Do you want to know about LETTER OF CREDIT
Letter Of Credit |
A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount
- The name "letter of credit" derives from the French word "accreditation", a power to do something, which derives from the Latin "accreditives" which means trust.
- A sight LC causes payment to be made immediately to the beneficiary/seller/exporter upon presentation of the correct documents. A time or date LC specifies when payment is to be made at a future date and upon presentation of the required documents.
- Negotiation means the giving of value for draft(s) or document(s) by the bank authorized to negotiate, with the nominated bank. Mere examination of the documents and forwarding the same to the LC issuing bank for reimbursement, without giving of value / agreed to give, does not constitute a negotiation
- Advising Bank — advises the beneficiary at the request of the issuing bank.
- Applicant — the party on whose request the issuing bank issues a credit.
- Banking day—the day on which a bank is regularly open at the place at which an act to be performed.
- Beneficiary — the party who is to receive the benefit (payment) of the LC. The consignee of an LC and the beneficiary may not be the same. The credit is issued in the beneficiary's favor.
- Presentation — either delivery of documents against an LC or the document itself.
- Complying presentation — when the presentation of documents is in accordance with:
- the terms and conditions of the credit
- the applicable provisions of UCP (International standard banking practice)
- Confirmation — a definite undertaking from the confirming bank to honor or negotiate a complying presentation in addition to that of the issuing bank.
- Confirming bank — adds confirmation to an LC. It does so at the request of the issuing bank and taking authorization from the issuing bank.
- Letter of credit/credit — an irrevocable commitment of the issuing bank to honor a complying presentation.
- Honor — to act according to commitment of the LC. Presentations are honored in different ways depending on the type of credit:
- Making payment at sight for sight LC.
- Incurring a deferred payment undertaking and paying at maturity for deferred payment LC.
- Accepting a draft drawn by the beneficiary and paying at maturity for deferred acceptance LC.
Please find below video tutorial on LETTER OF CREDIT
Want to watch more video please click here
ConversionConversion EmoticonEmoticon