Letter Of Credit Format Sample

LETTER OF CREDIT FORMAT 

DRAFT LETTER OF CREDIT 

--------------------------- Application/LC  Header ---------------------------

Message Output Reference : ...........................................

SENDER              : LC OPENING BANK NAME

                                AND ADDRESS

                      .....................

RECEIVER            : XXXXXXXXXXXXXXXXXXXX

                      XXXXXXXXXXXXXXXXXXXXXXXXX

                      XXXXXXXXXXXXXXXXXXXXXX

                      XXXXXXXXXXX

INPUT MESSAGE TYPE  : 700 Issue of a Documentary Credit

INPUT DATE/TIME     : ............................................

PRIORITY            : Normal

MUR                 : XXXXXXXXXXXXXXXXXXX

-------------------------------- Text Block -------------------------------

27 Sequence of Total

   1/1

40A Form of Documentary Credit

   TYPE OF LC

20 Documentary Credit Number

   ...............................................

31C Date of Issue/OPEN

   .......................................

40E Applicable Rules

   UCPURR LATEST VERSION

31D Date and Place of Expiry  (LDN)

   ......................................

50 Applicant

   CUSTOMER NAME AND ADDRESS

   ........................................................

   ............................................................

   ......................................................

59 Beneficiary

   EXPORTER NAM AND ADDRESS

.....................................

....................................

32B Currency Code, Amount

   LC VALUE IN USD

   ...........................

39B Maximum Credit Amount

   NOT EXCEEDING

41A Available .. With  .. By

   INDIAN BANK

   BY PAYMENT

   XXXXXXXXXXXXXXXXX

   XXXXXXXXXX

   XXXXXXXXX

43P Partial Shipments

   ALLOWED

43T Transhipment

   ALLOWED

44A Place of Taking in Charge/Dispatch From.../Place of R

   .....................................................................................

44E Port of Loading/Airport of Departure

   .................................................................................................

44F Port of Contry Discharge/Airport of  country Destination

   .....................................................................................................

44B Place of Final Dest./For Transportationto../Place of D

   ..........................................

44C Last Date of  Shipment (LDS)

   ...............................................

45A Description of Goods and/or Services

  Descrıptıon Of Goods As Per contract / Purchase Order And Dealıng Wıth Customer And Supplier .........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

46A Documents Required

1)COMMERCIAL INVOICE IN 5 ORIGINALS SIGNED AND DATED BY THE BENEFICIARY

   INDICATING FULL CONTRACT PRICE,AMOUNT ALREADY PAID (ADVANCE PAYMENT)

   AND AMOUNTS TO BE PAID AS PER INSTALLMENTS STATED IN FIELD 47A ITEM 8.

   2)IN CASE OF SEAWAY SHIPMENT:

   FULL SET MULTI MODAL B/L IN 3 ORIGINALS AND 3 NON-NEGOTIABLE 

   COPIES ISSUED CUSTOMER BANK NAME WHOSE OPEN LTTER OF CREDIT

    MARKED  ''INTERCOMS AS BETWEEN WITH EXPORTER AND CUSTOMER

   '', SHOWING THE NAME, FULL ADDRESS, WITH TELEPHONE NUMBER OF THE

   SHIPPING CO.'S REPRESENTATIVE IN  IMPORTER COUNTRY  AND INDICATING

   APPLICANT'S FULL NAME AND ADDRESS AS NOTIFY PARTY.

   IN CASE OF AIRWAY SHIPMENT:

   AIRWAY BILL IN 1 ORIGINAL (ORIGINAL FOR SENDER) AND 1 COPY CONSIGNED

   TO CUSTOMER BANK NAME WHOSE OPEN LETTER OF CREDIT

    MARKED  ''INTERCOMS AS BETWEEN WITH EXPORTER AND CUSTOMER

   AND NOTIFY APPLICANT

   IN CASE OF ROAD TRANSPORT:

   CMR IN 1 ORIGINAL (ORIGINAL FOR SENDER) AND 1 COPY CONSIGNED

   TO CUSTOMER BANK NAME WHOSE OPEN LETTER OF CREDIT

    MARKED  ''INTERCOMS AS BETWEEN WITH EXPORTER AND CUSTOMER

  AND NOTIFY APPLICANT,OR

   3)3 COPIES OF PACKING LIST SHOWING FULL PACKAGING DETAILS OF

   THE GOODS.

