Letter of credit

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 November 2011 please provide me the the procedure and account for letter of credit in case of import as well in case of export................

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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14 November 2011 Steps in the Letter of Credit Process

1. Buyer and seller agree to terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable.
2. Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's credit standing, and may require cash cover and/or reduction of other lending limits.
3. Issuing bank issues LC, sending it to the Advising bank by airmail or electronic means such as telex or SWIFT.
4. Advising bank establishes authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary).
5. Seller should now check that LC matches commercial agreement and that all its terms and conditions can be satisfied.
6. Seller ships the goods, then assembles the documents called for in the LC (invoice, transport document, etc.).
7. The Advising bank checks the documents against the LC. If the documents are compliant, the bank pays the seller and forwards the documents to the Issuing bank.
8. The Issuing bank now checks the documents itself. If they are in order, it reimburses the seller's bank immediately.
9. The Issuing bank debits the buyer and releases the documents (including transport document), so the buyer can claim the goods from the carrier.

ALSO NOTED:

PROCEDURE

1. Buyer provides Letter of Intent ( LOI ) and Bank Comfort Letter (BCL) addressed to GOPAL INTERNATIONAL on buyer’s letterhead with signature/seal and Bank letter with complete information. LOI must include target price, quantity, destination port, shipping schedule, and payment terms. Bank Comfort Letter must include full banking co-ordinates and names of two officers.

2. Reasonable commissions for intermediaries must be provided in writing with buyer packages of document on submission.

3. GOPAL INTERNATIONAL will confirm buyer Banking co-ordinates and availability of product with mills.

4. Buyer’s financial capability will be verified and confirmed. If satisfied, FULL CORPORATE OFFER will be issued.

5. Buyer signs and returns the FULL CORPORATE OFFER.

6. GOPAL INTERNATIONAL issues DRAFT CONTRACT by E-MAIL / FAX for Signing and return.

7. Buyer issues DRAFT LETTER OF CREDIT to GOPAL INTERNATIONAL for approval with a copy to it’s Bank.

8. GOPAL INTERNATIONAL & it’s Bank approves the Draft L/C copy and gets the approval of the format of PERFORMANCE GUARANTEE from the Buyer.

9. Buyer issues Confirmed PRE-ADVISE LETTER OF CREDIT to the GOPAL INTERNATIONAL’s Bank and GOPAL INTERNATIONAL posts 2% PERFORMANCE GUARANTEE in return to activate the LETTER OF CREDIT.

10. Shipments commence as per the Terms & Conditions of the CONTRACT.

TERMS & CONDITIONS

A. PAYMENT TERMS :

IRREVOCABLE, UNRESTRICTED, TRANSFERABLE, DIVISIBLE, ASSIGNABLE, CONFIRMED, FULLY FUNDED DOCUMENTARY LETTER OF CREDIT ALLOWING T.T. / TELEX REIMBURSEMENT PAYABLE AT SIGHT OPENED THROUGH ANY WORLD PRIME BANK HAVING RATING OF 1 TO 50, ACCEPTABLE AT SELLER’S BANK.

B. PERFORMANCE BOND : 2% ( TWO PERCENT ) BY THE SELLER OF THE TOTAL L/C VALUE ON RECEIPT OF NON-OPERATIVE CONFIRMED L/C.

C. INSPECTION : QUALITY, QUANTITY & WEIGHT INSPECTION BY S.G.S. AT THE LOADING PORT AT SELLER'S COST.

D. INSURANCE : TO BE COVERED BY THE BUYER.

E. SHIPMENT : MINIMUM SHIPMENT OF 12,500 MT WITHIN 30-45 DAYS OF RECEIPT OF CONFIRMED LC.

F. SHIPMENT SIZE : IN LOTS OF 12,500 MT OR 25,000 MT

G. DOCUMENTS :

 FULL SET OF BILL OF LADING MARKED “FREIGHT PREPAID” .
 SIGNED COMMERCIAL INVOICES .
 CERTIFICATE OF ORIGIN ISSUED BY CHAMBER OF COMMERCE .
 CERTIFICATE OF QUALITY AND QUANTITY ISSUED BY S.G.S.
 PACKING LIST .
 A COPY OF BENEFICIARY’S FAX TO APPLICANT ADVISING THE DETAILS OF NOMINATING VESSEL SUCH AS : NAME OF VESSEL , NAME AND ADDRESS OF THE OWNER , FLAG , VESSEL’S DETAILS AT LEAST 07 DAYS BEFORE SHIPMENT .
 BENEFICIARY’S CERTIFICATE CERTIFYING THE DISPATCH OF NON-NEGOTIABLE DOCUMENT BY DHL COURIER TO BUYER WITHIN 7 DAYS FROM B/L DATE.
 FUMIGATION CERTIFICATE.
 PHYTOSANITORY CERTIFICATE .

H. OTHER TERMS AND CONDITIONS :

DOCUMENTS NEGOTIATION TIME MAXIMUM TWENTY ONE DAYS FROM THE DATE OF SHIPMENT. PARTIAL SHIPMENT IS PERMITTED. TRANSSHIPMENT IS NOT PERMITTED.

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