank approves the application of a customer of opening letters of credit, it does not lend money to the importer. the bank only lends the importer to use the credit standing of the bank to the exporter in the foreign country....