Letter of credit refers to a written certificate issued by the bank to the exporter (seller) at the request of the importer (buyer) to guarantee the payment of the goods. In the letter of credit, the bank authorizes the exporter to issue a bill of exchange not exceeding the specified amount with the bank diverted or the designated bank as the payer under the conditions stipulated in the letter of credit, and to attach the shipping documents as required, and to pay at the designated place on time Receive the goods.
The general procedure for payment by letter of credit is:
1. Both parties to the import and export should clearly stipulate in the sales contract that payment should be made by letter of credit;
2. The importer submits an application for L/C to the bank where it is located, fills in the application for L/C, and pays a certain deposit for L/C or provides other guarantees, and asks the bank (issuing bank) to issue a L/C to the exporter;
3. The issuing bank issues a letter of credit with the exporter as the beneficiary according to the content of the application, and notifies the exporter of the letter of credit through its agent bank or correspondent bank in the exporter’s location (collectively referred to as the advising bank);
4. After the exporter ships the goods and obtains the shipping documents required by the letter of credit, it negotiates the loan with the bank where it is located (it can be the advising bank or other banks) according to the provisions of the letter of credit;
5. After negotiating the loan, the negotiating bank will indicate the amount to be negotiated on the cup of the letter of credit.
Contents of the letter of credit:
① Explanation of the letter of credit itself; such as its type, nature, validity period and expiry place;
②Requirements for the goods; description according to the contract
③ The evil spirit of transportation
④ Requirements for documents, namely cargo documents, transport documents, insurance documents and other relevant documents;
⑤Special requirements
⑥The issuing bank’s responsibility stationery for the beneficiary and the holder of the draft to guarantee payment;
⑦ Most foreign certificates are marked: “Unless otherwise specified, this certificate is handled in accordance with the International Chamber of Commerce’s “Uniform Customs and Practice for Documentary Credits”, that is, ICC Publication No. 600 (“ucp600″)”;
⑧T/T Reimbursement clause
Three Principles of Letter of Credit
①Independent abstract principles for L/C transactions
②The letter of credit strictly conforms to the principle
③Principles of Exceptions to L/C Fraud
Features:
The letter of credit has three characteristics:
First, the letter of credit is a self-sufficient instrument, the letter of credit is not attached to the sales contract, and the bank emphasizes the written certification of the separation of the letter of credit and the basic trade when examining the documents;
The second is that the letter of credit is a pure documentary transaction, and the letter of credit is payment against documents, not subject to the goods. As long as the documents are consistent, the issuing bank shall pay unconditionally;
The third is that the issuing bank is responsible for the primary liabilities for payment. The letter of credit is a kind of bank credit, which is a guarantee document of the bank. The issuing bank has the primary liability for payment.
Type:
1. According to whether the draft under the letter of credit is accompanied by shipping documents, it is divided into documentary letter of credit and bare letter of credit
2. Based on the responsibility of the issuing bank, it can be divided into: irrevocable letter of credit and revocable letter of credit
3. Based on whether there is another bank to guarantee payment, it can be divided into: confirmed letter of credit and irredeemable letter of credit
4. According to different payment time, it can be divided into: sight letter of credit, usance letter of credit and false usance letter of credit
5. According to whether the rights of the beneficiary to the letter of credit can be transferred, it can be divided into: transferable letter of credit and non-transferable letter of credit
6. Red clause letter of credit
7. According to the function of evidence, it can be divided into: folio letter of credit, revolving letter of credit, back-to-back letter of credit, advance letter of credit/package letter of credit, standby letter of credit
8. According to the revolving letter of credit, it can be divided into: automatic revolving, non-automatic revolving, semi-automatic revolving
Post time: Sep-04-2023
