The document provides an overview of letters of credit (LC), including:
- Definition of an LC as a written instrument from a bank promising payment to an exporter for goods if documents are presented as stipulated.
- Key parties in an LC transaction including applicant, beneficiary, issuing bank, advising bank, confirming bank, and negotiating bank.
- The basic mechanism of an LC transaction with 9 steps from contract to goods delivery and payment.
- Additional details on confirmed LCs and how the LC process works in practice.
What is a Letter of Credit?
Parties Involved in LC Transaction
Letter of Credit Process
Types of Letter of Credit
Documents of Letter of Credit
Advantages of Letter of Credit
Disadvantages of Letter of Credit
A letter of credit, also known as a documentary credit or bankers commercial credit, or letter of undertaking, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. Wikipedia
What is a Letter of Credit?
Parties Involved in LC Transaction
Letter of Credit Process
Types of Letter of Credit
Documents of Letter of Credit
Advantages of Letter of Credit
Disadvantages of Letter of Credit
A letter of credit, also known as a documentary credit or bankers commercial credit, or letter of undertaking, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. Wikipedia
Letter of Credit - Complete Presentation - (Bcom-Mcom-BBA-MBA-BS)Millat Afridi
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. A letter of credit is extremely common within international trade and goods delivery, where the reliability of contracting parties cannot be readily and easily determined. Its economic effect is to introduce a bank as underwriting the credit risk of the buyer paying the seller for goods.
Buyer's credit is extended by an overseas financial institutions to the importer to make purchases against large imports. This is a unique credit facility that aids the importer to access the international trade transactions at cheaper rates as they are quoted close to LIBOR rates.
Unit 4 Trade Settlement Methods, Export Finance, International Sources of Fi...Charu Rastogi
This presentation covers Trade Settlement Methods, Export Finance, Buyers credit and supplier’s credit, International receivables and cash management, and International Sources of Finance such as ECB, FCCB, ADR, GDR, FDI, Loan Syndication.
,
letter of credit
,
parties involved in lc transaction
,
letter of credit process
,
commercial letter of credit flow
,
advantages of letter of credit
,
risks involved
Letter of Credit - Complete Presentation - (Bcom-Mcom-BBA-MBA-BS)Millat Afridi
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. A letter of credit is extremely common within international trade and goods delivery, where the reliability of contracting parties cannot be readily and easily determined. Its economic effect is to introduce a bank as underwriting the credit risk of the buyer paying the seller for goods.
Buyer's credit is extended by an overseas financial institutions to the importer to make purchases against large imports. This is a unique credit facility that aids the importer to access the international trade transactions at cheaper rates as they are quoted close to LIBOR rates.
Unit 4 Trade Settlement Methods, Export Finance, International Sources of Fi...Charu Rastogi
This presentation covers Trade Settlement Methods, Export Finance, Buyers credit and supplier’s credit, International receivables and cash management, and International Sources of Finance such as ECB, FCCB, ADR, GDR, FDI, Loan Syndication.
,
letter of credit
,
parties involved in lc transaction
,
letter of credit process
,
commercial letter of credit flow
,
advantages of letter of credit
,
risks involved
Topics include components of a credit policy, steps used in establishing a credit policy, how a credit policy is implemented, types of credit policies, components of a credit manual, etc.
Letters of credit is a written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank). It is also known as a documentary credit.
A project report on an applied understanding of recovery of payment in africa...Mukul Kumar
This project intends to serve as a straightforward and relatively jargon-free,general reference to the many ways by which traders can arrange for payments to be made.
Guide to Understanding Credit Card Processing for MerchantsChloeBeckham
How important are credit card sales to your business's growth? Our credit card processing guide will help you understand how to accept credit cards and what to look for in a credit card processor.
Payment for exports and export promotion schemeHarender Singh
Payment for exports refers to the process of receiving payment from a foreign buyer for goods or services that have been exported. The payment process for exports can be complex and involves various risks, including currency exchange rate fluctuations, non-payment, and fraud.
There are several methods of payment that can be used for exports, including:
Advance Payment: This is where the buyer pays for the goods or services in advance, before they are shipped or delivered. This method is the most secure for the exporter, but it may not be acceptable to the buyer who may not want to bear the risk of paying in advance.
Letters of Credit: This is a guarantee issued by a bank on behalf of the buyer that the payment will be made to the exporter once the goods or services have been delivered and the required documentation is provided. Letters of credit provide a secure method of payment for the exporter as long as all conditions of the letter of credit are met.
