The importance of Commercial department is vastly. They have to make
all shipping documents; Export and import follow up, purchasing foreign items, opening LC.
There are different kinds of L/C such as-
1) Revocable L/C.
2) Irrevocable L/C.
3) Confirmed L/C.
4) Back to Back L/C.
5) Revolving L/C.
6) Stand by L/C.
8) Sight L/C.
9) Red clause L/C.
10) Transferable or divisible L/C
Constitute a definite undertaking of the issuing bank; provided that
the stipulated documents are presented the terms and conditions of the credit
are complied with:
The full name of L/C is IRREVOCABLE LETTER OF CREDIT which means once
it is issued by the bank for the buyer and received and accepted by
beneficiary(the seller), it cannot be canceled or withdrawn by the buyer or the
opening bank, unless with the consent of the beneficiary. In short, once the
buyer opens the L/C from his bank to cover the goods he has purchased, he will
have to pay for the goods when the seller ships the goods exactly a per the
terms stipulated in the L/C. Therefore, as far as the seller is concerned, the
sooner he has the L/C on L/CS can be opened in many ways, but in essence, it is
a promise the buyers bank make to the supplier, to pay him when he does certain
things with evidence to prove. Therefore when the suppliers receive an L/C he
must read the terms carefully to make sure he is capable of fulfilling them all
exactly as they are written.
Confirmed letter of credit:
This is such a credit for which exporter’s bank gives all sort of
surety for the advance of payment.
Back to Back L/C:
Which L/C issued against the original Master L/C is called B/B L/. A
back to back L/C is a letter of credit issued for the account of a buyer, who
is already holding an Master L/C in his or her favor. The back to back L/C is
issued in favor of the supplier to import raw materials required to produce the
item meant for export as stipulated in the credit being held by the buyer.
Sight L/C:
It means when the shipper ships the goods covered by the L/C, and
presents the documents to the bank for negotiation. When the documents are send
by the negotiating bank to the L/C opening bank, the L/C opening bank will effect payment to
the negotiating bank immediately. Such L/Cs usually say “AT SIGHT” which means
“pay when the bank sees the documents”.
Revolving L/C:
It means that the beneficiary can draw money from such L/C up to the
amount specified by means of documents, and after drawing, the amount draw will
automatically be replenished and is available for another drawing and another
drawing, and so on.
Revolving L/Cs are good for the buyer and the supplier to cover
purchase made regularly as one L/C can be used many times saving a lot of paper
work as well as L/C opening charges at both ends.
Transferable or Divisible L/C:
A transferable credit is a credit under which the beneficiary has the
right to request the bank called upon to effect payment or acceptance or any
bank entitled to effect negotiation to make the credit available in whole or in
part to one or more other parties(second beneficiaries).
Idea About at Sight at L/C.
It means when the shipper ships the goods covered by the L/C, and
presents the documents to the bank for negotiation. When the documents are send
by the negotiating bank to the L/C opening bank, the L/C opening bank will effect payment to
the negotiating bank immediately. Such L/Cs usually say “AT SIGHT” which means
“pay when the bank sees the documents”.