Garments 4 Lecture Commercial Activities In Garments : What Is Letter Of Credit: A Close Look ___

IN Order to know about the commercial activities at first we have to know that what is Letter of credit . A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services. The seller then seeks reimbursement (compensation paid to someone for damages or losses or money already spent etc. ) from the buyer or from the buyer's bank. The letter of credit also insures that all the agreed upon standards and quality of goods are met by the supplier.

Letters of credit are used primarily in international trade for large transactions between a supplier in one country and a customer in another. The most important things about Letters of credit is that almost all letters of credit are irrevocable, (i.e., cannot be canceled without the consent or Permission of the beneficiary, issuing bank, and confirming bank, if any.)

Master L/C :
Generally we know that the procedures of master L/C is :

It goes Buyer To Supplier . ( Buyer

Supplier )

Back To Back L/C :

It goes Supplier To Sub-Supplier . (Supplier Supplier )

Back To Back L/C Flowchart :

BTB FLOWCHART
DHAKA BANK PRIME TEXTI LE LTD RUPALI BANK VAI MUNNA GARMENTS UBL DHAKA SUPPLIERS FABRICS BANK SUPPLIER LC ISSUING BANK/ NEGOTIATING BANK 2 ND BENEFICIARY/ EXPORTER TRANSFERRING BANK

ZXY Buying

SCB DHAKA

AMEX NEWYORK

JC PENNY

FIRST BENEFICIARY

ADVISING BANK

LC ISSUING BANK

BUYER/ APPLICANT

The Process :
JC Penny is the buyer or applicant . JC Pennys Bank Is Amex New York Which is the LC Issuing Bank . JC penny placed an order To ZXY buying , which is first beneficiary But Buyes bank JC Penny Dont know the traders bank .. So SCB is the advising bank and SCB shows that UBL is the traders bank and also its the transferring bank .. When UBl received the L/C , Then UBL transferred the L/C to the Negotiating Bank which is Rupali bank ( Bank of 2nd Beneficiary) ZXy give the works to VAi MUnna Garments and his bank is Rupali Bank Rupali Bank received Back to Back L/C from UBL .. Vai munna garments (2nd beneficiary) will give the order to the fabric supplier which is Prime Textile And his bank Is Dhaka bank When All the documents are ready , payments will be processed to the UBL ( zxy s Bank) . Without pay order JC Penny will not give the payment to ZXY .

Essential Short Terms :

Proforma Invoice : Also Know As PI . When We open the L/C , it is mandatory for a supplier to complete PI and give it to the buyer Either E-mail or Personally .

Purchase Order :
Also Known as PO . When we confirm the order from the buyer , buyer will give a PO to Supplier . And the most important things is For Single delivery (whole Garments) , Buyer gives Just single PO . But , if we request double or multiple delivery , then buyers will give multiple PO ( Each PO For Single Delivery) .

Trans Shipment:
Two ways Of Trans Shipment -------1. Sea (vessel ) and 2. Air way

Generalized System Of Preferences (GSP)

The Generalized System of Preferences (known as GSP for short) is a scheme whereby a wide range of industrial and agricultural products originating in certain developing countries are given preferential access to the markets of the European Union. Preferential treatment is given in the form of reduced or zero rates of customs duties. The GSP scheme is specifically designed to benefit certain developing countries and integrate them into the world economy.

What Countries are eligible To Benefit Under GSP :

Three distinct categories of countries can benefit under the GSP scheme provided the goods are produced in accordance with the relevant rule of origin

Developing countries/territories enjoy preferential access to EU markets Least developed developing countries (LDDC) benefit from zero duty on import into the EU for all products of Chapters 01- 97 with the exception of Chapter 93.

Special incentive arrangement for sustainable development and good governance - GSP+

Documents Required For Exports:

1. Companies Trade License ( Given By City Corporation ) 2. Certificate Of Incorporation ( If The companies share is Joint or Joint venture Company Then It Is Needed ) Given By --- RJSC ( Registered Joint Stock Comapany ) 3. Memorandum Of Association (Given By --- RJSC ( Registered Joint Stock Comapany ) 4. TIN (Tax Identification Number) Certificate ----- NBR (National Board Of Revenue) 5. Banks Current Account 6. Membership Of BGMEA , BKMEA , DCCI , BGBA . 7. ERC ( Export Registration Certificate) ---- Office of the Controller Of Export & Import. 8. VRC (vat Registration Certificate) ---- Customs 9. EXP ( Export Permission) ---- Bank 10. UD ( Utilization Declaration) Form

Documents Required For Import:

1. Companies Trade License ( Given By City Corporation ) 2. Certificate Of Incorporation ( If The companies share is Joint or Joint venture Company Then It Is Needed ) Given By --- RJSC ( Registered Joint Stock Comapany ) 3. Memorandum Of Association (Given By --- RJSC ( Registered Joint Stock Comapany ) 4. TIN (Tax Identification Number) Certificate ----- NBR (National Board Of Revenue) 5. Banks Current Account 6. Membership Of BGMEA , BKMEA , DCCI , BGBA . 7. IRC ( Import Registration Certificate) ---- Office of the Controller Of Export & Import. 8. VRC (vat Registration Certificate) ---- Customs 9. IMP ( Import Permission) ---- Bank 10. UD ( Utilization Declaration) Form

^^^ BGMEA Bangladesh Garments Manufactures And Exporters Association. BKMEA Bangladesh Knitting Manufactures And exporters Association . DCCI Dhaka Chamber And Commerce Industry . BGBA Bangladesh Garments Buying House Association.