Documentary Collections: This is a process where the exporter ships the goods to the buyer and provides the shipping documents to their bank. The bank then sends the documents to the buyer's bank, who will release the documents to the buyer once payment has been made.
Open Account: This is where the exporter ships the goods to the buyer and allows the buyer to pay at a later date, typically 30-90 days after the shipment. This method is the least secure for the exporter as they may not receive payment if the buyer defaults.
It is important for exporters to carefully consider their payment options and to understand the risks associated with each method. Exporters may also want to consider using the services of a trade finance professional or export credit agency to help mitigate risks and ensure timely payment.
Standby Letter of Credit Definition, Issuance, Notification and usesOscarWason
Another prominent payment technique used in international trade is the Standby Letter of Credit. What is a Standby Letter of Credit (SBLC)? How is it different from a Documentary Letter of Credit? How do issuance and notification of a Standby Letter of Credit work? … Well This article provides the answers to these questions.
What is a Standby Letter of Credit (SBLC)?
The Standby Letter of Credit (SBLC) is a guarantee issued by the importer’s bank, in favor of the exporter, for an amount agreed at the signing of the commercial contract. It provides a guarantee to the exporter that, if due to any circumstances, the importer is unable to pay, then the bank
will make the payment.
Grand City Investment Limited
Email: apply@grandcityinvestment.com
Website: https://grandcityinvestment.com
Standby Letter of Credit or SBLC MT760 serves as a guarantee to the seller company that they will receive the payment by the bank. SBLC works as a backup in case the buyer didn’t accomplish to pay the seller as per their contract agreement.
Standby letter of Credit creates good faith and trust in commercial transactions and proves that the buyer is capable of buying goods.
Visit https://importletterofcredit.com/standby-letter-of-credit/ to know more details regarding Standby Letter of Credit.
SBLC Procedure:
1. The buyer needs to submit the required documents of their trade deal like Pro Forma invoice or Sales and Purchase agreement to BWT in connection of their required SBLC to proceed further.
2. After reviewing the trade documents received from the client. BWT will instantly inform them if their SBLC request have been approved or rejected.
3. After its approval, BWT will give the proposal and inform the admin fee charges. Upon the acceptance of the client, a service agreement will be signed between us and upon receipt of admin charges; we will start work and block our bank limit for the subject SBLC transaction.
4. Once we receive the requested documents from the client and the SBLC issuance fee charges, BWT can conclude the SBLC transaction within 2-3 banking days.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.
Letter of Credit (LC) Presentation
1. A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
2. Letter of Credit (LC)
Basic of Letter of Credit (LC)
PART - I
A presentation by- Puneet Harjani
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
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3. >
Introduction
• Principles and Theory :
– it is most important segment of non fund based business for banks.
– it is also known as documentary credit.
–
a need for a streamlined system involving banks as an intermediate was felt by the
trading world because of the inherent drawbacks of the documentary collection system
prevailing earlier, which poses risk both for importer and exporter , which led to the
evolution of Letter of Credit or Documentary Credit system.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
4. >
Introduction
• Definition:
–
A Letter of Credit, 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 called for, exactly as stipulated in the Letter of Credit, and meet all other
terms and conditions set out in the Letter of Credit.
• If the Letter of Credit is issued in course of international trade
–
the Letter of Credit should comply with FEMA regulations,
–
and are also subject to provisions of Uniform Customs and Practices for
Documentary Credit (UCPDC) framed by International Chamber of Commerce (ICC)
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
5. >
Introduction
• Synopsis :
Letter of Credit therefore:
– Are an arrangement by banks for settling international commercial transactions.
– Provide a form of security for the parties involved.
– Ensure payment, provided that the terms and conditions of the Letter of Credit
have been fulfilled.
– Mean that payment by such means is based on documents only, and not on
merchandise or services involved.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
6. >
Parties in LC Transaction
A transaction in a Letter of Credit may involved several parties from the
issue of the LC till making payment of the bills to the Seller:
•
Applicant
–
The buyer who finalizes the terms and conditions of purchase transaction
and submits a request to his bank for issuing a LC in favor of the seller.
•
Beneficiary
–
The beneficiary of the letter of credit is generally the seller of the goods and
services or the person in whose favor the credit has been issued.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
7. >
•
Parties in LC Transaction
Issuing Bank / Opening Bank
–
An issuing bank is the one which on receipt of request from its
customer, the applicant’s (purchaser’s) bank examines the proposal and
open a LC in favor of the beneficiary with the stipulated terms and
condition.
