International Business
Parties involved in LC
transaction
Applicant - is the party that arranges for
the
letter of credit to be issued.
Beneficiary - is the party named in the
letter
of credit in whose favor the letter of credit
is
issued.
Parties involved in LC
transaction
Issuing or Opening Bank - opens a letter of
credit (L/C) in favor of the beneficiary, at the
request and on the instructions of the applicant.
The issuing bank usually is located in the
applicant's country
Importance
It is often used in international trade to
eliminate risk of unfamiliarity with the
foreign country, customs, or political
instability.
Basically, a Letter of Credit gives the
seller reassurance that he will receive
the payment for the goods.
Importance
The seller has to present the bank with
the
necessary shipping documents that the
shipment of goods completed within a
given
time frame.
Official Documents:
License, Embassy legalization, Origin Certificate,
Inspection Certificate, phytosanitary (free from
pests
and pathogens) Certificate
INCOTERMS
International
Commercial Terms
GROUPTERMStands for
E
EXW Ex Works
F
FCA Free Carrier
Types of LC
Unconfirmed
Confirmed
After a contract is
concluded between
buyer and seller,
buyer's bank supplies a
letter of credit to seller.
Settlement
An acceptance is a time draft drawn on,
and accepted by, a banking institution,
which promises to honor the draft at a
specified future date. The act of
acceptance is without recourse as it is a
commitment to pay the face amount of
the accepted draft.
Settlement
Under negotiation, the negotiating bank, a
third party negotiator, expedites payment to
the beneficiary upon the beneficiarys
presentation of the complying documents to the
negotiating bank.
The bank pays the beneficiary, normally at a
discount of the face amount of the value of the
documents, and then presents the complying
documents, including a sight or time draft, to
the issuing bank to receive full payment at
sight or at a specified future date.
Opening of LCs
Appropriate Inco terms should be
incorporated in the letter of
credit/purchase contract in compliance
with the IPO in force.
Unless otherwise exempted by the Preshipment Inspection Act, 1999, all goods
to be imported shall be inspected by an
NBR designated Pre-shipment Inspection
(PSI) company for quantity, quality,
description, classification and price.