How to open an LC? Procedures to open a Letter of Credit

 

The information provided here is part of Export Import Training course online

 How to open an LC?

  

Letter of Credit – A common term known to almost all business world. What is Letter of Credit? How does LC work? How to open a Letter of Credit? What are the advantages of Letter of Credit to Exporter? How LC is benefited to Importer? Are there any disadvantages to importer for a consignment under Letter of Credit? What are the disadvantages of LC to an exporter? Who are the parties involved in Letter ofHow to open an LC  Procedures to open a Letter of Credit Credit? How to check authenticity of LC? What is Prime Banker? Yes, I am going to discuss all of these in this website. I hope, once after reading those articles about Letter of Credit, you will have a good knowledge to handle LC gently.

 

In this article I am going to explain basic information to open Letter of Credit. Letter of Credit is an assurance given by buyer’s bank as opening bank to seller as beneficiary against sale of goods as per the terms and conditions mentioned in Letter of Credit.

 

 

‘How to open an LC’ by buyer- “procedures to open an Letter of Credit”

 

You (buyer) entered in to a contract with your overseas supplier to import machinery for production at your factory. As per your contract each other, you (buyer) need to open a Letter of credit (LC). In this case, Letter of credit is opened by your bank (or other opening bank)  and beneficiary of letter of credit is your overseas seller of machinery. Letter of credit is a guarantee given by your bank (not you) to your buyer’s bank on account of your buyer. The amount under LC is transferred as per the terms and conditions mentioned in Letter of credit.  Please also read other articles about Letter of Credit  in same website to know more about Letter of Credit.

 

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. Your bank may ask you to keep certain percentage of ‘margin amount’ with bank.

 

What is ‘margin amount’ while opening Letter of Credit.

 

As I have explained to you, bank is guaranteeing the payment.   In turn, what guarantee are you providing to bank against the amount of LC? So a margin amount is blocked in your bank account to make the payment under the said letter of credit. Certainly you may ask, what would be the ‘margin’, bank blocks. This amount is determined, purely based on your financial relationship with your bank.

 

Let us discuss about your creditworthiness with your bank while keeping ‘margin amount to open LC’. If you are a new account holder for your bank and bank does not know your other financial status, you cannot expect any financial support from your Bank. You need to keep 100% margin amount with your bank. If the LC amount is for USD 10000, your amount of USD 10000 is blocked from your account to pay LC amount to your overseas seller on maturity date. You may have a good relationship with your banker for the past many years, and your banker knows your fixed assets, your fixed investments with bank, other financial transactions and are happy with the credit worthiness, bank decides the amount of margin to be collected from you to open the Letter of Credit. It  ccan be from  1% to 100%, as explained. I hope, you came to know the basic procedures to open Letter of credit.

 

In this article, I have tried to explain a brief idea about Letter of Credit, Mechanism of Letter of Credit, the procedures and formalities to open a Letter of Credit, Margin amount in Letter of Credit etc. You can also read more information by clicking   Letter of credit - How does LC work?      What are the advantages of Letter of Credit to Exporter? How LC is benefited to Importer?   Are there any disadvantages to importer for a consignment under Letter of Credit?   What are the disadvantages of LC to an exporter?   Who are the parties involved in Letter of Credit?   How to check authenticity of LC? What is Prime Banker?  Yes, I am sure, once after going through that articles you will have a good knowledge about Letter of Credit.

  

I hope, you have enjoyed in reading this article about Letter of Credit.

 

Would you like to explain more about this article - How to open Letter of Credit, Importance of Letter of credit or Margin amount in Letter of Credit? Share below your experience in handling Letter of Credit, opening letter of credit as a buyer/importer of goods or Margin Amount in Letter of Credit?

 

The above information is a part of Import Export Training course online


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How to open an LC? Procedures to open a Letter of Credit

Is Letter of Credit (LC) a safe mode of payment for an Exporter?

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Spelling error in LC? Is wrong spelling a discrepancy under Letter of credit?

Advantages of Letter of Credit (LC) to exporters

Advantages of LC - letter of credit to Importers.




Comment below on this article and discuss your thoughts about this article – How to open Letter of Credit, importance of LC and Margin amount in LC.

