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ITA 403 WK-3, LC Introduction

ITA 403 WK-3, LC Introduction - Documentary Credits(Letters...

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Documentary Credits(Letters of Credit) ITA 403-Wk-3 EXPORT-IMPORT PROCEDURE USING L/C AS MODE OF SETTLEMENT. L/C Flow Chart 5 1 11 2 10 6 4 9 7 8 3 Step 1 Seller and Buyer conclude a sales contract, with method of payment by letter of credit (documentary credit). 2 Buyer applies to his issuing bank , usually in Buyer's country , for letter of credit in favour of Seller (beneficiary). 3 Issuing bank requests another bank, usually a correspondent bank in Seller's country, to advice, and usually to confirm, the credit to seller. 4 Advising bank , usually in Seller's country , forwards letter of credit to Seller informing about the terms and conditions of credit. 5 If credit terms and conditions conform to sales contract, Seller prepares goods and documentation, and arranges delivery of goods to carrier. 6 Seller presents documents evidencing the shipment and draft (bill of exchange) to paying, accepting or negotiating bank named in the credit (the advising bank usually), or any bank willing to negotiate under the terms of credit. 7 Bank examines the documents and draft for compliance with credit terms. If complied with, bank will pay, accept or negotiate. 8 Bank, if other than the issuing bank, sends the documents and draft to the issuing bank. 1 Seller/Exporter (Beneficiary) Buyer/Importer (Applicant) Advising Bank Issuing Bank
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9 Bank examines the documents and draft for compliance with credit terms. If complied with, Seller's draft is honored. 10 Documents released to Buyer after payment, or on other terms agreed between the bank and Buyer. 11 Buyer surrenders bill of lading to carrier (in case of ocean freight) in exchange for the goods or the delivery order. The Parties To and Associated With a Letter of Credit Applicant The applicant is the party who requests and instructs the issuing bank to open a letter of credit (L/C) in favor of the beneficiary. The applicant usually is the importer or the buyer of goods and/or services. The applicant in the sample letter of credit is DEF Imports . Beneficiary The beneficiary is the party in whose favor a letter of credit (L/C) is opened by the issuing bank. The beneficiary usually is the exporter or the seller of goods and/or services. The beneficiary in the sample letter of credit is UVW Exports .
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