Letter of Credit (L/C)

A Letter of Credit (L/C) is a financial instrument issued by a bank that guarantees payment to a seller upon presentation of compliant documents, ensuring the buyer's payment obligation is met.

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Key characteristics:

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1. Issuer: Bank issues the L/C on behalf of the buyer.

2. Beneficiary: Seller is the beneficiary of the L/C.

3. Applicant: Buyer is the applicant of the L/C.

4. Payment guarantee: Bank guarantees payment to the seller upon presentation of compliant documents.

5. Documentary requirements: Specific documents must be presented to the bank to claim payment.

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L/C is a secured payment method for both local and export transactions, offering benefits to both buyers and sellers:

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Benefits to sellers:

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1. Guaranteed payment: Ensures payment upon presentation of compliant documents.

2. Reduced risk: Transfers payment risk from the buyer to the bank.

3. Improved cash flow: Accelerates payment receipt.

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Benefits to buyers:

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1. Control over payment: Payment is only made upon presentation of compliant documents.

2. Protection against non-performance: Ensures seller meets obligations before payment is made.

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Types of L/C:

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1. Revocable L/C: Can be amended or cancelled by the issuer without notice.

2. Irrevocable L/C: Cannot be amended or cancelled without the beneficiary's consent.

3. Confirmed L/C: A second bank (confirming bank) adds its guarantee to the L/C.

4. Unconfirmed L/C: Only the issuing bank's guarantee is involved.

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In summary, a Letter of Credit is a secured payment method that provides a guarantee of payment to the seller, reducing payment risk and improving cash flow, while offering control and protection to the buyer.

Here is a comprehensive LC documents verification form from the perspective of the Issuing Bank, Confirmed Bank, and Negotiating Bank:

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Issuing Bank's Perspective:

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1. Verify the LC application and underlying contract.

2. Check the LC amount, expiration date, and payment terms.

3. Confirm the beneficiary's details and address.

4. Verify the documents required under the LC (e.g., commercial invoice, bill of lading, insurance certificate).

5. Ensure compliance with UCP 600 and ISP 98 rules.

6. Check for any discrepancies or irregularities in the documents.

7. Verify the authenticity of the documents and signatures.

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Confirmed Bank's Perspective (if applicable):

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1. Verify the Issuing Bank's authorization to issue the LC.

2. Confirm the LC terms and conditions.

3. Check the beneficiary's creditworthiness (if necessary).

4. Verify the documents presented under the LC.

5. Ensure compliance with UCP 600 and ISP 98 rules.

6. Check for any discrepancies or irregularities in the documents.

7. Verify the authenticity of the documents and signatures.

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Negotiating Bank's Perspective:

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1. Verify the LC and documents presented by the beneficiary.

2. Check the documents against the LC terms and conditions.

3. Ensure compliance with UCP 600 and ISP 98 rules.

4. Verify the authenticity of the documents and signatures.

5. Check for any discrepancies or irregularities in the documents.

6. Confirm the payment amount and details.

7. Process the payment or forward the documents to the Issuing Bank/Confirmed Bank for payment.

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Note: The verification process may vary depending on the specific requirements of each bank and the terms of the LC.