•
Advising Bank/ Correspondent Bank
–
In case seller (beneficiary) resides in a different lace or in a foreign
country, the issuing bank may contact some other bank in the beneficiary’s
country may agree to advise the credit to the beneficiary and thus play the
role of an advising bank.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
8. >
•
Parties in LC Transaction
Confirming Bank :
–
The Confirming bank adds its guarantee to the credit opened by another
bank, thereby undertaking the responsibility of payment/negotiation
acceptance under the credit, in additional to that of the issuing bank.
Confirming bank play an important role where the exporter is not satisfied
with the undertaking of only the issuing bank.
•
Reimbursing Bank
–
Reimbursing Bank is the bank authorized to honor the reimbursement claim
in settlement of negotiation/acceptance/payment lodged with it by the
negotiating bank. It is normally the bank with which issuing bank has an
account from which payment has to be made.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
9. >
•
Parties in LC Transaction
Nominated/ Negotiating Bank :
–
The Negotiating Bank is the bank who negotiates the documents submitted
to them by the beneficiary under the credit either advised through them or
restricted to them for negotiation. On negotiation of the documents they
will claim the reimbursement under the credit and makes the payment to
the beneficiary provided the documents submitted are in accordance with
the terms and conditions of the letters of credit.
•
Second Beneficiary:
–
Second Beneficiary is the person who represent the first or original
Beneficiary of credit in his absence. In this case, the credits belonging to the
original beneficiary is transferable. The rights of the transferee are subject
to terms of transfer.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
10. >
Parties in LC Transaction
Terms
Definition
Applicant
Importer
Buy
Beneficiary
Exporter
Sell
Issuing/Opening
Bank
Importer’s Bank
Issues L/C
Advising Bank
Exporter’s Bank
Advises L/C
Confirming Bank
Advising Bank or 3rd
Party Bank
Confirms L/C
Paying Bank
Any
bank
specified in L/C
Pays the Draft
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
Activity
as
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
11. >
Mechanism of LC
Contract
1
Buyer
Seller
Goods
9
2
8
Letter of Credit
Application
4
Debit
Payment
5
6
7
Letter of Credit
Documents
Documents
Buyer’s Bank
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
3
W : www.edgewise.in
12. >
Mechanism of LC
1st Principle of Letters of Credit:
Letters of Credit are documentary.
Step 1.
•
The seller and the buyer enters into a sales contract where buyer agrees to purchase goods from
the seller. This agreement may be a purchase order, an accepted pro-forma invoice, a formal
contract, as to how and when goods are to be shipped and insured, and how and when payment is
to be effected. In this case they agree that letter of credit will be used as the mechanism of
payment.
Step 2.
•
The buyer applies to his bank for a letter of credit in favor of the seller (beneficiary), signing the
bank’s letter of credit application/agreement form specifying the terms and condition under which
the Letter of Credit shall be issued.
Step 3.
•
After approving the application, the issuing bank issues the actual letter of credit instrument and
sends it to the beneficiary (the seller), thus undertaking the definite obligation of effecting payment
to the beneficiary upon presentation of documents, strictly complying with the terms and condition
of the credit .
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
13. >
Mechanism of LC
2nd Principle of Letters of Credit:
of any other contract or obligation.
Letters of Credit are independent
Note: There are 3 separate contracts in a letter of credit transaction:
a) The contract of sale
b) The L/C application/agreement
c) The L/C itself.
Step 4.
•
As soon as the seller receives Letter of Credit (issuing bank’s assurance of payment), the seller ships
the goods to the buyer provided the terms of credit meets the terms of underlying sales contract.
Step 5 & 6.
•
The seller prepares the documents called for in the letter of credit and presents them to the Issuing
bank. The issuing bank examines the documents whether they strictly comply with the terms of
letter of credit. If the documents meet the requirement the issuing bank pays the beneficiary
(seller) in the manner stipulated under the credit.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
14. >
Mechanism of LC
Step 7 & 8.