 

Other details on how to import export 


Disadvantages of LC (letter of Credit) to Importer.

Advantages of LC - letter of credit – to Importers.

Disadvantages of Letter of credit (LC) for Exporter

Advantages of Letter of Credit (LC) for exporters

 Spelling error in LC? Is wrong spelling a discrepancy under Letter of credit.

How Letter of Credit (LC) works

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Comments


Mohammad Shahid: Thanks Its realy good to read the explanation in very simple and understandable manner

Shaikh Osama Rehan: The best and the simplest explanation very Good article

Swapnil Taksale: Really very good information

Brijesh Kumar Gautam: Can we know the process for LC opening to Execute as well as domestic and export

Jose Berliavsky: How to open an LC. Using ficticious ñames, quantities, how should an on sight, irrevocable letter of Credit be written? Please specify variables that could be included. How long should an international LC take to collect, it may vary, due to what. Thank you,

ashok: Good one.Keep up the good work. You are the best!!!

parvez: Really good. Very easy very simple presentation.. thanks

Nasir Hussain: Sir, this page helps me a lot, Thanks for the guidance, even though it is not in detail, but we can have an idea how to execute the terms of L.C & means as first step in Import & exports

Abdul Qayyum Iqbal: Very Impreasive ! will you please send me the more details on my below mention email, its great favor to me ... regards qayyumnt@hotmail.com

Shahab uddin: the best way to learn,thanks

yatin: in the lc you must know the lc reference no for communication with bank and validity for the same and if you received lc from your buyer must check with your banker for term and condition of lc as per your contract with your buyer

Sameer Shariff: Thanks for this article , it relly helpfull

csjaiswal: REQUIRED SBLC /LC FOR CAPITAL ASSETS/ STOCK LIFTING FOR PROJECT WORKS.

anand: does bank charges interest rate to a new customer to open an lc?

Sureshan: It is really informative, simple and easily understandable

Shamas Bukhari: This is very useful formation for our daily routine work......

Husni: Yah its realy superb explanation regarding lc & easily undesrtood too. Request on mention about bank charges

ting conejero: Hi, what do you mean by at sight, payment terms? or 15 days at sight. thanks

Shreesudha: The concept is neatly brought out. Helped a lot. Thanks!

Aakash Sharma : The information that has been given here, is very important for every person enjoying foreign trade. I liked it.

Manish K: Excellent way of explaining

ismat Ara: what documents are needed to open an LC

noma: Dear partners and associates, One of our main businesses is opening documentary letters of credit for trade transactions. We issue our Documentary letters of credit and, on occasion, we can open Standby Letters of Credit and Guarantees (Bank, Bid or Performance) For every transaction we need three things 1. Applicant - this is the company that has asked us to open the letter of credit. The applicant is our client, and our standard agreements are with the applicant. 2. Beneficiary - this is the company receiving the LC. The applicant asks us to open an LC to the beneficiary 3. Underlying transaction - this is the transaction that exists between the applicant and the beneficiary. It is the reason for opening the Letter of Credit or Bank Guarantee. The underlying transaction can be the purchase and sale of goods or services depending on the type of instrument requested. Once you have these three parts of the transaction, you are ready to start working with us. You should fill out the attached application and send us a copy of the pro forma invoice/ Contract from the beneficiary to the applicant, your company's certificate of incorporation, a copy of your passport. We will then send you a sample letter of credit for your review. Once we have been formally engaged, we will provide you with a draft of the letter of credit for your review with your beneficiary. When you have finished reviewing the draft and are ready to open the instrument, it is time to pay our issuance fees. We always receive our fees by wire transfer before issuance of the instrument. Once we have received our fees and all relevant documentation, it may take up to 3 days for the instrument to be issued, and for us to send you a copy. In addendum, we also offer a wide range of products: - Letters of Credit at Sight - Usance Letters of Credit - Standby Letters of Credit - Bank Guarantees - Performance Guarantees - Demand Guarantees - POF messages - Pre Advice Message - Comfort Letters - Ready Willing and Able (RWA) messages Contact :Norman William Email : williamfinancial03@gmail.com Skype ID: Norman.william9

manzoor.kp: Really very good presentation , Please send this information to my mail ID.Thanks

sweta jaiswal: the above information given is very important to understand international trade finance and the way of explaining is very good.

