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Activity Request for transfer of funds to Pool Account to National Bank Eth. NBE transfer the fund to pool account & send confirmation letter to ERCA Record the transfer of Funds Preparation of LC application & related documents & send it to Bank Open LC , Send to supplier s Bank and intimate to ERCA -LC copy Receive copy of the LC docs from bank and maintain a register Covering letter & for LC opening charges from bank Supplier negotiate with its Bank Suppliers dispatch the material & send shipping docs. to his bank Supplier s bank presents the docs. to ERCA s Bank ERCA receive shipping docs. & debit advice from ERCA Bank Send the debit advice to the finance dept Record the bank debit advice details Submit the shipping documents to Customs Authority/ERCA/ Duty assessment made by ERCA Receive the duty assessment result Send the assessment result to finance dep t Write a letter to Budget deduction of the duty amount to ERCA Receive the customs receipt for the duty payment Send customs receipt to finance dep t Record customs duty receipt in the ledger Receive the Items After acceptance create invoice matching receipt Release the final payment letter to the ERCA Bank Receive Debit advice and send to finance dep t. Receive & record the final payment debit advice
NBE letter Contract agreement, Proforma, LC opening date, Performance Bond, Copy of transfer request , LC expire date, Bank charge
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Procurement Dept Procurement Dept Finance Dep t Procurement Dept Procurement Dept Finance Dep t Procurement Dept Finance Dep t Procurement Dept Procurement Dept Finance Dep t Resource Admin Dir. Deputy dir Finance Dep t Finance Dep t
9 Steps in the Letter of Credit Process I. II. Buyer and seller agree to terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable. Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's credit standing, and may require cash cover and/or reduction of other lending limits. Issuing bank issues LC, sending it to the Advising bank by airmail or electronic means such as telex or SWIFT. Advising bank establishes authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary). Seller should now check that LC matches commercial agreement and that all its terms and conditions can be satisfied. Seller ships the goods, then assembles the documents called for in the LC (invoice, transport document, etc.). The Advising bank checks the documents against the LC. If the documents are compliant, the bank pays the seller and forwards the documents to the Issuing bank. The Issuing bank now checks the documents itself. If they are in order, it reimburses the seller's bank immediately. The Issuing bank debits the buyer and releases the documents (including transport document), so the buyer can claim the goods from the carrier
VIII. IX.
Transferable Letter of Credit A transferable letter of credit is one in which the exporter has the right to request the paying, or negotiating bank to make either part, or all, of the credit value available to one or more third parties. This type of credit is useful for those acting as middlemen especially where there is a need to finance purchases from third party suppliers. Back-to-Back Letter of Credit A back-to-back letter of credit can be used as an alternative to the transferable letter of credit. Rather than transferring the original letter of credit to the supplier, once the letter of credit is received by the exporter from the opening bank, that letter of credit is used as security to establish a second letter of credit drawn on the exporter in favour of his importer. Many banks are reluctant to issue back-to-back letters of credit due to the level of risk to which they are exposed, whereas a transferable credit will not expose them to higher risk than under the original credit.