How to open a letter of credit

There are a variety of forms of cashless payments. They are developing rapidly. The most common are settlements using a letter of credit.

You will need

Bank account

Instruction manual

1

A letter of credit is inherently a guarantee of the security and legality of any transaction. The seller instructs the bank to transfer a certain amount of money to the account of another person after it has fulfilled its obligations. The fulfillment of the terms of the contract must necessarily be documented.

2

The use of this form of settlements allows to reduce the risk of non-payments and non-fulfillment of contractual obligations.

3

There are various types of letters of credit. The most commonly used are: revocable, irrevocable, confirmed, unconfirmed, and renewable. The conditions of the first payer cannot be changed without agreement with the payee. The second can be changed unilaterally. In the third case, the bank is fully responsible for payments. Revolving resumes with regular deliveries of goods.

4

The opening procedure is the same for all species. Firstly, the seller and the buyer agree that the transaction will be settled through a letter of credit. Then the payer contacts the credit organization with two copies of the application for its execution. To do this, he must have an open account (card or deposit).

5

Secondly, the bank clarifies all the details of the transaction, starting from the issues of transportation of products and ending with checking the correctness of registration of all documents. A special letter of credit is opened in the name of the seller, about which its owner is notified. To this account, the bank will transfer funds from the account of its client.

6

The payer carefully examines the documents and concludes whether the conditions suit him and whether he can fulfill them. If in doubt, he may ask the buyer to change certain language. After approval and approval of all points, the letter of credit is signed and sent to the payer.

7

After fulfilling the obligations, the seller sends supporting documents to the bank. They are verified by the buyer and confirmed in writing. After that, the money is transferred to the beneficiary's account.