What is IMPORT LETTER OF CREDIT and EXPORT LETTER OF CREDIT?

Import letter of credit:

In presence days. Most of the foreign trade payment are made through L.C. the trade is very much finance by these letters. L.C have provided a good facility both the importer and exporter. The importer, have the confidence in bank promise to make the payment rather than on the importer for his imports. Moreover the importer will make the payment only when the goods are shipped and the relevant documents are received. On the issuance of an import L.C, the importer will fill the application form all the relevant information regarding the imports will be based on the contract of the sale and include important items of the contract like. Value of the imports, place of shipment, and unloading details. On the satisfaction of the bank for information supplied, it will signed and acceptance agreement bounds the importer to make the required payments as and when he will be director.    

Export letter of credit:

In foreign trade transactions, there is a risk of payments of goods exported because the exporter is unaware of the credit standing of the importer. Naturally, he will follow a way by which he is satisfied and be sure to have his payment. The commercial bank in foreign country undertakes the obligation to make payment to the exporter, which is minimizing the rise of the exporter. Hence a commercial L.C is issued by the importers bank to the exporter for this purpose.

Receiving the L.C from the issuing bank, the exporter will examine the following information

a.                 Advise number:

The L.C must have an invoice number for further references and identification given by the advising bank.

b.                 Value of the L.C:

The value of the merchandise. Shipped and the amount of the L.C to be paid by the bank.

c.                  Importer’s name:

The name of the importer as mentioned in the L.C must be checked by the exporter.

d.                 Time period of payment:

In sight a L.C, the payment will be made immediately by the issuing bank, but in case of time lender of credit, the payment will be made after some mentioned period of time.

e.                 Shipping document:

The exporter must carefully prepare the shipping documents in accordance with the terms of the L.C. in case of the any defect the issuing bank may refuse to honor the draft.

f.                   Expiry of L.C:

L.C must certain an expiry date. Hence it is very necessary that there should be a reasonable time with the exporter to arrange shipment.

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Author : commercealls

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