How to Make or Open an LC (Letter of Credit)?

General words of LC

In this age of globalization, almost all types of business are international trade. for most cases, customers and dealers don't know anyone. Here, the seller has a risk. To avoid this risk, international buyers want these letter of credit.

If you want to import any commodity from abroad, you must make a letter of credit through the bank. LC is the only legal way for international trade. Through the LC, merchants import and export goods from one country to another.

What needs to do LC?

(1) To make a letter of credit, a trader will first need a trade license and it must be updated.

(2) The latest audit report

(3) An IRC-Import Registration Certificate

(4) Membership certificate from the local trade chamber or related association

(5) Income tax declaration or income tax declaration for a new organization

(6) VAT registration certificate

The documents have to be collected before the application for LC.

The applicant has to collect the documents mentioned before the application forLC. There will also be some other documentation needed:

(1) LC application form also.

(2) Indent / Performance Invoice (PI) / Purchase Order / Purchase Agreement.

(3) Proper and properly executed charge documents

(4) Properly sealed and signed LC approval form (LCAF)

(5) Even Insurance notes

After collecting these papers, the documents will be submitted to the bank who is willing to do a letter of credit. Of course, there must be an account with the bank. The bank will check the papers. For this, the bank will take a few days. After all the work of LC will be informed from the bank.

LC deals with the bank

Initially, the bank will have to pay the full amount. Suppose LC Value is $ 20,000. At the bank, you have to deposit 1.6 million. However, gradually increasing the business with the bank, letter of credit should be opened with 10-20% margin. There should be some other documents with money. Such as:

3 or 4 copies of all paper (Trade license, Tin, Croce, IRC) Indent / Pi of your company. Bank Credit Report of the Company's Company Insurance Cover Note (It will be paid by showing the Indent in any insurance company)

Then the bank will give you a copy of LC. The originals will send to the supplier abroad.

How to deal with LC

For all business transactions, there are two parties, one buyer and one seller. Therefore, The transaction will be processed through LC

(1) The buyer will first contact the seller

(2) The bank will contact the bank that is willing to make LCs

(3) Send from the issued LC Bank to the Vendor Consulting Bank

(4) Vendor advisory banks will send the letter of credit documents to the vendor

(5) View the papers and tell the seller the date of the purchase. And as soon as the dealer will show all the documents dealing with the consulting bank.

(6) Send the banking bank papers to the bank in which the customer has made the letter of credit.

(7) After reviewing the papers, the letter of credit will send the clearance of the issued bank transaction to the counseling bank. And at the same time send a clearance to the buyer and Counseling banks will send a clearance to the seller.

After getting clearance, finally, the buyer-seller is ready for the transaction which supports to foreign exchange.