• The issuing bank sends the documents to the buyer (applicant) and obtains payment in accordance
with the terms of the applicant’s letter of credit agreement ( usually by debit to the applicant’s
account)
Step 9
• On receiving the documents from bank, the applicant (buyer) is in a position to pick up the
merchandise from the carrier, completing the letter of credit cycle.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
15. >
Mechanism of LC
Confirmed Letters of Credit
Contract
1
Applicant
Beneficiary
Goods
12
5
L/C
10
Debit
Applica
tion
Docum
11
ents
2
L/C
4
L/C
Applicant’s
Bank
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
8
T : +91 79 4008 1101-2
E : info@edgewise.in
Payment
Docum
ents
3
Confirming
Bank
Documents
Payment
6
9
W : www.edgewise.in
7
16. >
•
Mechanism of LC
In case of Confirmed Letter of Credit the issuing bank invite another bank into the
transaction, having presence in the country of the seller. This second bank is called the
confirming bank, it will confirm the letter of credit issued by the issuing bank , and thus
undertakes the primary obligation to effect payment to the beneficiary (seller) [But if it merely
informs the seller of the LC without any obligation on its part they will just act as an advising
bank]. They become a third party to the letter of credit “contract” and have the right to refuse
amendments.
For Conforming Bank
•
When a bank adds their confirmation to a letter of credit, they are engaging to treat the letter of
credit as if they issued it themselves. If and when the beneficiary presents compliant documents
to the confirming bank, the confirming bank must pay. The confirming bank takes the risks of
being able to then collect payment from the issuing bank. [It may also act as a nominating
bank, if the LC calls for negotiation]
The major effect is to shift country risks to the confirming bank.
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
T : +91 79 4008 1101-2
E : info@edgewise.in
W : www.edgewise.in
17. >
Mechanism of LC
11
Freight
Forwarder
Goods
5
Contract
Foreign
Buyer
Seller
1
L/C
10b
L/C
Debit
Application Docu10a
ments
2
Goods
L/C
6
4
Transport
Documents
6
Document
Preparation
Company
6
Advising
Bank
L/C &
Documents
Payment
3a
Buyer’s
Bank
Reimbursement
Authorization
9a
L/C
Documents
3b
A-301, Titanium Square, Thaltej Crossroad,
S.G. Highway, Ahmedabad - 380054
Reimbursing
Bank
Seller’s
Bank
9b
Reimbursement Claim
7
8
Reimbursement
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18. <
How LC works in Reality
Step 1.
•
The buyer agrees to purchase goods from the seller using a letter of credit as the mechanism of
payment.
Step 2.
•
The buyer applies to his bank for a letter of credit, signing the bank’s letter of credit
application/agreement form.
Step 3 a
•
After approving the application, the issuing bank issues the actual letter of credit instrument and
forwards it to their chosen advising bank.
Step 3 a
•
At the time the L/C is sent, the issuing bank also sends a reimbursement authorization to their
chosen reimbursing bank. This bank is the clearing bank the issuing bank uses when making
payments in the currency of the L/C and will play a role when the time comes to pay the L/C.
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19. <
How LC works in Reality
Step 4.
•
The advising bank authenticates the letter of credit and delivers it to the beneficiary (the seller).
If the issuing bank has requested them to do so, the advising bank may add their confirmation to
the L/C (and thereby become the confirming bank).
Step 5.
•
Having received the issuing bank’s assurance of payment (and that of the confirming bank if the
L/C has been confirmed), the seller delivers goods to a freight forwarder, who ships the
merchandise to the buyer.
Step 6.
•
The seller, the freight forwarder, and/or a document preparation company prepares the
documents called for in the letter of credit and presents them to the “nominated bank.” The
letter of credit may nominate a specific bank where documents are to be presented or it may say
it is “available with any bank,” giving the seller the freedom to choose where to present
documents. If the L/C has been confirmed, documents must be presented to the
advising/confirming bank.
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20. <
How LC works in Reality
Step 7.
•
The nominated bank examines the documents and, if they comply, obtains funds for payment to
the beneficiary in accordance with the terms of the letter of credit, generally by sending a
reimbursement claim to the reimbursing bank.
Step 8.
•
The reimbursing bank matches the negotiating bank’s claim against the reimbursement
authorizations they are holding, charges the issuing bank’s account, and transfers funds to the
nominated bank.
Step 9 a & b.
•
The nominated bank transfers payment to the beneficiary (seller) and forwards the documents to
the issuing bank.
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21. <
How LC works in Reality
Step 10 a & b
•
The issuing bank examines the documents. If it agrees with the nominated bank that the
documents comply with the letter of credit, the issuing bank obtains payment from the
applicant (buyer) in accordance with the terms of the applicant’s letter of credit agreement and
forwards the documents to the applicant.
Step 11.
•
The applicant (buyer) uses the documents to pick up the merchandise from the
carrier, completing the letter of credit cycle.
