fairtradegm wrote:

Dear Catalyst!

                            Thank you for your informative reply. I have another relevant question to ask. Every one knows opening the L/C means to open an L/C. But what does it mean by saying "closing the L/C"? We have a buyer who was supposed to open the L/C this week but now they say L/C is delayed and tthey wil open the same after few weeks. When I asked the reason I was informed by the buyer that they have opened L/Cs for many suppliers and expect some "L/Cs  to be closed by this weekend" . They will be able to open new L/C only after that. Please tell us what is "closing the L/C" means and how does it take place? I mean what is the procedure for the same? Thank you in advance.

Best Regards

Javed Ali

"Closing the LC" is not a standard or a formal term. It simply means that the applicant has too many LCs outstanding, his LC limits with the banks are fully drawn and hence fully used up (blocked). Once some LCs expire or are honoured, that will free up his limits with the banks. Then he can ask for the issue of more LCs.

vcara wrote:

Hi! I am thankful that you got this informative discussion going. I am more interested with BG. What does it take to get one?

Hi,

You would first have to get a line of credit from a bank towards BG facilities.On approval of the same, and completition of formalities, you may apply for issue of specific BGs fvg. specific parties on specific terms. Helpful if you can furnish a draft to the bank for their acceptance and approval.

vcara wrote:

Thanks for your kind reply Catalyst. I understand that BG is supposed to be backed by collateral. Should the collateral be equivalent to or more than the amount of BG? And would you know the shortest term?


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HI,

When a bank isues a BG it takes on a risk exposure on the applicant. The norms for its issue, therefore, depends on the bank concerned, and its risk perception about the client (applicant), its account reationship etc. You'd have  to enquire with the bank to find out the details. For an existing client with an approved (BG) facility, BGs are known to have been issued even for 5% or NIL margins.

The shortest term would generally be a calendar quarter i.e. three months.

 

parajiyagears wrote:

What would be bank charges been paid by customer and supplier if they opt for Bank Gaurantee or for L/C?

Hi,

I recall having answered this question earlier here itself. The charges vary from bank to bank, customer to customer, and with the size of each exposure. Generally speaking, it is about 1 to 1.5% per quarter or part thereof. You can do a Google search and find out the general levels, or search a bank by name and see their level of charges - if displayed.