unit6 lc学生.docVIP

Unit eight Letter of Credit ◆ Subject Matters 1 What is letter of credit? A letter of credit, also called an L/C, is a written promise of a bank, at the request of the buyer, to pay the seller as long as he meets the conditions stipulated in the L/C. There are a few kinds of L/Cs in international payment, of which irrevocable documentary letter of credit is the most often used. It is a written promise of a bank, on behalf of the buyer, to pay the seller the amount specified in the credit provided the seller presents the documents in compliance with the stipulation of the credit. 2 What is the role of banks in letter of credit? In letter of credit, banks act as go-betweens to collect payment from the buyer in exchange for the transfer of documents specified in the L/C from the seller, for instance, bills of lading, insurance policies, invoices, packing lists, weight memos, etc. These documents are necessary for the buyer to take possession of the goods. In addition, in case of the failure of the buyer to effect payment, as long as the seller presents the documents in compliance with the specified conditions in the L/C, the bank must pay the seller on behalf of the buyer. Therefore, in essence, L/C is a kind of bank credit, which provides more security to both the seller and buyer than remittance and collection that are based on commercial credit. 3 How does an irrevocable documentary credit circulate? 1) After the exporter and importer agreed on the terms of a sale, the importer arranges for its bank to issue a letter of credit in favor of the exporter that specifies the documents needed for payment. The importer is the applicant of the L/C and the exporter is the beneficiary of the L/C. 2) The importer’s bank issues its irrevocable letter of credit in favor of the exporter, including all instructions to the seller relating to the shipment. 3) The issuing bank nominates another bank, usually in the country of the seller, to advise the credit to the