The process of L/C
This L/C is then issued by the buyer’s bank (known as issuing bank) and is generally sent to the seller and his bank (known as the nominated bank).
The seller then proceeds to prepare his goods and documents based on the L/C. Once the shipment has been accomplished, the seller will take the copies of all the documents as per the instructions on the L/C to his bank. His bank checks the veracity and correctness of the submitted documents against the L/C specifications.
Once the bank is satisfied that the docs and shipment are in accordance with the L/C, they pay the seller the money that is due to him as per the price agreed between him and the buyer.
The nominated bank then sends all the docs to the issuing bank who cross verify the same and once they are satisfied with the conditions, they reimburse the receiving bank the money that they paid to the seller.
The issuing bank then advises the buyer that the shipment has been effected and that they are in possession of all the docs. The buyer then arranges to pay the issuing bank the money that has been reimbursed by them to the receiving bank.
Upon receipt of these funds, the issuing bank then endorses the bill of lading so that the cargo can be released to the buyer.
The reason why we need it
Letter of credit advantages for the seller
- The seller has the obligation of buyer’s bank’s to pay for the shipped goods;
- Reducing the production risk, if the buyer cancels or changes his order
- The opportunity to get financing in the period between the shipment of the goods and receipt of payment (especially, in case of deferred payment).
- The seller is able to calculate the payment date for the goods.
- The buyer will not be able to refuse to pay due to a complaint about the goods
Letter of credit advantages for the buyer
- The bank will pay the seller for the goods, on condition that the latter presents to the bank the determined documents in line with the terms of the letter of credit;
- The buyer can control the time period for shipping of the goods;
- By a letter of credit, the buyer demonstrates his solvency;
- In the case of issuing a letter of credit providing for delayed payment, the seller grants credit to the buyer.
- Providing a letter of credit allows the buyer to avoid or reduce pre-payment
What if I don’t like this payment method
There are also other payment methods we accept, please click here for more options