ibd+chapter3+lc.pptVIP

Letter of Credit Objectives Have a general understanding about the Letter of Credit Figure out the main steps in the L/C Letter of Credit The Uniform Customs and Practices for Documentary Credit; ICC Publication No.600 UCP600 L/C Letter of Credit KEY Words: 1. credit 2. bank 3. payment Letter of Credit Conception An L/C is a commitment by a bank on behalf of the buyer that payment will be made to the beneficiary provided that the terms and conditions have been met, as verified through the presentation of all required documents. The buyer pays its bank to render this service. Letter of Credit KEY Points An L/C as a documentary credit is a contractual agreement bases on the bank separates from the sales contract. Obligation of the bank is only to pay and to deal in documents, no conducts on goods or services. Parties Involved in L/C Transaction Whole Parties: Accepting bank Advising bank Beneficiary Applicant Confirming bank Discounting bank Drawee bank Issuing bank Negotiating bank Paying bank Reimbursing bank simply Applicant Opening bank (issuing bank) Advising bank (Notifying bank) Beneficiary Negotiating bank Paying bank (Drawee bank) Illustrative L/C Transaction The importer arranges for the issuing bank to open an L/C in favor of the exporter. The issuing bank transmits the L/C to the advising bank, which forwards it to the exporter. The exporter forwards the goods and documents to a freight forwarder. The freight forwarder dispatches the goods and submits documents to the advising bank. The advising bank checks documents for compliance with the L/C and pays the exporter. The importer’s account at the issuing bank is debited. The issuing bank releases documents to the importer to claim the goods from the carrier. Simplifying the procedure Both parties arrange the payment by L/C in contract. Buyer applies for opening L/C from issuing bank. Issuing bank transmits the L/C to seller via advising bank. Seller presents bills of exchange and other documen