***** Bond License : For Import Of Raw Materials ( Tax free) ***** Form C : If The Money that buyer gives to the correspondent Supplier crossed to 2,000 dollar , Then Form C Must BE filled up In order to occur any harmful activities against our laws But At present, now the range is Up to 5,000 Dollar

Sales Contract :
If L/C is not done, then sales contract will be the prominent ways for buyers and sellers.

Types Of Payment ( Sales Contract) :

There are basically four types of payments. They are ---1. 2. 3. 4. Letter Of credit (L/C) Telegraphic Transfer (TT) Documents Against Payment ( D/P) Documents Against Acceptance ( D/A)

Now we discussed briefly about these four types. 1. Letter Of Credit ( L/C) :
They are of two types :::: A. Sight L/C B. Deferred L/C A. Sight L/C : Generally it is known as L/C at sight, that means when buyers received the exact and verified documents from sellers, Payments is done Instantly. It is known as sight L/C B. Deferred L/C : When buyers received the exact and verified documents from sellers , Payments is done On these time and action basis ::::: 1. 2. 3. 4. 5. L/C at 30 days sight L/C at 45 days sight L/C at 90 days sight L/C at 120 days sight L/C at 180 days sight

2. Telegraphic Transfer (TT) :

Telegraphic Transfer or Telex Transfer, often abbreviated to TT, is an electronic means of transferring funds overseas. A transfer charge is collected while sending money. They are of two types : 1. Open TT 2. Conditional TT Open TT : NO Required conditions . If all the documents are ok then buyers transfer the money to the sellers bank .

Conditional TT : Required conditions. If all the documents are ok and fulfill the required conditions that quoted in the documents then buyers transfer the money to the sellers bank .

3. Documents Against Payment ( D/P) :

Its a very risky payments methods. Buyers and sellers works under sales contract. In general , it is a Payment method under which an exporter instructs the presenting bank to hand over shipping and * title documents to the importer only if the importer fully pays the accompanying bill of exchange or draft. Also called cash against documents. Title Document: Formal commercial document (such as bill of sale, certificate of title, title deed) or shipping document (such as a bill of lading, dock receipt, warehouse receipt) that confers and/or proves ownership. A document of title enables its holder (possessor) to receive, retain, sell, or otherwise dispose of the document and the goods or property listed therein.

Reason Of Riskiness :
1. Chances of Money Manipulation. 2. No party couldnt believe each other.

4. Documents Against Acceptance :

Buyers and sellers works under sales contract. In general , it is a Payment method when seller gives proper documents then payments will be as of 1. D/A at 30 days 2. D/A at 60 days 3. D/A at 45days 4. D/A at 120 days 5. D/A at 180 days

Documents Required for Buyer And seller Before Order Confirmation :

1. Technical Package ( includes style , measurement , sketch ,design etc. ) After seeing technical package seller has to made Consumption Of that Garments.

Documents Required for Buyer And seller After Order Confirmation :

1. 2. 3. 4. 5. PO (purchase Order) --- Buyer To Supplier . PI ( Proforma Invoice) --- Supplier To Buyer . Master L/C ---- Buyer To Supplier .. B2B L/C ---- Supplier To Sub-Supplier Sales Contract ( Instead Of L/C)

Documents Required for Buyer And seller After Delivery :

1. Commercial Invoice --- Supplier To Buyer ( One kind Of Cash meme , But Its In the upgraded form Includes buyers name , quantity , Sellers name etc.) 2. Packing List ---- Supplier To Buyer ( Size details , cartons etc) 3. Bill of lading (either Sea shipment Or AWB Air Way Bill) --- Freight Forwarding Agent To Supplier To Buyer **** FFA (Freight Forwarding Agent ) : They are the agents who forwarding the freight or goods to the buyers Destination safely Buyer Paid the Freight Forwarding Agent .

How To Setup A garments Buying House : Types :

1. Traders ( Middleman or Third party) : Either Local or Foreigner. 2. Buyers Liaison Office ( Foreign ) I.E. Gap , Levis ( Those Who Buy And Sell )

Tools Required To Setup A Buying House :

1. 2. 3. 4. 5. 6. 7. 8. 9.

An office room Internet with pc Scanner Printer Photocopier Digital camera Sample show-case Furniture Land Phone

Documents Required For Setting up A Buying House :

1. Trade License 2. TIN 3. Current Bank Account 4. Bangladesh Bank Permission 5. Certificate Of Incorporation 6. Memorandum of association 7. Membership 8. ERC 9. VRC 10.EXP 11.UD

Knowledge Required For Setting up A Buying House :

1. All spinning Mills In Bangladesh .. 2. All Fabric manufacturers in Bd. 3. All Fabric Traders In Bd. 4. All Washing Factories In Bd. 5. All Accessories Manufacturers In Bd. 6. All Accessories Traders In Bd. 7. All testing houses in Bd. 8. All Printing Factories In Bd. 9. All Embroidery factories in Bd. 10.All Knit Garments Manufacturers In Bd.

**** C& F Agent ( Clearing And Forwarding ) : Agents worked for Custom clearance and then forward it to the ships or Air

-------------------- Prepared BY Nayim ----------------------