What Is LC And Types Of LC?

What is the LC process?

An LC contract is an instruction wherein a customer requests the bank to issue, advise or confirm a letter of credit, for a trade transaction.

An LC substitutes a bank’s name and credit for that of the parties involved.

The bank thus undertakes to pay the seller/beneficiary even if the remitter fails to pay..

What is LC in logistics?

A Letter of Credit (L/C) is the basic document for documentary credit. Documentary credit concerns a process in which a bank, at the request of a buyer of goods, undertakes to pay the seller of the goods a certain amount, subject to production of a number of clearly defined documents.

What is irrevocable confirmed LC?

A confirmed irrevocable letter of credit is one to which the advising bank adds its confirmation, makes its own independent undertaking to effect payment, negotiation or acceptance, providing documents are presented which comply with the terms of the letter of credit.

What is confirmed and unconfirmed LC?

In an unconfirmed letter of credit, the seller requests the payment from issuing bank where there is a second bank as a mediator. In a confirmed letter of credit, the seller requests the payment from the confirming bank. Confirming bank makes the payment to the seller and in turn requests the payment from issuing bank.

What is LC limit?

The LC limit for working capital purpose shall be considered based on annual consumption of raw material to be purchased. … Bank has to check up from the customer how he would arrange funds for retirement of LC opened for import of capital goods (either by term loan or from other sources for margin etc.).

How is LC opening charges calculated?

The LC amount on which the commission rate is applied, will always be the LC Outstanding Amount, at the beginning of the period. When commission is collected on a periodic basis, it will be collected automatically based on the rate period specified. … This commission will be calculated till the Good Until Date of the LC.

What is difference between LC and BG?

A Bank Guarantee is similar to a Letter of credit in that they both instil confidence in the transaction and participating parties. However the main difference is that Letters of Credit ensure that a transaction goes ahead, whereas a Bank Guarantee reduces any loss incurred if the transaction does not go to plan.

What is the full form of LC?

A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.

What are the different types of LC?

Main types of LCIrrevocable LC. This LC cannot be cancelled or modified without consent of the beneficiary (Seller). … Revocable LC. … Stand-by LC. … Confirmed LC. … Unconfirmed LC. … Transferable LC. … Back-to-Back LC. … Payment at Sight LC.More items…

What is a confirmed LC?

A confirmed letter of credit is a guarantee a borrower gets from a second bank in addition to the first letter of credit. The confirmed letter decreases the risk of default for the seller. By issuing the confirmed letter, the second bank promises to pay the seller if the first bank fails to do so.

What is LC negotiation with bank?

Negotiating bank is one of the main parties involved under Letter of Credit. Negotiating Bank,is the one who negotiates documents delivered to bank by beneficiary of LC. Negotiating bank is the bank that verifies documents and confirms the terms and conditions under LC on behalf of beneficiary to avoid discrepancies.

Why is LC necessary?

Letter of credit has great significance for the seller/exporter. Whenever the seller or exporter is in urgent need of money and buyer is unable to pay, then the LC can be used to get the payment from the bank. LC at sight payment provides immediate payment after fulfillment of certain conditions by the exporter/seller.

What is LC and how it works?

A letter of credit, or “credit letter” is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

What are LC terms?

A Letter of Credit is a payment term generally used for international sales transactions. … Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary.

What is LC delivery?

L/C means letter of credit which is basically a guarentee which a buyer provide to seller against their goods /Service. Buyers bank will give a guarentee to the sellers bank that they will pay according to the terms and conditions mentioned in L/C which will be in line with the contract buyer made with the seller.