Letter of credit samples can be downloaded. Letter of credit refers to a written document issued by a bank usually from the buyer’s country guaranteeing payment in full to the seller under any eventualities subject to the fulfillment of certain delivery conditions. It facilitates international transactions where both the exporter and the importer unknown to each other are separated by long distances, differing laws of the land, and trade practices. In such transactions, seller is exposed to certain risks like legal risk, credit risk, payment risk, and the likes. A letter of credit issued by the buyer’s bank guarantees payment to the seller. Letters of credit are subject to the laws promulgated by the International Chambers of Commerce, and the laws are referred as Uniform Customs and Practice for Documentary Credits. The parties involved in a letter of credit include the applicant-the buyer, issuing bank which is buyer’s bank, the seller called beneficiary, and many times an advising bank which is the seller’s bank. A letter of credit may have a red letter clause which authorizes a seller to obtain packing credit to facilitate procurement and packing of goods for dispatch to the country of destination.
Letter of Credit Samples
Letter of credit template
A seller/exporter has to present some documents to get payment from the bank for the goods shipped. These documents include invoice, bill of exchange, transport documents, insurance certificate, origin certificate, legal documents etc. and relate mainly to the dispatch of goods. The bill of lading in case of goods shipped, airway bill if goods have been airlifted, railway receipt, and truck receipt are the main documents that show actual dispatch of goods.
There are different types of letters of credit, and some of them include revocable and irrevocable letter of credit, confirmed and unconfirmed letter of credit, and transferrable letter of credit. A revocable letter of credit may be revoked by the buyer without the seller’s consent while an irrevocable letter of credit cannot be altered or revoked without the consents of the parties, the seller and the buyer. When a letter of credit is confirmed to the seller by another bank at the instances of the issuing bank, it is referred as a confirmed letter of credit. A letter of credit may be transferrable under which the exporter can make the credit available to another beneficiary. Another type of letter of credit is called ‘usance’ letter of credit which authorizes bank to pay after certain date or period of time after the dispatch of goods. An ‘At sight’ letter of credit is payable on presentation.