Elements of Letter of Credit (LC)
1. Beneficiary (Seller): The person to whom the Letter of Credit has been issued is the beneficiary.
2. Applicant (Buyer): The person who asks the bank to issue the Letter of Credit on their behalf.
3. Issuing Bank: The applicant’s bank, which is in charge of opening and issuing the Letter of Credit, is the issuing bank. Its responsibilities include confirming the applicant’s reliability, providing the LC, and making sure the terms and conditions match the instructions provided by the application.
4. Advising Bank: The bank that serves as the link between the beneficiary and the issuing bank is the advising bank, and it is situated in the beneficiary’s nation. It notifies the beneficiary of the LC’s existence and may, if necessary, confirm the LC.
5. Expiration Date: The last day for the beneficiary to deliver the necessary paperwork to the bank to receive payment is known as the LC’s expiration date.
6. Documents Needed: The LC outlines all the paperwork the recipient has to bring to the bank in order to get paid. Invoices, bills of shipment, certificates of origin, inspection documents and packing lists are examples of common paperwork.
7. Amount: Upon fulfilment of the terms and conditions of the LC, the beneficiary will receive the amount specified in the LC.
8. Currency: The LC specifies the currency that will be used for the transaction.
9. Location of Presentation: This is the address where the beneficiary has to show the bank, typically the advising bank, all the necessary paperwork.