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| corporate practice bd |
Opening a Letter of Credit (LC) involves a series of steps and processes that facilitate international trade transactions by ensuring payment security between a buyer and a seller. Here's a general outline of the steps to open a Letter of Credit:
Agreement between Parties:
The buyer (importer) and seller (exporter) agree to use a Letter of Credit as the payment method for the transaction.
They negotiate the terms of the trade, including the goods, quantity, price, delivery terms, and other relevant details.
Selection of Banks:
The buyer selects a bank (issuing bank) in their country to issue the Letter of Credit.The seller selects a bank (advising or confirming bank) in their country to advise or confirm the LC.
Letter of Credit Application:
The buyer applies to their issuing bank to issue the LC. This application includes details about the trade, terms and conditions, and the required documents.
Issuance of Letter of Credit:
The issuing bank reviews the application and, if everything is in order, issues the Letter of Credit.
The LC is a formal document that guarantees payment to the exporter once they provide the required documents and meet the specified conditions.
LC Advising:
The issuing bank sends the LC to the advising bank (seller's bank) in the exporter's country.
The advising bank verifies the authenticity of the LC and informs the exporter about its arrival.
Exporter's Confirmation (if applicable):
If the exporter wants extra security, they can request their advising bank to confirm the LC. This means the advising bank adds its own payment guarantee on top of the issuing bank's guarantee.
Exporter's Shipment:
The exporter prepares the goods for shipment according to the terms of the LC.
Document Preparation:
The exporter collects and prepares the required documents as specified in the LC. These documents typically include the invoice, bill of lading, certificate of origin, packing list, insurance documents, etc.
Document Presentation:
The exporter submits the required documents to the advising or confirming bank.
The bank reviews the documents to ensure they comply with the terms of the LC. If everything is in order, the bank forwards the documents to the issuing bank.
Document Examination by Issuing Bank:
The issuing bank examines the documents received from the exporter's bank to ensure they match the terms of the LC.
Payment or Acceptance:
If the documents are compliant, the issuing bank will make the payment to the exporter as specified in the LC or accept the draft (if a sight draft is involved).
Document Delivery:
The issuing bank releases the documents to the buyer upon receiving payment or accepting the draft.
Goods Shipment and Delivery:
The buyer receives the documents and uses them to claim the goods from the carrier at the destination port.
Repayment to Issuing Bank:
The buyer repays the issuing bank according to the terms agreed upon.
It's important to note that the specific steps and requirements can vary depending on the parties involved, the countries, the type of LC (sight, deferred payment, etc.), and the trade terms. It's recommended to work closely with banks, legal advisors, and trade experts to ensure a smooth LC process.
Others practical guidelines are below
Delivery sales department issue to Sales department
1. Bill of Exchange (after delivery completion)
2. Delivery Challan
3. Packing List
4. Mushake Challan
Sales Department received above documents and forwarding with submission for signing at party office signed (Bill of Exchange last page & Delivery Challan page) after taken complete documents from party office and then transfer to commercial department for documentation process. Details are given below:
1. Commercial Invoice.
2. Certificate of Origin
3. Span Certificate
4. Beneficiary Certificate
5. BTMA Certificate (If it is mentioned LC clause)
Export documents 02 (Two) set submission process:
A. Commercial Department submission to Beneficiary Bank (Exporter Bank). Details are given below:
1. Bank forwarding
2. Bill of exchange copy
3. Packing list copy
4. Delivery Challan copy
5. Commercial Invoice copy
6. Mushake Challan copy
7. Original LC original
8. PI Copy
beneficiary bank will keep above documents (1st set) and official formality as like bill information entry, bill number such as IBP./LIB /LDBP…. Then 2nd set of documents will forward to negotiating bank by courier service or hand to hand (urgency basis). Details are given below:
1. Bank forwarding by beneficiary bank
2. Bill of exchange (original copy)
3. Packing list copy (original copy)
4. Delivery Challan (original copy)
5. Mushake Challan (original copy)
6. Commercial Invoice (original copy)
7. Certificate of Origin (original copy)
8. Span Certificate (original copy)
9. Beneficiary Certificate
10BTMA Certificate (If it is mentioned LC clause)
Negotiating bank will receive above documents and it will delay 5 to 10 days for acceptance by swift massage. Cause of payment from acceptance date to maturity date.