   4)ONE COPY OF BENEFICIARY CERTIFICATE .

   5)1 COPY OF VESSEL CERTIFICATE.

   6) CERTIFICATE OF ORIGIN AND GSP CERTIFICATE OF ORIGIN IN 1 ORIGINAL

   AND 3 COPIES ISSUED BY CHAMBER OF COMMERCE SHOWING THAT

   THE GOODS ARE OF UK OR CHINA OR GERMANY OR FINLAND ORIGIN.

   7) INSURANCE CERTIFICATE IN 1 ORIGINAL ISSUED TO THE ORDER OF

   CUSTOMER BANK NAME WHOSE OPEN LETTER OF CREDIT

    NOT LATER THAN SHIPMENT DATE  FOR NOT LESS THAN 110  PCT OF DAP

   INVOICE VALUE COVERING GOODS FROM WAREHOUSE TO WAREHOUSE MARKED

   COVERING ICC(A) INSTITUTE  CARGO CLAUSES(CARGO), INSTITUTE WAR

   CLAUSES (CARGO) AND STRIKE CLAUSE, EVIDENCING THAT CLAIMS ARE

   PAYABLE IN TURKEY AND SHOWING THE AGENT IN TURKEY.

   8)CERTIFICATE OF SUCCESSFUL COMPLETION OF INITIAL OPERATION SIGNED

   BOTH BY APPLICANT AND BENEFICIARY IN 1 ORIGINAL.

   9)PROVISIONAL ACCEPTANCE CERTIFICATE SIGNED BOTH BY APPLICANT

   AND BENEFICIARY IN 1 ORIGINAL

47A Additional Conditions

   1)ALL DOCS  MUST BEAR DOCUMENTARY CREDIT NUMBER.

   2)ALL DOCS. SHOULD BE ISSUED IN ENGLISH LANGUAGE  EXCEPT

   PRE-PRINTED HEADINGS, WORDINGS AND STAMPS.

   3) DOCS. ISSUED BEFORE L/C OPENING DATE NOT ACCEPTED

   4)ONE PHOTOCOPY OF EACH DOCUMENT WILL BE SENT FOR OUR BANK FILE.

   5)IN CASE OF PRESENTATION OF DOCS. WITH DISCREPANCY USD. AS PER BANK CHARGE

   (OR ITS EQUIVALENT) WILL BE DEDUCTED FROM PROCEEDS AS AN

   ADDITIONAL PROCESS FEE.

   6)PLS ACKNOWLEDGE RECEIPT OF THIS L/C.

   8)PERIOD FOR PRESENTATION:

   FOR THE FIRST INSTALLMENT: WITHIN 21 DAYS AFTER SHIPMENT DATE BUT

   IN ANY EVENT WITHIN LC VALIDITY

   FOR ALL OTHER INSTALLMENTS:WITHIN LC VALIDITY

71B Charges

   ALL KIND OF BANKING CHARGES AND

   COMMISSIONS OUTSIDE OF TURKEY ARE

   FOR THE ACCOUNT OF BENEFICIARY.

48 Period for Presentation

   PLS SEE ITEM 9 IN FIELD 47A.

49 Confirmation Instructions

   CONFIRM

53A Reimbursing Bank

   XXXXXXXXXXXX

   XXXXXXXXXXXXXXXXXXX

   XXXXXXXXXXXXXX

   XXXXXXXXXXX

78 Instructions to the Paying/Accepting/Negotiating B

   YOU ARE AUTHORIZED TO REIMBURSE YOURSELVES FROM REIMBURSING

   BANK  AGAINST PRESENTATION OF CREDIT CONFORM  DOCS ADVISING US

   3 BUSINESS DAYS PRIOR TO YOUR PAYMENT BY MT754 MSG, ALSO

   SENDING ORIGINAL DOCS TO OUR ADDRESS STATED IN FIELD 72.

72 Sender to Receiver Information

   OUR ADDRESS: IMPORTER BANK

AND ADDRESS DETAILS

Types Of Letter Of Credit With Examples

Letters of credit is a type of financial instruments, which were first started to use in 18th century. We will describe here various kind or "Letters of Credit" used in today's business environment.

