Feb 04, 2020 - 04:57 PM
Thanks for your question. Please find my answer below -
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.
For example, Ms. Keturah Smith (buyer or importer) in India and Mr. Silas Reed (seller or exporter) stationed in Paris agree to a sales contract. In this contract the buyer Keturah Smith is required to arrange for her bank, Midas Bank, India (buyers bank) to open or issue an LC in favor of the seller, Mr. Reed.
Midas Bank sends the LC to Mr. Reed’s bank, Berliner Bank, Paris (advising bank). The advising bank then sends details of the credit to the seller, who is the beneficiary of the credit. On receiving the credit details Mr. Reed, ships the merchandise traded under the LC to Ms. Smith. He then presents the draft and documents to the advising bank. The negotiating bank pays Mr. Reed. On making the payment, Berliner Bank will send the documents to Midas Bank (issuing bank) and will debit the issuing bank’s account.
The issuing bank examines the document and charges Ms. Smith’s account. It releases the documents to her allowing her to claim the merchandise.
Learn more about it, here. Here is a list of a few banks to work with:
- Standard Charterer
- DBS Bank (SME)
- United Overseas Bank
Thanks and regards,