1.
Letters of Credit (L/C)
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2.
What is L/C ?
 A documentary credit is the written promise of a bank,
undertaken on behalf of a buyer, to pay a seller the
amount specified in the credit provided the seller complies
with the terms and conditions set forth in the credit.
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3.
How does L/C function ?
 Banks act as intermediaries to collect payment from the
buyer in exchange for the transfer of documents that
enable the holder to take possession of the goods.
 The seller is assured that payment will be made by a
party independent of the buyer so long as the terms and
conditions of the credit are met.
 The buyer is assured that payment will be released to
the seller only after the bank has received the title
documents called for in the credit.
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4.
Types of Credits
Letter of
Credits
Standard Specialized
credits credits
Revocable Revolving Credits
(cancellable)
Red Clause Credits
Irrevocable
(non-cancellable)
Standby Credits
Confirmed
(Buyer’s bank & another
bank guarantee payment) Transferable Credits
Un-Confirmed
(Only buyer’s bank Back-to-back Credits
guarantees payment)
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5.
Issuance of L/C
1.
Buyer / Purchase & Beneficiary /
Importer Sales Exporter
Agreement
2. 4.
Request Advice of L/C
for a L/C
3.
Request to
Buyer / Advising /
Advice &
Importer Confirming Bank
confirm L/C
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6.
Payment under L/C
1.
Buyer / Shipment of Beneficiary /
Importer Goods Exporter
2. 3.
Documents Payment
3.
Payment 2.
Documents
3.
Buyer / Payment Advising /
Importer 2. Confirming Bank
Document
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7.
Advantages & Disadvantages to
the Importer
Advantages
 Importer is assured of payment to exporter only if all terms &
conditions of L/C would be met
 Importer is able to negotiate more favorable trade terms with
the exporter
Disadvantages
 L/C doesn’t guard import from exporter shipping inferior
quality and / or lower quantity of goods
 Its importer’s responsibility to ascertain reputation of
exporter.
 It is important for important to have line of credit before the
bank could issue L/C
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8.
Advantages & Disadvantages to
the Exporter
Advantages
 Risk of payment relies upon the creditworthiness of the
Issuing bank & not on creditworthiness of the importer
 If L/C is not issued as agreed, exporter is not obligated to
ship against it.
Disadvantages
 Importers might be unable to open L/C due to the lack of
credit facilities with their bank
 Documents must be prepared and presented in strict
compliance with requirements stipulated in L/C & cannot
modify it.
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9.
Key points for Buyer in L/C
 Beneficiary name
 Credit amount
 Validity period for presentation of the document
 Beneficiary bank name
 Payment type availability
 Desired documents
 Notify address
 Merchandise description
 Confirmation order
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10.
Common Defects in L/C
 L/C date expired prior to its presentation
 Inconsistent description of goods
 Changes included in the invoice not authorized in the
credit
 Mismatch of amount mentioned in invoice and draft
 Ports of loading and destination are wrongly mentioned
 Key documents are unattached or have wrong
information
 Invoice or statement is not signed by appropriate
authority
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11.
Limitations of L/C
 L/C doesn’t ensure that the goods actually shipped are
as ordered.
 L/C doesn’t insulate buyers and sellers from other
disagreements or complaints arising from their
relationship.
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12.
For queries on L/C
Get in touch
Genex Logistics
(Genex LogiSolutions Pvt. Ltd.)
681, Sec 16B, Pocket B,
Dwarka, New Delhi - 110075
Tel: +91-11-28035020
Mobile: +91-9810404438
Email: info@genexlog.com
Website: www.genexlogistics.in
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13.
Thank You!!
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