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A Letter of Credit (LC) is also known as a Documentary Credit and it constitutes an irrevocable and definite undertaking of the Issuing Bank to honor a complying presentation. It can be issued on Sight or Usance basis, depending on instructions given by the buyer (Applicant).
An LC is basically a documentary instrument provided by banks in order to facilitate trade settlement.
The LC Issuing Bank issues a written undertaking at the request and in accordance with the instructions of the buyer (Applicant). The Issuing Bank assures payment to the seller (Beneficiary) as long as they present documents which comply with the terms and conditions of the LC issued.
Payment is assured based on documents alone and not on goods or services to which it may refer.
The main governing set of rules for an LC is the latest version of Uniform Customs and Practices for Documentary Credit (UCP) and Uniform Rules on Reimbursement (URR) published by International Chamber of Commerce (ICC).
- Payment will only be made when LC conforming documents are presented.
- Better opportunity to negotiate with the supplier for better credit terms and pricing.
- May obtain import financing.
LC Issuance Commission:
- 0.10% per month or part thereof
LC Amendment Commission:
- If related to extension or increase in amount, 0.10% per month or part thereof
- If not related to extension or increase in amount, a flat fee is charged.
- Flat Transaction Commission is charged.
Please refer here for details on trade fees and charges