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Letter Of Credit

L/C. A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.

 Common types of Letter of Credit :

Sight Letter of Credit

The issuing bank will honour the payment at “sight”, which means the payment will be made once the documentation received is in order

Issuance Letter of Credit

The issuing bank will accept the draft once all documentation received is in order and agree to pay on the maturity date

Red Clause Letter of Credit

This allows the issuing bank to make partial advance payment to the seller upon receipt of the documentation. This is commonly used in manufacturing industries

Transferable Letter of Credit

This is usually used by middleman traders who do not enjoy a credit facility.  Bank will transfer the Export Letter of Credit in favour of the ultimate seller at the request of the middleman, who will then sell the goods under the Export Letter of Credit

Back-to-Back Letter of Credit

This is used by middleman traders with a credit facility. The master Export Letter of Credit from the buyer’s bank backs the issuance of an Import Letter of Credit. Proceeds from the master Export Letter of Credit are then used to pay the bank under the Import Letter of Credit

Standby Letter of Credit

This is typically used to assure the applicant will meet the payment obligations or contractual performances specified. Another commonly used product in this situation is a Banker’s Guarantee

We provide the services for issuing Stand-By Letter of Credit which is used to assist while applying for a line of credit for your bank. We provide authentic SBLC’s that are backed by 100% cash. A Stand-By Letter of Credit acts as a collateral security option which is a secured form of lending. We are associated with issuers who use the topmost banks to provide the SBLCs. Our SBLCs are on a lease basis where you stand to be the beneficiary and we issue them for a time period of one year and one day which is extendable till five years. The SBLC gets transferred to your bank after it is issued. 

Steps in the Letter of Credit Process

Buyer and seller agree to terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable.
Buyer applies to bank for issue of credit Bank will evaluate buyer's credit standing, and may require cash cover and /or reduction of other lending limits.
Issuing bank issues LC, sending it to the advising bank by airmail or electronic means such as telex or SWIFT.
Adversing bank establishment authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary)
Seller should now check that LC matches commercial agreement and that all its terms and conditions can be satisfied.
Seller should the good, then assembles the documents called for in the LC (invoice, transport documents, etc.)
The adversing bank checks the assembles the LC. If the documents are complaint, the bank pays the seller and forwards the documents to the issuing bank.
The issuing bank now checks the documents itself. If they are in order, it reimburses the seller's bank immediately.
The issuing bank debits the buyer releases the documents (including transport document), so the buyer can claim the goods from the carrier.
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