Letter of Credit (LC) Types

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.

  1. Purchase and sales agreement. The buyer and the seller draw up a purchase and sales agreement. …
  2. Buyer applies for letter of credit. …
  3. Issue letter of credit. …
  4. Advise letter of credit. …
  5. Prepare shipment. …
  6. Present documents. …
  7. Payment. …
  8. 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.

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