This document discusses different types of letters of credit (LC), which are financial instruments used in international trade. It defines an LC as a bank's commitment to pay the seller once they present documents showing shipment of goods. The key parties are the seller, buyer, issuing bank, and advising bank. There are several types of LCs including irrevocable vs revocable, confirmed vs unconfirmed, transferable vs non-transferable, restricted negotiable vs freely negotiable, revolving, back-to-back, red clause, green clause, standby, and usance LCs. Each type has distinct characteristics around payment terms, collateral requirements, and financing options.
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
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
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.
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.
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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 / LC / Trade Law / What is LC, Letter of Credit/ How LC work...Asif Mohammad ALFAYED
1.What is Letter of Credit and how many Kinds of Letter of Credit are there?
2 . Critically analys The principles of letter of credit including how Letter of Credit Perform in Bangladesh?
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.
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 / LC / Trade Law / What is LC, Letter of Credit/ How LC work...Asif Mohammad ALFAYED
1.What is Letter of Credit and how many Kinds of Letter of Credit are there?
2 . Critically analys The principles of letter of credit including how Letter of Credit Perform in Bangladesh?
5. Methods of Payment in International Trade/Export and Import FinanceCharu Rastogi
This presentation discusses methods of obtaining export and import finance such as Accounts Receivable Financing, Factoring (Cross-Border Factoring), Letters of Credit (L/C) Banker’s Acceptance (BA), Working Capital Financing, Medium-Term Capital Goods, Financing (Forfaiting) and Countertrade. It also discusses methods of payment of international trade; Cash in Advance, Letters of Credit, Documentary Collections and Open Account followed by a comparative study of different methods. Furthermore, types of letter of credit and procedure of working of a letter of credit are also discussed.
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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
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.
Documentary credit is an arrangement under which the bank, at the request of the buyer or on its own, undertakes to make payment to the seller-provided specific Documents are submitted.
A letter of credit guarantees payment of a specified sum in a specified currency, when seller meets precisely-defined conditions and submits the prescribed documents within a fixed time frame.
The prevailing rules and regulations in Bangladesh do not permit standby L/C, open account transactions and some categories of guarantees, which are widely used to facilitate international trade in other countries. In fact, the banking system in Bangladesh follows traditional banking business in case of L/C and small trade finance such as deferred L/C against mortgage and security.
Discounting of Letter of Credit is a short-term credit facility that is provided by the bank to the beneficiary. Bank purchases the documents or bills of the Seller (beneficiary) after he fulfills certain compliances and provides the required documents to be dispatched to LC opening bank.
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Letter of credit
1. LETTER OF CREDIT
&
ITS TYPES
Compiled by :-
SHAHADAT HOSEN CHOWDHURY
QUALITEX INDUSTRIES (BD) LTD.
2. What is letter of credit ?
A letter of credit (L/C) is a signed
instrument embodying an undertaking by
the banker of a buyer to pay a certain sum
of money to his seller on presentation of
documents evidencing shipment of
specified goods subject to compliance with
the stipulated terms and conditions.
3. Parties involved in letter of credit
Seller or a beneficiary who is to receive
money
Buyer
Issuing Bank, whom the buyer is a
client, and
Advising bank, whom the seller is a
client.
5. Types of Letter of credit
Irrevocable versus Revocable L/C
Confirmed Irrevocable versus
Unconfirmed Irrevocable L/C
Transferable versus Non-transferable L/C
Restricted Negotiable versus Freely
Negotiable L/C
Revolving L/C
Back to back L/C
Red Clause L/C
Green Clause L/C
Deferred Payment L/C
Usance L/C
6. Irrevocable versus Revocable L/C
Revocable L/C may be cancelled or
modified without prior notice by the
issuing bank to the beneficiary.
An Irrevocable L/C does not suffer from
such disadvantage and it is ,therefore ,
widely accepted.
7.
8. Confirmed Irrevocable versus
Unconfirmed Irrevocable L/C
An irrevocable letter of credit (L/C) opened by an
issuing bank whose authenticity has been confirmed
by the advising bank and where the advising bank
has added its confirmation to the credit is known as
confirmed irrevocable letter of credit.
An irrevocable letter of credit (L/C) opened by
an issuing bank in which the advising bank
does not add its confirmation to the credit is
known as an unconfirmed irrevocable
letter of credit.
