Letter of credit is a very populer means if international trade. It plays vital role in execution of trading goods from one country to another. It helps the importer and exporter to mitigate their risks and responsibilities. It also ensures the receive and payment of the concerned bill in international trade. It requires various procedures to be observed by the concerned parties especially for the bank..
Definition of Letter of Credit:
Letter of Credit (L/C) can be find as a "Credit Contract" whereby the buyers bank is committed (on behalf of the purchaser) to place certain amount of money at the sellers disposal under certain terms and conditions. The Letter of Credit is also called the Documentary Letter of Credit, Because the terms ans conditions include, amongst other things the presentation of some specified documents.
The Uniform Customer and practice for Documentary Credits, 1993 Revision, ICC Publication No 500 applies to all Documentary Credits (Including to the extent to which they may be applicable, stand by Letters of Credit) where they are incorporated into the text of the credit. They are binding on all parties thereto, unless otherwise expressly stipulated in the credit. The UCPDC 1993 Revision, Publication no 500 defines Documentary Credit any arrangement, however named or described, whereby a bank (the Issuing Bank) acting at the request and on the instructions of a customer ( the applicant) or on ots own behalf.
-- Is it to make a payment to or to the order of a third party ( the beneficiary) or is to accept and pay bills of exchange ("Draft") drawn by the beneficiary, or
- authorizes another bank to effect such payment or to accept and pay such bills of exchange (Draft)
-- authorizes another bank to negotiate, against stipulated documents provided that the terms and conditions are complied with..
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