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Letters of Credit (L/C)




 Value creation through process innovations!
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.




                 Value creation through process innovations !
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.



                 Value creation through process innovations !
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)

      Value creation through process innovations !
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



            Value creation through process innovations !
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


               Value creation through process innovations !
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
                   Value creation through process innovations !
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.

                   Value creation through process innovations !
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




                 Value creation through process innovations !
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




                Value creation through process innovations !
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.




                Value creation through process innovations !
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

Facebook | Twitter | LinkedIn | Slideshare | Blog




   Value creation through process innovations !
Thank You!!




Value creation through process innovations !

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Letters of Credit

  • 1. Letters of Credit (L/C) Value creation through process innovations!
  • 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. Value creation through process innovations !
  • 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. Value creation through process innovations !
  • 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) Value creation through process innovations !
  • 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 Value creation through process innovations !
  • 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 Value creation through process innovations !
  • 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 Value creation through process innovations !
  • 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. Value creation through process innovations !
  • 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 Value creation through process innovations !
  • 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 Value creation through process innovations !
  • 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. Value creation through process innovations !
  • 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 Facebook | Twitter | LinkedIn | Slideshare | Blog Value creation through process innovations !
  • 13. Thank You!! Value creation through process innovations !