MBA IN BANKING
RITTIK CHANDRA
Published by:
RITTIK CHANDRA
RITTIK PUBLICATION
93, Mahatma Gandhi Road, 1st Floor
Kolkata- 700007, India
Mobile No.: +91-9883787991
E-mail: rittikpublication@gmail.com
Website: www.rittikpublication.in
Cover designed by: RITTIK CHANDRA
© All rights reserved by RITTIK CHANDRA
Dedicated to the youth of the world
A letter of credit (LC) is a type of guarantee given by a bank on behalf of its customer that the bank would make payment of goods and services to the supplier on presentation of documents, as required as per terms of the contract and LC. This term LC is often used in international trade when buyer and seller are far away from each other having different legal system and each unaware of others financial position. In such case, both parties deal through their banks and the devise used by banks is called LC or BCC.
Parties to LC are :
Applicant/Buyer/Importer/Opener
Issuing bank
Beneficiary/Exporter/Seller
Advising Bank/Notifying Bank – Bank in exporters country through which LC is advised to the seller.
Negotiating bank/nominated bank/paying bank – Bank in exporters country which makes payment on bills drawn by seller.
Reimbursing bank – bank appointed by issuing bank to reimburse payment to negotiating bank.
Procedure of L.C.
Purchaser makes an application to his bank for opening a L.C in favour of seller of other country. The bank after verifying the credit worthiness of applicant opens a LC. This L.C is then forwarded to the sellers bank in other country. The sellers bank after confirming the authenticity of LC, forwards the same to seller. The seller confirms the authenticity of LC, ships the machinery to the purchaser. Seller collects the bills of lading handed over by shipping company alongwith other documents under L.C; present these documents to his bank for obtaining the payment. After verifying bills documents, bank makes payment to seller. These documents are then sent to the purchaser bank under intimation to purchaser. The purchaser accepts the bill, collects the documents and makes payment. The purchaser goes to the shipping company, produces the documents and takes delivery. The purchaser’s bank then forwards the payment to sellers bank.
Documents under L.C
Bill of Exchange
Invoice
Transport documents e.g. bills of lading in case of a shipping company, airline bill in case of air transport, post parcel bill if sent by post
Insurance documents signed by insurance company or his agent.
Other documents as per terms of L.C e.g. certificate of weight, quality etc.
Benefits of L/C
To Purchaser :
- No advance payment is required.