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A letter of credit(L/C or LC) is a document issued by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. It is often referred to as a documentary credit, abbreviated as DC or D/C, documentary letter of credit, or simply as credit.
Once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to honour irrespective of any instructions from the applicant to the contrary. In other words, the obligation to honour (payment) is shifted from the applicant to the issuing bank or confirming bank. Non-banks can also issue letters of credit however parties must balance potential risks.
Free Member, Joined :12/24/2002
No of Topics Posted : 3
Reply/Comments : 3
To understand L/C it is also important to know the various kinds of L/C:-
Irrevocable - A letter of credit that cannot be amended or canceled without prior mutual consent of all parties to the credit.
Revocable - A letter of credit that can be canceled or altered by the drawee (buyer) after it has been issued by the drawee's bank.
Transferable - A letter of credit that can be redirected at the sellers request.
Sight - A letter of credit that requires payment to be made upon presentation of documents.
Time Draft - A letter of credit that states payment is due within a certain time (usually 30, 60, 90, or 180 days), in other terms allows credit to the buyer.
Free Member, Joined :01/14/2002
No of Topics Posted : 4
Reply/Comments : 4
Can it be Irrevocable, Transferable and at Sight LC -- that means all these terms can be incorporated in a single LC?
Free Member, Joined :04/10/2002
No of Topics Posted : 1
Reply/Comments : 17
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