what is letter of credit?
Post 1 of 4
what is letter of credit?
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19 Apr 2009 19:50
Post 2 of 4
It is a type of payment method. Contact your bank and they will explain the different ways it works.
19 Apr 2009 23:06
Post 3 of 4
A Letter of Credit is a documentary credit, where the transfer of money (buyers money) and title to the goods (sellers goods) are handled by the international banks. You would make an application to the international department of your bank (after you have agreed with the supplier on terms, price, supply and order fulfilment, purchase order). Your Letter of credit is a control document and you can specify, documents, insurance certificates, latest shipping date, Inspection certificates, freight forwarder/shipping line in your letter of credit. Your bank then checks it, puts a hold on your funds or credit line for the amount of your L/C. It is then sent to their corresponding bank near suppliers origin, and the supplier must then give acceptance.
At the time of shipment despatch, your supplier must fulfil everything required in the L/C and exact documentation, and then submit it to the corresponding bank at origin, who if they accept it,then transfers the money to the supplier, and transfers the documents (normally title to the goods, inspection certificate , clearance documents etc) to the issuing bank who in turn provides you the buyer with these documents so you can obtain release of the cargo and customs clear the cargo for final delivery.
In these type of cases the carrier will of course refuse to release at destination, the goods without your documentation.
This is generally how it works.
At the time of shipment despatch, your supplier must fulfil everything required in the L/C and exact documentation, and then submit it to the corresponding bank at origin, who if they accept it,then transfers the money to the supplier, and transfers the documents (normally title to the goods, inspection certificate , clearance documents etc) to the issuing bank who in turn provides you the buyer with these documents so you can obtain release of the cargo and customs clear the cargo for final delivery.
In these type of cases the carrier will of course refuse to release at destination, the goods without your documentation.
This is generally how it works.
20 Apr 2009 07:44
Post 4 of 4
http://www.creditguru.com/guestarticleLC.htm
What is a Letter of Credit (LC)?
http://www.export911.com/e911/export/lc.htm
Different sorts of Letters of Credit
.
Following article is from Wikipedia ...
A letter of credit, often abbreviated as an LC or L/C, (the acronym LOC may also be used but this is more typically used to mean a Line of Credit) and also referred to as a documentary credit, often abbreviated as DC or D/C, documentary letter of credit, or simply as credit (in UCP 600 which is effective as from 1st July 2007) is a document issued mostly by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. This means that once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to pay irrespective of any instructions from the applicant to the contrary. In other words, the obligation to pay is shifted from the applicant to the LC issuing bank or confirming bank, if any. Non-banks can also issue LC. The LC can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit. Letters of credit are used nowadays primarily in international trade transactions of significant value, for deals between a supplier in one country and a wholesale customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Since nowadays almost all letters of credit are irrevocable, (i.e. cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any). However, the applicant is not a party to the letter of credit. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques Notice the following After a contract is concluded between buyer and seller, buyer's bank supplies a letter of credit to seller. Seller consigns the goods to a carrier in exchange for a bill of lading. Seller provides bill of lading to bank in exchange for payment. Seller's bank exchanges bill of lading for payment from buyer's bank. Buyer's bank exchanges bill of lading for payment from buyer. Buyer provides bill of lading to carrier and takes delivery of goods
There is also a site that explained the letter of credit in a simple way.
http://www.witiger.com/internationalbusiness/LCs.htm
This site explains it in a good and sequenced way and mentions the differences among many forms
like
Documentary Revocable Letter of Credit
Documentary Irrevocable Letter of Credit
Two forms of irrevocable credits:
o Unconfirmed credit
o Confirmed credit
Special Letters of Credit
o Back-to-Back Letter of Credit
o Deferred Payment (Usance) Letter of Credit
o Red Clause Letter of Credit
o Revolving Letter of Credit
and much more information
Also,the common problems with letters of credit.
I hope it will add something to all my friends here .
What is a Letter of Credit (LC)?
http://www.export911.com/e911/export/lc.htm
Different sorts of Letters of Credit
.
Following article is from Wikipedia ...
A letter of credit, often abbreviated as an LC or L/C, (the acronym LOC may also be used but this is more typically used to mean a Line of Credit) and also referred to as a documentary credit, often abbreviated as DC or D/C, documentary letter of credit, or simply as credit (in UCP 600 which is effective as from 1st July 2007) is a document issued mostly by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. This means that once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to pay irrespective of any instructions from the applicant to the contrary. In other words, the obligation to pay is shifted from the applicant to the LC issuing bank or confirming bank, if any. Non-banks can also issue LC. The LC can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit. Letters of credit are used nowadays primarily in international trade transactions of significant value, for deals between a supplier in one country and a wholesale customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Since nowadays almost all letters of credit are irrevocable, (i.e. cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any). However, the applicant is not a party to the letter of credit. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques Notice the following After a contract is concluded between buyer and seller, buyer's bank supplies a letter of credit to seller. Seller consigns the goods to a carrier in exchange for a bill of lading. Seller provides bill of lading to bank in exchange for payment. Seller's bank exchanges bill of lading for payment from buyer's bank. Buyer's bank exchanges bill of lading for payment from buyer. Buyer provides bill of lading to carrier and takes delivery of goods
There is also a site that explained the letter of credit in a simple way.
http://www.witiger.com/internationalbusiness/LCs.htm
This site explains it in a good and sequenced way and mentions the differences among many forms
like
Documentary Revocable Letter of Credit
Documentary Irrevocable Letter of Credit
Two forms of irrevocable credits:
o Unconfirmed credit
o Confirmed credit
Special Letters of Credit
o Back-to-Back Letter of Credit
o Deferred Payment (Usance) Letter of Credit
o Red Clause Letter of Credit
o Revolving Letter of Credit
and much more information
Also,the common problems with letters of credit.
I hope it will add something to all my friends here .
20 Apr 2009 13:00
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