ARNAV SINGH : sir i want to know more about LC

Anil Kumar : I want to take complete knowledge of letter of credit and also want to clear cdcs exam. Please and 10 times please more tell me how.

Nobil Nair : sir i would like to know that if am selling my product in the domestic market and however buyer are interested to make payment on LC basis (Inland LC), so i would like to know what are the process should be take on my side to my bankers. Exactly how it process on our side.

anil: if i m fresh business man in the market. want 2 buy printing machine cost Rs. $25000 from Germany & i have taken loan from another bank to pay the machinery cost. so whats the procedure for me to buy that machine? what are the different mode/terms of LC? is there any charges clam by bank?

Adi Far: i would like to learn how to do Letter of Credit. can i take a course online, please guide me, thanks

CKhemani: I'm based out of Los Angeles, California. I recently started to dive into the import/export business after a career in finance/banking. I may have an upcoming transaction where I would be importing goods to the US from an Asian factory and then selling those goods to a buyer here locally. I thought that it might be best to open an two LC's: one with the End Buyer and one with the Factory. I heard that it's possible that the End Buyer can open a LC in favor of me (the beneficiary) and I can then transfer that LC to the Factory, but I would swap out the invoice to the factory. Would you be able to provide some guidance on how I could do so or point me to some specific articles on your web site that would help with this process?

VIKAS: ITS REALLY GOOD, BUT IF YOU SHARE THE FORMAT & FORM WHICH APPLY BY BUYER FOR LC LIMIT THEN IT IS VERY HELPFULL FOR THAT PERSON WHO WILL DONE FIRST TIME FOR LC WORK

Tanmoy Biswas: thanks brother.It is so much easy to realize by reading this writing

Humayun Kabir Chowdhury: The article provides very useful & basic information about how to open LC. This would help the interested persons including the traders to have a clear cut understanding on the procedure to be followed to open LC. Thank you very much for your appreciable efforts.

mohamed : ??dear sir hello we company in dudi we want letter giurntee bg rwa at 500 melion $ i not pay feec befwor issuing letter bg can send contract by email mahde994@yahoo.com?

manish rathod: Really nice explaination...thnks a lot... manish Rathod

Syed Muhammad Nauman: Thanks Alot.......a really good explanation

Hemant: Nice explanation in simple way..Thanks

Mohammad Ashraful Alam: very impressive and easy lesson for every reader it will bring very clear idea about LC opening

Rabiul Rabi: This explanation is very good.But I want to know Bank charges basis of Bank.

Maulik Savani: This explanation is very good and very nice.But I want to know about how much charges(appx) will bank take it for open LC and How many days will it take for this all the process. Thanks

Ashish: This is Ashish. I will like to get in the import export business. i am currently in the USA. Just wanted to get some advice about how to start and how do i build contacts abroad and start the process.

Sohag: Thanks for your kind lecture. Its so decent for a learner. Cheer !!!

rajesh: lots of thanks for your nice lecture

laxmikant: what is the LC validity period of LC & usuance period. pl let me know above.

laxmikant: what is the usance period for LC???

Prem Prakash Sharma: it is really goods and very impressive. I understand the process.

metilda : i read all the details about LC . one more information i need For Universities is PAN number is essential to open irrevocable letter of credit to import equipments for research

djampou gilles ulrich: Hi, am writing a report on the analysis of the methods of payment of import orders I wish you people to assist me on how to tackle it please...

Chencho Wangyal : Very informative, as i am working in private company as project coordinator and my company is under process of importing machines from other countries and processing to open LC with the payment .

Md. Fazla Rabby: Thanks for your kind lecture. But i want to know more about LC ,.......

naveed ul haque: i am asking for all users here. i am new in trade banking anyone can guide me about ucp600 and how to establish import lc. any whats app banking trade group kindly send me number or add me

Krupali Mhatre: Good Information.

parash balayar: after lc proceeded if expiry date of lc is end but material is not released by the supplier at this case what should we do??

Md.Ehsanul Haque: sub: import letter

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