LETTERS OF CREDIT

BY: HEMANT DESHMUKH 18 Feb 2012

LC
LC is a financial instrument for settlement of trade

across the globe. Reinforces the buyers integrity, adding to it the bankers undertaking to make payment. Sellers need to make shipments of the goods specified and present the shipping documents before getting the payment. Rules under UCPDC 500 govern the LC transactions globally.

PROCESS FLOW
EXAMPLE: BHARAT ELECTRONICS has decided to import LCD screens from SANYO TRADERS in China.

Bharat Electronics is banking with SBI-Mumbai and Sanyo Traders is banking with HSBC-Shanghai.
Price agreed by the parties is USD 1,00,000. Payment is agreed to be executed via Letter of Credit.

1.

Importer and Exporter enter into a sales agreement and the seller issues a PROFORMA INVOICE to the buyer

PROFORMA INVOICE

BHARAT ELECTRONICS ( IMPORTER )

SANYO TRADERS ( EXPORTER )

PROFORMA INVOICE
Critical First Step
A PROFORMA INVOICE is an invoice provided by a supplier prior to the shipment of merchandise, informing the buyer of the kinds and quantities of goods to be sent, their value, and important specifications (payment terms, time of shipment, weights and dimensions, shipping terms, etc.). Essentially the proforma invoice is a quotation laid out in the format of your proposed billing invoice summarizing the key terms of your sales contract .