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22. Types of Letter of Credit
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23. >
Types of Letter of Credit
•
Revocable & Irrevocable Letter of Credit
– Irrevocable LC : A letter of credit is deemed to be an irrevocable credit,
which can neither be amended nor cancelled without an express
agreement of all the parties concerned. i.e. the applicant, issuing bank,
beneficiary and confirming bank (if any).
– *Revocable LC : The concept of
“ Revocable Credit “ which was in effect
till UCPDC 500 (till 30th June, 2007) has been withdrawn under the latest
revision. Thus an LC can only be irrevocable in nature.
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24. >
Types of Letter of Credit
•
Sight Credit & Acceptance (Usance) Credit
– Sight Credit : is the LC prescribes the condition of ‘ payment at sight ‘, in
this the beneficiary gets the benefit of immediate payment upon
presentation of the proper documents laid down as per the terms of LC at
the paying bank.
– Usance Credit: If the beneficiary decides to grant a period of credit to
importer after sight such a LC is called Acceptance Credit. The period of
credit is called Usance, in this type of LC the beneficiary draws a usance
draft on the buyer or issuing bank or confirming bank depending on the
terms. This draft is presented along with documents and the beneficiary is
advised that the amount in the draft will be paid to him on prefixed future
date .
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25. >
Types of Letter of Credit
•
Standby Letter of Credit
–
standby letter of credit is the one which is opened for non-performance of
some activity it is very much similar in nature to a bank guarantee. The
main objective of issuing such a credit is to secure bank loans.
–
Unlike a traditional letter of credit where the beneficiary obtains payment
against documents evidencing performance, the standby letter of credit
allow a beneficiary to obtains payment from a bank even when the
applicant for the credit has failed to perform as per the terms.
–
Standby LC is payable only in case where an event had occurred but
performance for the event has not happened.
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26. >
Types of Letter of Credit
–
An example of this could be a construction of a bridge. An agreement
would be in place between the applicant and the beneficiary that in case
after construction of the bridge, if the payment is not made for the
services rendered, a claim would be made under the Standby LC.
•
A standby letter of credit is subject to "Uniform Customs and Practice for
Documentary Credit" (UCP), International Chamber of Commerce
Publication No 500, 1993 Revision, or "International Standby Practices"
(ISP), International Chamber of Commerce Publication No 590, 1998.
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27. >
How Standby Letter of Credit Works
9
Contract
4
1
Applicant
Beneficiary
8
2
Payment
Debit
Letter of Credit
Application
6
7
Documents
Letter of Credit
Documents
Applicant’s Bank
3
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28. >
How Standby Letter of Credit Works
Step 1.
• Two parties enter into a contract that calls for one party to arrange a letter of credit in favor of the
other. With a standby letter of credit, the agreement is that the L/C will not be drawn unless the
applicant defaults on the contract.
Standby letters of credit can be used as bid
bonds, performance bonds, advance payment guarantees, and for many other purposes.
Step 2.
• The first party applies to his bank for a letter of credit, signing the bank’s letter of credit
application/agreement form, and indicating what documents the beneficiary will be required to
present in order to be paid.
Step 3.
• After approving the application, the issuing bank issues the actual letter of credit instrument and
sends it to the beneficiary (the seller), thus undertaking the definite obligation of effecting
payment to the beneficiary upon presentation of documents, strictly complying with the terms
and condition of the credit .
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29. >
How Standby Letter of Credit Works
Note: There are 3 separate contracts in a letter of credit transaction:
a) The contract of sale
b) The L/C application/agreement
c) The L/C itself.
Step 4.
• Having received the issuing bank’s assurance that the applicant will perform (or the L/C can be
drawn), the beneficiary performs his end of the contract.
Step 5
• In the event the beneficiary feels the applicant has defaulted, he prepares the documents called for
in the letter of credit and presents them to the issuing bank.
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30. >
How Standby Letter of Credit Works
Step 6
• The issuing bank examines the documents. If it determines that the documents comply with the
letter of credit, the issuing bank pays the beneficiary. Note that there is no inquiry into the truth of
the documents and permission to pay is not sought from the applicant, who is likely to not want
the bank to pay and to insist he is not in default on the contract
Step 7 & 8
• The issuing bank obtains reimbursement for the payment from the applicant and forwards the
documents to the applicant
Step 9
• If the applicant feels the drawing was not justified, he can seek to get the funds returned under the
terms of the contract.
