What is a letter of credit?
A letter of credit is a financial document issued by a bank or financial institution that guarantees payment to a seller on behalf of the buyer, as long as certain conditions are met.
The basic LC procedure
An open LC procedure refers to the process of opening a letter of credit, which is a financial instrument used in international trade to provide payment security for both the buyer and the seller.
- Purchase and sales agreement. The buyer and the seller draw up a purchase and sales agreement. …
- Buyer applies for letter of credit. …
- Issue letter of credit. …
- Advise letter of credit. …
- Prepare shipment. …
- Present documents. …
- Payment. …
- Document transfer.
What documents required to open LC ?
- Shipping Bill of Lading.
- Airway Bill or Bill of Lading
- Commercial Invoice and/or SPA (Contract or Agreement)
- Insurance Certificate.
- Certificate of Origin.
- Packing List.
- Certificate of Inspection.