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Life cycle of LC
- 1. Types of Lettersof Credit • Revocable • Irrevocable • Unconfirmed • Confirmed • Transferable • Assignment of Proceeds • Revolving • Standby
- 2. Export Letter of Credit Cycle 5. Product is Shipped 1. 1. Beneficiary Buyer & Seller Agree 2. Applicant Exporter/Seller 4. Application Importer/Buyer Letter of 6. Credit 2. Documents 8. Documents 10. 3. Letter of Credit 7. Documents Exporter’s Bank/ Importer’s Bank/ Advising Bank 9. Issuing Bank
- 3. Confirmed Letter ofCredit Cycle 5. Product is Shipped 1. 1. Beneficiary 4. Buyer & Seller Agree 2. Applicant Exporter/Seller Confirmed Application Importer/Buyer 6. Letter of 2. Credit L/ C Documents me d 8. fir 3a. Documents on L/C .C Confirming Bank 10. 3a 3. Letter of Credit 7. Documents Exporter’s Bank/ Importer’s Bank/ Advising Bank/ 9. Issuing Bank Confirming Bank
- 4. Transferable Letter of Credit 3. Transferable LC 2. Transferable LC $30,000 Exporter/Seller $50,000 7. 8. Documents Documents & BL Seller/Exporters Bank & BL Advising Bank Manufacturer’s Transferring Bank Bank 9. $50,000 4. LC Importer’s Bank/ $30,000 6. Received Issuing Bank Documents & BL 9. 10. Documents 1. LC $30,000 & BL Application Received Product 5. Product Shipped to Seller or directly to Importer Importer
Editor's Notes
- #3 1. Buyer & Seller Agree to Transaction Terms 2. Buyer submits application to Issuing Bank 3. Issuing Bank A. Reviews application & buyers credit availability B. Issues LC C. Sends LC to advising bank or beneficiary 4. Advising bank reviews LC and forwards to beneficiary 5. Beneficiary reviews LC, manufactures & ships product 6. Documents are completed & gathered by beneficiary & sent to Advising Bank 7. Advising Bank negotiates the documents and if clean forwards documents to issuing bank A. If discrepancies are found, beneficiary is notified before documents are sent to issuing bank. 8. Issuing Bank negotiates documents & advises applicant that documents will be accepted and funds will be transferred per the LC. 9. Funds are transferred from the Issuing bank to Advising bank. 10. Funds are received by advising bank & beneficiary.
- #4 1. Buyer & Seller Agree to Transaction Terms 2. Buyer submits application to Issuing Bank 3. Issuing Bank A. Reviews application & buyers credit availability B. Issues LC C. Sends LC to advising bank or beneficiary 3a. Confirming Bank confirms LC & forwards to advising bank if advising bank cannot or will not confirm LC. 4. Advising bank reviews Confirmed LC or Confirmsand forwards to beneficiary 5. Beneficiary reviews LC, manufactures & ships product 6. Documents are completed & gathered by beneficiary & sent to Advising Bank 7. Advising Bank negotiates the documents and if clean forwards documents to issuing bank A. If discrepancies are found, beneficiary is notified before documents are sent to issuing bank. 8. Issuing Bank negotiates documents & advises applicant that documents will be accepted and funds will be transferred per the LC. 9. Funds are transferred from the Issuing bank to Advising bank. 10. Funds are received by advising bank & beneficiary.
- #5 The L/C cycle is basically duplicated on each side of the transaction.