L ETTER OF C REDITThe LC is a payment undertaking issued by a bank ( issuing bank ) upon the request of client ( buyer / importer ) according to certain terms and conditions , and it’s issued in favor of beneficiary ( exporter/ seller ) ,undertaking paying of money with in a period of time upon representation of a certain documents .
L ETTER OF C REDIT A mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved. is a payment undertaking issued by a bank ( issuing bank ) to the seller and is issued on behalf of the applicant. ‘the buyer’. The Buyer is the Applicant and the Seller is the Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller.
L ETTER OF C REDITBenefits of L/Cs : Note that the Bank scrutinizes the documents and not the goods for making payment. Thus the process works both in favor of both the buyer and the seller. Provide assurance of payment upon representation of documents within the specified time frame . Buyer is assured that the bank will thoroughly examine these presented documents and ensure that they meet the terms and conditions stipulated in the LC.
L ETTER OF C REDITTypically the documents requested in a Letter of Credit are the following :: Commercial invoice Bill of lading or Airway bill, Insurance document; Inspection Certificate Certificate of Origin But there could be others too.
L ETTER O F G UARANTEE A type of contract issued by a bank on behalf of a customer who has entered a contract to purchase goods from a supplier and promises to meet any financial obligations to the supplier in the event of default.
L ETTER O F G UARANTEE L/Gs are guarantee of payment only in case of transaction failure
L ETTER O F G UARANTEE Benefits of L/Gs : in case you need a financial institution to commit, on your behalf In case you do not have enough financial resources or collaterals available If you participate frequently in public bids in order to obtain various contracts In case of an Advance Payment Guarantee, advance he paid will be returned to him, upon his request, if the seller does not comply with the delivery obligations for which he received the advance .
L ETTER O F G UARANTEEThe obligations of the issuing bank cease in the following situations: Upon expiry of the Letter of Guarantee Upon receipt of the beneficiary’s request for the Letter of Guarantee cancellation After honoring the payment demand received from the beneficiary.