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    Letter of Credit

    Uploaded by

    Palani Rajan
    A letter of credit is a written agreement issued by a bank guaranteeing payment to the exporter if they present documents that meet the terms outlined in the letter of credit. The key principle is that banks only deal with documents and not the actual goods being traded. A letter of credit provides a secure payment mechanism for international trade by substituting the bank for the buyer. It benefits both the exporter by ensuring payment if documents are correct and the importer by only releasing payment when terms are met. Common types include sight, usance, revocable, irrevocable, confirmed and unconfirmed letters of credit. Required documents typically include commercial invoices, bills of lading, insurance certificates and other shipping documents.

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    Letter of Credit

    Uploaded by

    Palani Rajan
    206 views11 pages
    A letter of credit is a written agreement issued by a bank guaranteeing payment to the exporter if they present documents that meet the terms outlined in the letter of credit. The key principle is that banks only deal with documents and not the actual goods being traded. A letter of credit provides a secure payment mechanism for international trade by substituting the bank for the buyer. It benefits both the exporter by ensuring payment if documents are correct and the importer by only releasing payment when terms are met. Common types include sight, usance, revocable, irrevocable, confirmed and unconfirmed letters of credit. Required documents typically include commercial invoices, bills of lading, insurance certificates and other shipping documents.

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    A letter of credit is a written agreement issued by a bank guaranteeing payment to the exporter if they present documents that meet the terms outlined in the letter of credit. The key principle is that banks only deal with documents and not the actual goods being traded. A letter of credit provides a secure payment mechanism for international trade by substituting the bank for the buyer. It benefits both the exporter by ensuring payment if documents are correct and the importer by only releasing payment when terms are met. Common types include sight, usance, revocable, irrevocable, confirmed and unconfirmed letters of credit. Required documents typically include commercial invoices, bills of lading, insurance certificates and other shipping documents.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    206 views11 pages

    Letter of Credit

    Uploaded by

    Palani Rajan
    A letter of credit is a written agreement issued by a bank guaranteeing payment to the exporter if they present documents that meet the terms outlined in the letter of credit. The key principle is that banks only deal with documents and not the actual goods being traded. A letter of credit provides a secure payment mechanism for international trade by substituting the bank for the buyer. It benefits both the exporter by ensuring payment if documents are correct and the importer by only releasing payment when terms are met. Common types include sight, usance, revocable, irrevocable, confirmed and unconfirmed letters of credit. Required documents typically include commercial invoices, bills of lading, insurance certificates and other shipping documents.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
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    The key principles of letters of credit are that banks deal only in documents and not goods, and letters of credit provide a secure mechanism for payment in international trade.

    The basic types of letters of credit are sight or term/usance, revocable or irrevocable, unconfirmed or confirmed. Special types include red clause, transferable, back-to-back, deferred payment and standby letters of credit.

    Letters of credit provide exporters/sellers with secured payment and financing opportunities. They provide importers/buyers with control over shipping dates and avoid tying up cash resources until goods are received.

    Letter of Credit (L/c)

    key principle underlying L/c is that banks deal only in documents and not in goods

    Simply defined, is a written instrument issued by a bank at the request of its customer, the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all documents Documentary Credit is a widely used term to make payment secure in domestic and international trade.

    Use of Letter of Credit

    consideration in the course of negotiations between the buyer and seller method of payment is being discussed the seller has doubts about the credit-worthiness of the buyer and wishes to ensure payment

    Different ways of payment:


    buyer remitting cash with his order by open account whereby the buyer remits payment at an agreed time after receiving the goods or by documentary collection through a bank in which case the buyer pays the collecting bank for account of the seller in exchange for shipping documents

    Export Letter of Credit Cycle


    5. Product
    is Shipped

    1.

    1.
    2.
    Application Applicant Importer/Buyer

    Beneficiary Exporter/Seller

    4. 6.
    Letter of Credit

    Buyer & Seller Agree

    Documents

    8.
    Documents

    2.

    10. 3. Letter of Credit 7. Documents


    Exporters Bank/ Advising Bank

    9.

    Importers Bank/ Issuing Bank

    Benefits of a Letter of Credit

    To The Exporter/Seller Letters of credit open doors to international trade by providing a secure mechanism for payment upon fulfillment of contractual obligations. A bank is substituted for the buyer as the source of payment for goods or services exported. The issuing bank undertakes to make payment, provided all the terms and conditions stipulated in the letter of credit are complied with. Financing opportunities, such as pre-shipment finance secured by a letter of credit and/or discounting of accepted drafts drawn under letters of credit, are available in many countries. Bank expertise is made available to help complete trade transactions successfully. Payment for the goods shipped can be remitted to seller own bank or a bank of seller choice.

    Conti

    To the Importer/Buyer Payment will only be made to the seller when the terms and conditions of the letter of credit are complied with. The importer can control the shipping dates for the goods being purchased. Cash resources are not tied up.

    Types of Letter of Credit

    Basic Types SIGHT OR TERM/USANCE

    permit the beneficiary to be paid immediately upon presentation of specified documents may be revoked or modified for any reason, at any time by the issuing bank without notification. cannot be cancelled without the consent of the beneficiary issuing bank provided payment based on terms and conditions issuing bank has added a confirmation of payment. bank will make an additional charge

    Revocable Letter of Credit

    Irrevocable Letter Of Credit

    UNCONFIRMED

    CONFIRMED

    Conti

    Special Types

    Red Clause Letter of Credit

    Advance of shipment Beneficiary to act as a middleman Method of financing both sides of a transaction

    Transferable Letter of Credit

    Back-to-Back Letter of Credit

    Deferred Payment Letter of Credit Standby Letters of Credit

    Other Types

    Documents Usually Required Under A Letter of Credit

    There is no limit to the number and variety of documents


    Draft - bill of exchange Commercial Invoice Consular or Customs Invoice Bill of Lading Air Waybill Insurance Policy or Certificate Certificate of Origin Inspection Certificate Packing List

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