Letter of Credit

Letter of Credit

Global trade can be financed with a ‘Letter of Credit (LC)’ which is known as ‘Irrevocable LC’ /‘Documentary LC’/Import LC/ MT700.

An amount as a fixed deposit is pledged by the Buyer (Client – A) in the Guarantor Bank against which the letter of credit is issued. A service fee is paid to the Bank in lieu of this.

Apply For Letter Of Credit

Relevance of letters of credit .

What Is Letter of Credit ?

International trade between countries has to allude to different trade laws, treaties and forums between the transacting countries; letters of credit plays a guarantee for reliable payment. This has been under the jurisdiction of the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits, which presides over the legalities applicable in international transactions.

We facilitate your international trade by providing a LC thereby guaranteeing payment to the selling agency (Client - B) on behalf of the sourcing agency (Client -A).

The requirement is sent to us by the sourcing agency (Client - A). The letter has to be supported by either a duly filled up invoice or a MOU of sale-purchase between client-A and client-B. It gives a tentative valuation of the deal being undertaken.

A formal approval from our side requires a due diligence to be carried out about the genuineness of the proposed

transaction. We charge a fee for the activity (usually 20% of the proposed deal).

How A Letter of Credit Works ?

We proceed to activate the LC once the service agreement is signed by both Client-A and Client C. Client -A needs to share the relevant documents to be presented to an identified Bank which then issues the LC in 2 banking days.

We facilitate your international trade by providing a LC thereby guaranteeing payment to the selling agency (Client - B) on behalf of the sourcing agency (Client -A).

LC-MT700 came into being to introduce a sturdier payment method. The risk of default gets mitigated by activating the LC between Client-A and Client-B. The payment is materialized as soon as the selling is confirmed. An intermediate arrangement of securitization is to be in place till the payment reaches the source to the target (the advisory bank from the seller side).

A letter of Credit is useful when goods are transacted, and payment is ensured thereof. MT700 can be treated as a means for credit enhancement, without channeling precious equity for the same. This way, it gives an expanded cash-flow scenario helping other business activities, without involving any cash transaction.

The involved parties in the transactions are: a) the sourcing/buying/importing agency who is the applicant, b) the selling/exporting agency who will receive the payment and c) the issuing bank.

Benefits of the Letter of Credit involve the following:

The Oder cannot be altered or cancelled by the buyer till it is effective, thereby de-risking production.

The Buyer’s bank is responsible for the payment of the goods, after the seller agrees about the terms of the deal.

A credit period is granted to the buyer/importer subsequent to the assurance from the seller.

We can service our clients with the LC even in case of inadequate Bank arrangements. Transparency is our trademark.

Variances in a letter of credit

Sight Credit is a kind of LC, wherein documents are payable when the buyer produces the correct documentation (a bill of exchange) to a lender accompanied by a sight letter of credit and take the necessary funds immediately.

The Bills of Exchange are used for Acceptance Credit or Time Credit as valid documents for credit issuance on the dates mentioned in the document. This is issued during the since period during which the goods are in transit although the transaction already happens at the site of the seller although the actual bill may take about 30 days to be physically delivered.

An Irrevocable Credit is one wherein the beneficiaries are kept informed about the terms and conditions of the contract and cannot be modified or cancelled by the opening bank. .

A Confirmed Credit can happen in case of an Irrevocable LC only in case of a guarantee from an additional banker in addition to the issuing bank. The seller’s Bank (the beneficiary) will submit the documents to the confirming banker.

With an export LC (issued by an overseas supplier) at disposal, a buyer can go for a Back-to-Back credit if s/he asks for a LC in favour of the local supplier for raw material.

With the help of the Bills of Exchange, which can be a negotiable instrument, an LC can be transferred to a third party who is termed as Transferable Credit.

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