Understanding of L/C
- Letter from bank to promise the seller/Eksporter that the bank will pay on behalf the buyers/importers on time and for the correct amount.
- The use of letters of credit has become a very important aspect of international trade. Letters of credit are often used in international transactions to guarentee the seller will get the payment as soon the bank receives a confirmation buyers that the goods have been shipped.
*You
must know!
- Abbreviations for 'letter of
credit' include L/C, LC, and LOC
- Applicant = the buyer in a
transaction
- Beneficiary = the seller or
ultimate recipient of funds
- Issuing bank = the bank that
promises to pay
- Advising bank = helps the
beneficiary use the letter of credit
How L/C works?
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| https://www.roepa.com/ |
- Applicant request a letter of credit from issuing bank.. After applicant agree with the exporter for the transaction, the specifics can be documented in the letter of credit.
- Review the irrevocable letter of credit issued by the bank. This will include instructions (bill of lading) to the seller relating to shipment.
- Wait for confirmation. issuing bank will send the letter of credit to the advising bank requesting confirmation from beneficiary. Theadvising bank will prepare a letter of confirmation for reply to the beneficiay along with the letter of credit.
- The expoter will confirm the shipping date as specified in the terms of conditions in the agreement. Arrangements are made to deliver the goods to the appropriate port or airport.
- Receive confirmation of goods received from the bank. Once the goods are received from the freight forwarder, issuing bank will notify applicant if additional documentation is needed in order to be in full compliance with the letter of credit.
- Claim the goods. Once all documentation is in order, buyer) can claim the goods. A check (or draft) is then sent to the advising bank from issuing bank at the time specified. The transaction is complete.
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