Letter of Credit Print


Letter of Credit is a document issued by the Importer’s Bank in favour of the Exporter giving him the draw bills up to a particular amount (as per the contract) covering a specified shipment of goods and assuring him of payment against the delivery of shipping documents.
Banker’s Commercial Letter of Credit is known as ‘Documentary Letter of Credit” because it envisages payment against exporters’ bill provided they are accompanied by the shipping documents covering the goods contracted to be purchased by the Importer. It is also described as “Commercial Letter of Credit” because it is known in commercial transaction (i.e. sale and purchase of goods).

Parties to a Letter of Credit

1) Applicant / Importer: Importer is the ‘Opener’ on whose behalf or account the Letter of Credit is issued by his bank.

2) Applicant’s / Importer Bank: The bank who issues or opens the Letter of Credit on behalf of the importer / customer.

3) Exporter: Exporter is the ‘beneficiary’ of the Letter of Credit who is entitled to receive the payment of his bills according to the terms of Letter of Credit

4) Intermediary Bank / Confirming Bank: It is bank usually a branch or the correspondent of the opening bank in the exporting country through which the credit is advised to the exporter. If the beneficiary bank add its own undertaking to the credit while advising it to the beneficiary it becomes the conforming bank.

5) Paying / Negotiating Bank: The bank which negotiates the beneficiary bills under the credit and pays for it is
known as Paying / Negotiating Bank.

Documents required under Letter of Credit

Bills of Exchange
Certificate of Origin
Transport documents - Bill of Lading
Insurance Policy
Other documents