Letter of Credit • “ It is a promise by a bank on behalf of the buyer (importer) to pay the seller (beneficiary/exporter) a specified sum in the agreed currency, provided that the seller submits the required documents by a predetermined deadline.” • The Uniform Customs & Practice for Documentary Credits (UCP 600) is the official publication which is issued by the ICC . It is a body of rules on the issuance and use of a letter of credit and applies to 175 countries • Many banks and lenders are subject to this regulation, which aims to standardise international trade, reduce the risks of trading goods and services, and govern trade. • How does it work? • There is a seller and a buyer who want to conclude a business transaction. However, they may or may not know each other for financial obligations. • Because of the cargoes shipped from foreign ports to reach their destination takes time, importers have to find a ...
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Types of Letter Of Credit
TYPES OF LETTER OF CREDIT v Revocable and Irrevocable Letter of Credit v Sight LC and Time / Usance LC v Red Clause Letter of Credit v Revolving Credit v Transferable letters of credit v Back-to-back letters of credit v Standby letter of credit (SLOC) • Revocable and Irrevocable Letter of Credit • A revocable letter of credit can be changed or cancelled by the bank that issued it at any time and for any reason. • An irrevocable letter of credit cannot be changed or cancelled unless everyone involved agrees. • Irrevocable letters of credit provide more security than revocable ones. An unconfirmed irrevocable letter of credit provides a commitment by the issuing bank to pay, accept, or negotiate a letter of credit . An advising bank forwards the letter of credit to the beneficiary without responsibility...
Flow of Letter of Credit
Flow of letter of credit Step 1: Buyer and seller conclude the sales contract and agreed to use an LC as the method of payment. Step 2: Buyer approaches the Issuing Bank to issue an LC on his behalf in favour of the seller with all the terms and conditions specified. Step 3: Issuing Bank issues the LC and requests the advising bank to advise or confirm the credit to the LC beneficiary (seller). Step 4: Advising/confirming bank authenticates the LC and sends the LC to the LC beneficiary Step 5:Seller prepares and despatches the goods to the buyers country. Step 6:Seller presents the draft and/or documents to the nominated bank Step 7: Nominated (nominated as the negotiating bank)Bank checks documents presented against the LC terms and Conditions an seeks instruction from seller on documentary discrepancies. Step 8a: Nominated Bank forward the draft and/or documents to the issuing Bank. Step 8b: If documents are free from ...









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