What is L/C ? And different types of L/C? L/C procedure ?

Letter of credit is abbreviated as L/C means a form issued by bank indicating that the payment. Its play a vital roles in import and export business.

The importance of Commercial department is vastly. They have to make all shipping documents; Export and import follow up, purchasing foreign items, opening LC.

There are different kinds of L/C such as-

1) Revocable L/C.

2) Irrevocable L/C.

3) Confirmed L/C.

4) Back to Back L/C.

5) Revolving L/C.

6) Stand by L/C. 

8) Sight L/C.

9) Red clause L/C.

10) Transferable or divisible L/C

Irrevocable letter of credit:

Constitute a definite undertaking of the issuing bank; provided that the stipulated documents are presented the terms and conditions of the credit are complied with:

The full name of L/C is IRREVOCABLE LETTER OF CREDIT which means once it is issued by the bank for the buyer and received and accepted by beneficiary(the seller), it cannot be canceled or
withdrawn by the buyer or the opening bank, unless with the consent of the beneficiary. In short, once the buyer opens the L/C from his bank to cover the goods he has purchased, he will have to pay for the goods when the seller ships the goods exactly a per the terms stipulated in the L/C. Therefore, as far as the seller is concerned, the sooner he has the L/C on L/CS can be opened in many ways, but in essence, it is a promise the buyers bank make to the supplier, to pay him when he does certain things with evidence to prove. Therefore when the suppliers receive an L/C he must read the terms carefully to make sure he is capable of fulfilling them all exactly as they are written. 

Confirmed letter of credit:

This is such a credit for which exporter’s bank gives all sort of surety for the advance of payment.

Back to Back L/C:

Which L/C issued against the original Master L/C is called B/B L/. A back to back L/C is a letter of credit issued for the account of a buyer, who is already holding an Master L/C in his or her favor. The back to back L/C is issued in favor of the supplier to import raw materials required to produce the item meant for export as stipulated in the credit being held by the buyer.

Sight L/C:

It means when the shipper ships the goods covered by the L/C, and presents the documents to the bank for negotiation. When the documents are send by the negotiating bank to the L/C opening bank,  the L/C opening bank will effect payment to the negotiating bank immediately. Such L/Cs usually say “AT SIGHT” which means “pay when the bank sees the documents”.

Revolving L/C:

It means that the beneficiary can draw money from such L/C up to the amount specified by means of documents, and after drawing, the amount draw will automatically be replenished and is available for another drawing and another drawing, and so on.

Revolving L/Cs are good for the buyer and the supplier to cover purchase made regularly as one L/C can be used many times saving a lot of paper work as well as L/C opening charges at both ends.

Transferable or Divisible L/C:

A transferable credit is a credit under which the beneficiary has the right to request the bank called upon to effect payment or acceptance or any bank entitled to effect negotiation to make the credit available in whole or in part to one or more other parties(second beneficiaries).

Idea About at Sight at L/C.

It means when the shipper ships the goods covered by the L/C, and presents the documents to the bank for negotiation. When the documents are send by the negotiating bank to the L/C opening bank,  the L/C opening bank will effect payment to the negotiating bank immediately. Such L/Cs usually say “AT SIGHT” which means “pay when the bank sees the documents”.