Import Letters of Credit
When a Buyer applies for an Import Letter of Credit it specifies the exporter, the amount, the currency, the maturity date, the nature of goods, as well as any other payment terms. The Exporter in his country is then advised that a Letter of Credit has been opened in his favour, therefore he is the beneficiary of an Export Letter of Credit. Therein, the Exporter ships the goods to the Importer and presents all the required documents to the bank. The bank checks the documents for complying with the Letter of Credit and makes payments to the Exporter. In the end, the bank claims settlement from the Importer.
Benefits
- Access to a Global Trade Network
- Experienced and Professional Trade processing service
- Availability of financing against Assignment of Export Letters of Credit.
Letters of Credit are used in situations where proof of a seller or buyer’s standing is needed. You can exemplify this as a reference on a job application. Someone reputable is giving the necessary party information stating that the individual is responsible enough to partake in the transaction. These types of letters can be used in many types of transactions, including, but not limited to the following: real estate, international trade, stocks, and more.
A standard, commercial letter of credit (LC) is a document issued by a financial institution, used in trade finance, which provides an irrevocable payment undertaking against submission of documents and compliance of other conditions as per LC terms. Letters of credit are used primarily in international trade transactions, for deals between a supplier in one country and a buyer in another. LC is issued at the request of the buyer (Applicant) in favor of supplier (Beneficiary) by the applicant’s bank (Issuing Bank). This service eliminates the risk of non-payment in international trade transactions.
How It Works:
- The Buyer and Seller enter into a sale contract and a PO/PI is issued by the buyer in favour of the supplier.
- The Buyer (Applicant) arranges an LC in favour of the Seller (Beneficiary) covering the deal
- The Seller ships the goods and submits all the documents in terms of the LC within the validity of the LC and complies with all the other terms and conditions of LC
- The Seller is paid by the LC opening bank.
Benefits to the Seller:
- The Seller does not run the risk of cancellation of the order as the LC is irrevocable.
- Payment is assured after shipment on submission of documents complying with the terms of the LC and other conditions. So he does not run the risk of non-payment after the shipment.
- It helps to raise finance for the production of goods thereby meeting working capital requirements.