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What Is a Letter Of Credit

What Is a Letter Of Credit



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In economic and trade activities, some companies may require banks to issue domestic letters of credit. Domestic letters of credit are mainly applicable to some letter of credit business links involved in the process of cooperation between the two parties, and domestic letters of credit can also be discounted under key circumstances. Now let's understand what is the discount of L/C?

The discount under the export letter of credit refers to the undue usance bill that has been accepted (or accepted) by the foreign issuing bank or confirming bank from the beneficiary (exporter) of the letter of credit.

The so-called discount is an act of realizing forward bills. What is the discount of L/C?

For example, for a 90-day letter of credit worth 1 million, you don't want to wait for 90 days to get the money. If you need the money urgently now, you can find a bank to discount it for you.

In the process of realization, you need to pay a certain fee to the bank. Different banks have different discount rates, and different countries have different discount rates. Even for the same bank, different time and different people, the discount rate is different.

Business process:

1. The beneficiary of the letter of credit shall present the documents to the bank at the place of export after shipping the goods;

2. After receiving the documents and confirming that the documents are consistent, the foreign bank shall send the acceptance or commitment notice to the bank of the export place;

3. The bank at the place of export forwards the acceptance or commitment notice to the beneficiary;

4. The beneficiary applies for discount in writing;

5. After examination and approval, the bank at the place of export shall sign a discount agreement with the beneficiary, deduct the interest and expenses according to the amount accepted or committed by the foreign bank, and then enter the amount into the beneficiary's account;

6. After receiving the payment from the foreign bank, the bank at the place of export will automatically make repayment on behalf of the beneficiary.

The main point of the letter of credit is that the documents are consistent. If there is any discrepancy, the first is to change the document or the document, and the second is to deliver the documents with the discrepancy. Communication with customers is required in case of non-conformance. In order to ensure the safety of the payment for goods, we should be careful when reviewing the certificate and ensure that the documents are consistent when preparing the document.



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