1) Commercial Letters of Credit

Commercial letters of credit are primaryly used as a payment tool in international trade such as exporting and importing goods and services transactions. Most of the commercial letters of credit are issued subject to the latest version of UCP "Uniform Customs and Practice for Documentary Credits". The ICC publishes UCP, which are the set of rules that governs the commercial letters of credit procedures.


2) Standby Letters of Credit

Commercial letters of credit are a type of payment to be utilized when the principal perform its dues. For example, let us consider an exporter who ships the goods according to the sales contract and apply to the appointed bank for the payment. If the appointed bank decides that the presentation is conforming to the terms and conditions of the credit and the UCP rules then exporter will be paid. This situation is just contrary in standby letters of credit.


3) Revocable Letters of Credit

Revocable letters of credit give issuer the modification or cancellation right of the credit any time without prior notice to the beneficiary. Since revocable letters of credit do not provide any protection to the beneficiary, they are not used frequently. In addition, UCP 600 has no reference to revocable letters of credit. All credits issued subject to UCP 600 are irrevocable unless otherwise agreed between the parties.

4) Irrevocable Letters of Credit

Irrevocable Letters of Credit cannot be modified or cancelled without the agreement of the credit parties. Unconfirmed irrevocable letters of credit cannot be modified without the written consent of both the issuing bank and the beneficiary. Confirmed irrevocable letters of credit need also confirming bank's written consent in order any modification or cancellation to be effective.

Import & Export Letter Of Credit Process Flow Chart

How does an import letter of credit work in international trade transactions?

On this page I will try to explain you import letter of credit process in a very simple way. After reading this article you should understand the working mechanism of an import letter of credit in general terms.  

What is an import letter of credit:

Import letter of credit is a payment method in international trade. From now on when we see an import letter of credit term, we must understand that we are looking at the international trade transaction from the eyes of the importers. With the help of the import letter of credit importers pay to their suppliers for the goods they agreed to buy.   Basic import letter of credit transaction flow chart : 

Step 1 : As an importer we need to find our self a supplier. Then we need to write down our agreement into a sale contract or proforma invoice. Remember letter of credit is not a sales contract. Actually, letter of credit is independent structure from the sale or other contract on which they may be based. Therefore, it should be kept in mind that a good sales contract protects the party, which behaves in goodwill against various kinds of risks. 

Step 2: After we sign the sale contract with our supplier, as an importer (importer is the applicant of the Lc transaction) we have to apply to our bank to have the letter of credit issued in favour of our supplier. Letter of credit application must be in accordance with the terms of the sales agreement.

Step 3: At this point issuing bank prepares the letter of credit in swift message format and transmit it to the exporter's bank. (Exporter’s bank is called advising bank in Lc terminology) 

Step 4: The advising bank advises the letter of credit to the beneficiary without any undertaking to honor or negotiate. The advising bank has two responsibilities against to the beneficiary. Advising bank's first responsibility is satisfy itself as to the apparent authenticity of the credit and its second responsibility is to make sure that the advice accurately reflects the terms and conditions of the credit received.

Step 5: The beneficiary should check the conditions of the credit as soon as it is received from the advising bank. If some disparities have been detected beneficiary should inform the applicant about these points and demand an amendment. If letter of credit conditions seem reasonable to the beneficiary then beneficiary starts producing the goods in order to make the shipment on or before the latest shipment date stated in the L/C. The beneficiary ships the goods in accordance with the terms and conditions stated in the credit.

Step 6:  As soon as the goods are loaded, exporter collects the shipment documents which are requested by the credit and gives them to the advising bank.

Step 7: The advising bank dispatches the documents to the issuing bank on behalf of the beneficiary. 

Step 8:. The issuing bank checks the documents according to terms and conditions of the credit and governing letter of credit rules. If the documents are found to be complying after the examination the issuing bank honors its payment obligation and transmits the payment to the exporter through advising bank. 

Step 9:.On final step issuing bank transmits the documents to the importer. The applicant uses these documents to clear the goods from the customs.

Letter Of Credit Meaning vs Bank Guarantee Meaning

bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned.

A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed.

A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

For example a letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the seller's bank. This letter would substitute the bank's credit for that of its client, ensuring correct and timely payment.

A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and can't pay the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.

These financial instruments are often used in trade financing when suppliers, or vendors, are purchasing and selling goods to and from overseas customers with whom they don't have established business relationships. The instruments are designed to reduce the risk taken by each party.