LETTER OF CREDIT

DINESH CHAVAAN NOEL C. KURIAN

LC or DC
LC is an instrument for assured payment. It is an undertaking of the ISSUING Bank to make payment to the beneficiary, against documents stated in LC

Why LC
When a business is attempting to purchase goods, services and technology to serve their clients, a letter of credit is essential. Most businesses do not pay cash or write a cheque for large purchases. When contacting new vendors, the letter of credit allows the vendor to see that the business is credit worthy and pays their bills in a timely manner. The vendor can then take on very little risk in forwarding the goods or services to the business organization without obtaining payment up front.

RULES OF LC
LCs in India are governed by UCPDC 600( UNIFORM CUSTOMS & PRACTICES FOR DOCUMENTARY CREDIT) This rule is stated in S.W.I.F.T( Society for World wide Interbank Financial Telegraphic communication) which is a guideline for LCs and credit procedures.

OPERATIONAL TRADING PROCEDURE - 1

PROCESS BEFORE LC
LOI or ICPO (soft probe) - BUYER FCO (Disclosure) SELLER NCNDA-IMPFA forms

 1. Buyer issues a formal purchase order.

 2. Both companies exchange and verifies authenticity of each other's corporate license, banking detail, taxation Code and/or passport as identification with soft probe authorization

 3. Seller sends draft Contract and commercial invoice to be evaluated and signed by buyer. (the electronic version will be notarized by (Seller and Buyer) both parties and confirmed binding, legal and operational.

 4. Sellers bank issues notarized attestation confirming availability of product to be exported to buyer and that the bank is issuing transaction passport/taking fiscal responsibility of supply order.

 5. Buyers bank opens MT700/MT10323/MT760 (as may be agreed) immediately after contract document is verified and signed .

 6. Sellers bank swift 2% PG, transfer title of Ownership and transaction passport to buyers bank.

 7. Full delivery commence as schedule in terms with contract condition.

OPERATIONAL TRADING PROCEDURE - 2

 1. Buyer confirms soft offer and issues ICPO.

 2. Seller issues FCO.

 3. Buyer signs and returns FCO with acceptance letter

 4. Seller issues draft contract opens for amendments

 5. Upon acceptance of the draft contract, Buyer and Seller execute the contract by registering the contract with the respective authority.

 6. Seller releases part of Proof of product (POP) to the Buyer. (Company Certificates)

 7. After Buyer verify seller certificate, (If necessary)

 . Buyer deposit 50% of the total first month shipment amount by Electronic Telegraphic Wire Transfer OR to Escrow bank Agent.

 9. Sellers bank swift full POP and 2% PB to the Buyers Bank.

 10. Buyers and Seller bank communicate and agree on the final wording of the remaining balance PAYMENT .