L/C ( LETTER OF CREDIT )

Through my work i noticed that several  importers and exporters don’t know about L/C ( letter of credit ),  they get it from their bank officer as it is, and they count that their bank officer will make the job instead of them, which may lead them to fall in a trap, since the bank officer don’t know the exact terms of the deal which his costumer closed with his supplier. as a case happen with one of my clients, that went to his bank and order to open L/C, he give to the officer all details about the product, quantity, price etc…and his bank do so. And he send the L/C to his supplier but he didn’t know that in his L/C section 43 it was written that a partial shipment was allowed, and his supplier instead of sending him the goods in one lot he has send him the goods in partial shipment, and since my client terms was buying on F.O.B condition it had cost him a huge extra costs of transportation and clearance which in the end he loose lot of money on this shipment . for that i decide to give a true sample of L/C with definition for every section (see below ), but before that will go through to understand about L/C and types of L/C. 

L/C ( LETTER OF CREDIT ): 

L/C is a payment method that secure the money for both parties, seller and costumer (buyer ). by this the bank of the costumer apply in behalf of  him to the supplier bank the amount of the goods that he need to pay once the seller deliver the goods to the costumer.  And the seller guarantee that his money will be paid from the costumer bank.

Once the L/C is opened and confirmed the costumer can not stop or cancel the payment if the seller fulfill his part as it agreed in the L/C conditions.

So the L/C is a contract that both banks, the costumer and the seller banks, they make it in behalf of their costumers to secure the payment.

For that, L/C you can draw it as your request, you can include all the conditions that you need from the seller to fulfill.

L/C should include the product name, specification of the product, quantity, packaging, port of delivery, latest time of shipment, documents needed, brand name if its required,  payment time, etc... 

TYPES OF L/C :

Will bring her the must common types: At sight or Delay payment and STBLC

L/C At Sight:

means that the payment will be made by the bank immediately after the vassal leave the seller port . once the bank of the costumer receive all the document from the seller  should transfer the money immediately with no delay.

L/C Delay Payment:

costumer and seller agree that the seller will receive the money after 30 days for an example ( or it could be any other period that they agree ). Once the seller fulfill his part of the agreement and send all the documents to the costumers bank then he will be paid at the same day that its agreed on the L/C.

STBLC ( standby letter of credit ):

it’s another kind of L/C that is more common to the companies that had a weekly or monthly shipment from the same supplier.  

STBLC is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party.

hereby sample of STBLC that i used by myself with explanation beside every section ( in blue color ).