What is Letter of Credit & How to get it financed?

Letter of Credit by Rohitashva Singhvi

Here is a sample LC draft to help you understand the format and content of a typical Letter of Credit:


[Issuing Bank’s Letterhead]


[Applicant’s Name and Address]

[Beneficiary’s Name and Address]

Irrevocable Letter of Credit No. [LC Number]

We, [Issuing Bank’s Name and Address], hereby issue our irrevocable documentary Letter of Credit in your favor for account of [Applicant’s Name and Address], for a total amount of [Amount in Currency], available by [sight/payment term] draft(s) drawn on us and accompanied by the documents specified below:

  1. Signed commercial invoice in [currency] in [number of copies] copies indicating [description of goods or services], the price per unit, the total value of the shipment, the country of origin, and the port of shipment.
  2. Clean on board ocean/airway bill of lading in [number of copies] copies made out to the order of [Issuing Bank’s Name and Address] or [Applicant’s Name and Address] as consignee, indicating [description of goods or services], the gross/net weight, the number of packages, and the name of the shipping company.
  3. Certificate of origin issued by [issuing organization’s name and address] in [number of copies] copies indicating the origin of the goods or services.
  4. Packing list in [number of copies] copies indicating the quantity, the weight, the volume, and the description of the goods or services.
  5. Any other documents required in the LC.

Partial shipment and transshipment are allowed. The latest shipment date is [shipment date], and the presentation period for documents is [number of days] days after the date of shipment.

Payment will be made against presentation of the required documents, which must be received by us at our counters on or before [expiry date], otherwise this credit will be automatically canceled.

This credit is subject to the Uniform Customs and Practice for Documentary Credits (UCP 600) and International Standard Banking Practice (ISBP 745).

[Signed by the authorized officer of the Issuing Bank]

In this sample draft, you can see the various components of an LC, such as the LC number, the amount of payment, the description of the goods or services, the required documents, the shipment and presentation terms, and the governing rules and regulations. It’s important to carefully review and understand the terms of the LC before initiating any transactions.

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