登录查看更多内容

What are the key components of a letter of credit for import/export operations?

由人工智能和领英社区提供技术支持

A letter of credit (LC) is a document issued by a bank that guarantees the payment of a buyer to a seller in an international trade transaction. It is a common and secure method of payment that reduces the risks of non-payment, fraud, and exchange rate fluctuations for both parties. However, to use an LC effectively, you need to understand its key components and how they affect your import/export operations. In this article, we will explain the main elements of an LC and how they relate to the Incoterms and payment terms of your trade contract.

此文章中的业界达人

由社区从 2 条内容中精选。了解更多

Mickie Foong

Import & Export, Trade Operation | Project Supply & Coordination | Fellow, SIPMM
Joy Onyinye Chukwuneso.

Accountant and International Trade Finance

1 LC Types

Different types of LCs offer varying levels of security and flexibility for both the buyer and the seller. The most common ones are irrevocable LCs, which cannot be changed or canceled without all parties' consent. This type provides the most security for the seller, as it ensures payment as long as the documents meet the LC terms. On the other hand, revocable LCs can be changed or canceled at any time by the issuing bank without notifying the seller, making them the least secure for sellers. Additionally, confirmed LCs are guaranteed by another bank, usually in the seller's country, reducing the risk of default or political instability in the buyer's country. Unconfirmed LCs, however, are not backed by another bank and therefore increase the risk of non-payment or delay due to the issuing bank's failure or problems in the buyer's country.

添加您的观点

2 LC Parties

An LC involves four main parties with different roles and responsibilities. The Applicant is the buyer who applies for the LC from the issuing bank, and is responsible for paying the amount of the LC plus any fees and charges. The Issuing Bank is the bank that issues the LC on behalf of the applicant, and is responsible for checking documents presented by the Beneficiary and making payment if they comply with LC terms. The Beneficiary is the seller who receives payment from the issuing bank and is responsible for shipping goods and presenting documents required by the LC to the issuing bank or advising bank. Lastly, the Advising Bank is the bank that advises the beneficiary of the LC issued by the issuing bank, and may also act as a confirming bank, negotiating bank, or paying bank depending on type and terms of LC.

添加您的观点

3 LC Terms

An LC contains various terms and conditions that specify the details of the transaction, such as the amount, currency, expiry date, place of payment, documents required, and discrepancies allowed. These terms must be consistent with the trade contract and the Incoterms agreed by the buyer and seller. It is important to note that the amount should match the invoice value of the goods and the currency should be acceptable to both parties. Additionally, the expiry date should allow enough time for shipment and document preparation, while the place of expiry should be convenient for the beneficiary. Furthermore, documents such as commercial invoices, bills of lading, certificates of origin, packing lists, and insurance policies must be presented to receive payment. The documents should reflect description, quantity, quality, price of goods, Incoterms and payment terms of trade contract. Lastly, discrepancies should be minimal or none as they may cause delays, rejections or additional costs for beneficiary.

添加您的观点

Mickie Foong

Import & Export, Trade Operation | Project Supply & Coordination | Fellow, SIPMM
(已编辑)
举报内容
Vet the LC terms for those ambiguous term and condition. Negotiate with applicant ensuring the LC condition is manageable and can be fulfil during contract phase. Shipment date, presentation time and expiry date should be consider carefully in case of delay and not enough time for document presentation and its amendment.

已翻译

赞

4 LC Process

An LC follows a standard process that involves several steps and documents. Initially, the buyer and seller agree on the trade contract and Incoterms, as well as the payment terms, and the buyer applies for an LC from the issuing bank. The issuing bank then sends the LC to the advising bank, which advises the seller of its existence. The seller reviews the LC and accepts it if it meets all requirements, after which they ship the goods and prepare documents according to the LC terms. These documents must be presented to either the issuing or advising bank before expiry. If they are compliant, payment is made to the seller; if not, a waiver may be requested from the buyer or they may be rejected. The buyer then receives the goods and pays either bank.

添加您的观点

5 LC Benefits and Challenges

An LC offers several benefits and challenges for both the buyer and the seller in an import/export transaction. Some of the advantages include reducing the risk of non-payment, fraud, and exchange rate fluctuations, as well as facilitating trade finance and enhancing trust between the two parties. However, there are also some drawbacks, such as increased cost and complexity, the risk of document discrepancies, and limited flexibility. The buyer and seller have to pay fees to the banks and comply with strict LC requirements, while any errors in documents can lead to delays or additional costs for the seller. Furthermore, the parties must adhere to the LC terms without being able to change or cancel them without consent from all involved.

添加您的观点

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Joy Onyinye Chukwuneso.

Accountant and International Trade Finance
举报内容
Import Vs.Export letter of credit Import LC acts as a communicative tool between the importer and exporter that the importer bank is acting as an intermediary, and is guaranteeing payment, even if the importer defaults or is unable to pay Export LC acts as a communicative tools between the export and the bank which helps the exporter receive payment for the goods and services before the goods reaches the importer. Note the main reason for Export LC is to mitigate the credit risk involved in an international transaction

已翻译

赞

Import/Export Operations

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

What are the key components of a letter of credit for import/export operations?

1

2

3

4

5

6

1 LC Types

2 LC Parties

3 LC Terms

4 LC Process

5 LC Benefits and Challenges

6 Here’s what else to consider

Import/Export Operations

给文章评分

感谢您的反馈

更多Import/Export Operations相关文章

更多相关阅读内容

What are the key components of a letter of credit for import/export operations?

1

2

3

4

5

6

1 LC Types

2 LC Parties

3 LC Terms

4 LC Process

5 LC Benefits and Challenges

6 Here’s what else to consider

Import/Export Operations

给文章评分

感谢您的反馈

查看其他技能