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31. >
•
Types of Letter of Credit
Revolving Letter of Credit:
–
Single L/C that covers multiple-shipments over a long period. Instead of
arranging a new L/C for each separate shipment,
–
the buyer establishes a L/C that revolves either in value (a fixed amount is
available which is replenished when exhausted) or in time (an amount is
available in fixed installments over a period such as week, month, or
–
This type of LC is used when the buyer needs shipments of the same
commodity at specified intervals e.g. monthly. It may revolve automatically
or subject to certain conditions.
–
Example 1: Supply of coal to the iron industry is an ongoing material and
therefore as and when the goods are delivered, documents are submitted
and payment is made.
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32. >
Types of Letter of Credit
For the next supply of coal, there is no new LC that is issued, rather the existing
one is "Reinstated" (bring back into use again) to the original amount.
–
Assume that the supplier and the buyer agrees that 200MT of coal would be
delivered on a monthly basis for 12 months. The value of the LC for 200MT
of coal is Rs 12 lakhs . Every month 200MT of coal will be shipped and
documents for Rs 12 lakhs would be submitted for payment. Once it get's
paid in the first month, the LC amount is automatically reinstated to Rs 12
lakhs for the next month's payment.
•
Revolving L/Cs can be either cumulative or non-cumulative
Under a cumulative resolving L/C, the exporter is allowed to carry over any
amounts not drawn in previous periods. For example, if a revolving L/C is
issued for US$100,000 monthly, cumulative, and the exporter draws only
USD80,000 in one
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33. >
Types of Letter of Credit
month, the unutilized amount (i.e. USD20,000) may be carried over to next month.
That means the sum of US $120,000 becomes available the next month.
Whereas under a non-cumulative revolving L/C, any amount not drawn during
a given period may not be available for drawing in next period. As in the above
example, the unutilized amount of USD20,000 can not be carried over and
added to the amount of next shipments, that means the exporter can draw
only US$100,000 in each succeeding month.
As per the Exchange Control Manual, revolving LCs should not be established for
import of goods into India without prior approval of RBI.
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34. Risk Assessment
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35. <
+
Letters of Credit
Positive
Cash in
Advance
Vendor
Financing
•Insurance
•Ex-Im Bank
•CEFO
Exporter
(Seller)
(Beneficiary)
-
Open Account
-
Negative
•Standby
•Commercial (Acceptances)
•Confirmed
•Transferable
•Back-to-Back
•Assignment of Proceeds
Foreign Exchange
Foreign
Receivables
Negative
Risk Assessment
Importer
(Buyer)
(Applicant)
Neutral
Zone
Documentary
Collection
+
Positive
36. <
Risk Assessment
On the part of opening bank risk associated with Import LCs can be classified into :
•
The financial standing of the Importer:
–
he should be in a position to arrange for funds required at the time of retirement of bills
under LC. This involves an appraisal of the creditworthiness
of the importer as a
borrower.
•
Acceptability and saleability of the goods:
–
This is a generic risk associated with all modes of international trade, and may affect the
importer’s ability to pay for his consignment.
•
The status of the Exporter ( or beneficiary of the LC)
–
This is the risk inherent in a situation that an errant exporter may ship substandard goods.
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37. <
•
Risk Assessment
Country Risk:
–
This includes risk elements like the political and economical stability of a country and
exchange controls etc. Country Risk is however more pertinent for exporters rather than
importer..
•
Foreign exchange Risk:
–
A depreciation in the local currency vis-a-vis the transaction currency may lead importer
to pay more for the consignment than originally envisaged.
The disadvantage attached with the LC is that it assures correct documents but not
necessarily correct goods.
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38. >
–
Communication through SWIFT
The communication in respect of documentary credit among the banks
take place through SWIFT (Society for Worldwide Inter-Bank Financial
Telecommunication) network.
–
SWIFT provides secure network to banks and financial institution to
transfer financial transactions worldwide through a 'financial message'.
–
SWIFT messages consist of five blocks of data including three
headers, message content, and a trailer.
–
SWIFT messages are present and categorized in specific MT (Message
Type) numbers. MT are crucial to identifying content.
–
Example: MT304
–
The first digit (3) represents the category.
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39. >
Communication through SWIFT
A category denotes messages that relate to particular financial
instruments or services such as Precious Metals (6), Treasury (3), or
Travelers Cheques (8). The category denoted by 3 is Treasury Markets.
–
The second digit (0) represents a group of related parts in a transaction life
cycle. The group indicated by 0 is a Financial Institution Transfer.
–
The third digit (4) is the type that denotes the specific message. There are
several hundred message types across the categories. The type
represented by 4 is a notification.
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40. Thank You
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