9. Transferable Vs non-transferable
Letters of Credit
Credit specifically states it is ‘transferable’.
‘Transferable’ , ‘transmissible’ and ‘assignable’
convey the same meaning
Used generally when the business is transacted
through middleman
Original credit is in favour of middleman , who asks for
the transfer of credit to the manufacturer or the actual
supplier
It may be available in whole or in part to another
beneficiary
The letter of credit that was transferred to second
beneficiary is called TRANSFERRED CREDIT
10. Restricted Negotiable Vs Freely
Negotiable Letters of Credit
Credits which do not specify any particular
bank who is authorized to negotiate, etc.
are unrestricted or open or general credit
L/c will indicate “this credit is not restricted
to any bank for payment” or such similar
words
When any specific bank is authorized to
pay, accept or negotiate the credit it is
called restricted or special
11. Revolving Letter of Credit
When a letter of credit (L/C) is specifically
designated "revolving letter of credit", the
amount involved when utilized is reinstated,
that is, the amount becomes available again
without issuing another L/C and usually under
the same terms and conditions.
The revolving L/C may be used in shipments
of a wide range of goods to a buyer within a
period of time (several months to one year
usually).
12. Back-to-back L/C
Back-to-back L/C is a type of L/C issued in case of
intermediary trade. Intermediate companies such as
trading houses are sometimes required to open
L/Cs by supplier and receive Export L/Cs from
buyer.
13. Back-to-back L/C
Back-to-back credits are usually requested by middle
persons who do not have sufficient credit available at
their banks to open their own L/Cs to the ultimate
suppliers. Under a back-to-back L/C the middle
person will ask a bank to issue a second L/C in favor
of the ultimate supplier, while using the L/C issued by
the buyer as collateral.
When one L/C is used as security to obtain the
issuance of a second L/C covering the same
transaction, and when all terms and conditions of
both credits are identical, except for amounts and
dates in the second L/C which must be smaller and
earlier, the arrangement is defined as a back-to-back
L/C.
14. Red Clause Letter of Credit
A beneficiary may require financing in order to
complete the manufacture or purchase of
merchandise to be sold. A red clause L/C (use of the
term "red" is derived from the traditional practice of
writing the clause identifying this option in red ink)
helps the beneficiary achieve this.
Upon instruction from the buyer, the issuing bank
authorizes the confirming bank to make a cash
advance to the beneficiary against the beneficiary's
written guarantee that the documents evidencing
shipment will be presented in compliance with the
credit terms.
15. Red Clause Letter of Credit
Should the beneficiary fail to ship the goods or meet
the credit requirements, the paying bank looks to the
issuing bank to obtain reimbursement of the amount
of the advance plus the interest charges on the
advance. The issuing bank then charges the account
of the buyer--who may or may not have received the
goods.
16. Green Clause L/C
A clause in a letter of credit enabling
the seller to receive pre-shipment
advances against a collateral
represented by, for example,
warehouse receipts/warrants.
It is commonly used in the export of
agricultural commodities, where the
company may raise funds to harvest
new crops for export by pledging
available stocks as collateral.
17. Standby Payment L/C
Standby L/Cs differ from commercial L/Cs;
they do not usually cover shipments of
goods, but more often services or
performance. The standby L/C is not secured
by underlying merchandise as is usually the
case with conventional L/Cs. In this respect,
the standby L/C is much like an unsecured
loan and requires careful advance scrutiny
by the issuing bank.
If the seller performs his or her obligation,
there will be no need for the buyer to draw
against the standby letter of credit which
supports the obligation.
18. Cont..
Standby letters of credit are commonly used
to--
* assure the refund of advance payments;
* support the obligation of a successful-bidder
to accept a contract and to perform under
the terms of the contract (i.e., in lieu of bid
or performance bond);
* back up bonds issued by insurance
companies; and
* stand behind a monetary obligation under a
promissory note or another like commitment
(rental payments, etc.).
19. Usance L/C
Under a Usance L/C, the payment's)
will be due some time in the future, and
such payment's) will be evidenced by
Bills of Exchange drawn by the exporter
on the Opening Bank. These Bills of
Exchange will become negotiable
instruments, and may well be
discounted to provide the exporter with
immediate payment.