What is the process of LC opening?

You can approach your bank to open a Letter of credit. The concerned officer at bank helps you in filling up necessary application to open an LC. Since the LC is opened on the basis of your purchase contract, a copy purchase order / export contract has to be produced with along with other required documents.

What is LC and its 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.

How much does it cost to open an LC?

The standard cost of a letter of credit is around 0.75% of the total purchase cost. For letters that are in the 6 figures (typically around $250,000), these fees can add up and benefit the bank.

How long does it take to open an LC?

Letters of credit are typically provided within two business days, guaranteeing payment by the confirming Citibank branch.

What documents are required for LC opening?

Documents Required For LC Opening The list of documents needed for opening Letters of Credit on your behalf from our bank account: A signed copy of the proforma invoice or SPA of your trade deal. Company’s Registration / Trade License Copy and MOU between partners (if any) Authorized Signatory’s Passport photocopy.

What is LC limit?

LC Limit means, with respect to any Issuing Bank at any time, an amount equal to fifty percent (50%) of its Commitment (or the Commitment of the Lender that is the Affiliate of such Issuing Bank) at such time, or such higher or lower amount as may be agreed by such Issuing Bank at the request of the Borrower.

What banks charge for letter of credit?

Letters of credit normally cost 1% of the amount covered in the contract. For example, if a buyer needs a $100,000 letter of credit and the letter of credit will cover 10% of the contract ($10,000) then the buyer will pay $100 for the letter of credit.

What documents are needed to open letter of credit?

Commercial Invoice (Proof of Value) Bill of Lading (Proof of Shipment) Packing List (Proof of Packing) Certificate of Origin (Proof of Origin)

How many types of LC are there in export?

They are Commercial, Export / Import, Transferable and Non-Transferable, Revocable and Irrevocable, Stand-by, Confirmed, and Unconfirmed, Revolving, Back to Back, Red Clause, Green Clause, Sight, Deferred Payment, and Direct Pay LC.

What is LC margin?

Applicable L/C Margin means the per annum fee, from time to time in effect, payable with respect to outstanding Letter of Credit Obligations as determined by reference to Section 1.5(a).

How is LC interest calculated?

Divide the annual interest rate by 365 and multiply by the number of days in the billing period. For example, if the annual rate is 7.3 percent and there are 30 days in the billing period, you have 7.3 percent divided by 365 and then multiplied by 30, so the interest rate equals 0.6 percent.

How is the L/C document issued?

The document is issued by a financial organization at the buyer request. Buyer also provide the necessary instructions in preparing the document. The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as:

How to open a letter of credit (LC)?

Procedures to open a Letter of Credit. You can approach your bank to open a Letter of credit. The concerned officer at bank helps you in filling up necessary application to open an LC. Since the LC is opened on the basis of your purchase contract, a copy purchase order / export contract has to be produced with along with other required documents.

What are the fees charged by the L/C opening bank?

The fee charged depends on the credit of the applicant, and primarily comprises of : (a) Opening Charges This would comprise commitment charges and usance charged to be charged upfront for the period of the L/c. The fee charged by the L/c opening bank during the commitment period is referred to as commitment fees.

What are import operations under L/C?

Import Operations Under L/c The Import Letter of Credit guarantees an exporter payment for goods or services, provided the terms of the letter of credit have been met. A bank issue an import letter of credit on the behalf of an importer or buyer under the following Circumstances When a importer is importing goods within its own country.