Letter of credit is used in both International and Domestic transactions. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letter of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of the letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped. Further, letter of credit is a cost-effective source of finance for working capital as the bank only charges commission as against interest in case of Cash Credit or Overdraft facility.
A commercial letter of credit is a legal document from a bank or a financial institution. It represents a promise to pay the holder if he fulfils his obligation. Sellers in international transactions often require a guarantee of payment. This guarantee comes from the bank in the form of a letter of credit. If the buyer fails to make payment against his purchases, the bank will cover the full or remaining amount of the purchase
The same LC becomes an export or import LC depending on who uses it. The exporter will term it as an exporter letter of credit whereas an importer will term it as an importer letter of credit.
A letter of credit that allows a beneficiary to further transfer all or a part of the payment to another supplier in the chain or any other beneficiary. This generally happens when the beneficiary is just an intermediary for the actual supplier. Such LC allows the beneficiary to provide its own documents but transfer the money further.
A letter of credit that doesn’t allow the transfer of money to any third parties. The beneficiary is the only recipient of the money and cannot further use the letter of credit to pay anyone
An LC that issuing bank or the buyer can alter at any time without any notification to the seller/beneficiary. Such types of letters are not in use frequently as the beneficiary is not provided any protection.
An LC that does not allow the issuing bank to make any changes without the approval of all the parties
A standby letter of credit, abbreviated as SBLC, refers to a legal document where a bank guarantees the payment of a specific amount of money to a seller if the buyer defaults on the agreement. An SBLC acts as a safety net for the payment of a shipment of physical goods or completed service to the seller, in the event something unforeseen prevents the buyer from making the scheduled payments to the seller. In such a case, the SBLC ensures the required payments are made to the seller after fulfillment of the required obligations.
Which the seller or exporter acquires the guarantee of payment from a confirming bank (also called the second bank). This is primarily to avoid the risk of non-payment from the first bank
A letter of credit that is assured only by the issuing bank and does not need a guarantee from the second bank. Mostly the letters of credit are an unconfirmed letter of credit.
When a single LC is issued for covering multiple transactions in place of issuing separate LC for each transaction is called revolving LC. They can be further classified into Time Based (Could be Cumulative or Non-Cumulative) and Value-Based
Back to back LC is an LC which commonly involves an intermediary in a transaction. There are two letters of credit, the first issued by the bank of the buyer to the intermediary and the second issued by the bank of an intermediary to the seller.
A letter of credit that partially pays the beneficiary before the goods are shipped, or the services are performed. The advance is paid against the written confirmation from the seller and the receipt.
An LC that pays advance to the seller is just not against the written undertaking and a receipt, but also a proof of warehousing the goods.
A letter of credit that demands payment on submitting the required documents. The bank reviews the documents and pays the beneficiary if the documents meet the conditions of the lette
An LC that ensures payment after a certain period. The bank may review the documents early but the payment to the beneficiary is made after the agreed-to time passes. It is also known as Usance LC.
A letter of credit where the issuing bank directly pays the beneficiary and then asks the buyer to repay the amount. The beneficiary may not interact with the buyer.
An inland letter of credit is exactly like a regular letter of credit. The only difference between the two is that a regular letter of credit is used for international transactions, whereas the inland letter of credit is used for domestic transactions. Consequently, we can say that this letter of credit is a payment instrument used to facilitate domestic trade.
| Sr. No | Self Employed Individuals having | |||
|---|---|---|---|---|
| Proprietorship Firm | Partnership Firm | Private Limited and Limited Company | ||
| KYC Documents | ||||
| 1 | PAN Card | PAN Card | PAN Card | |
| 2 | Aadhar Card | Aadhar Card | Aadhar Card | |
| 3 | Current resident address proof | Current resident address proof | Current resident address proof | |
| 4 | Office Address Proof | Office Address Proof | Office Address Proof | |
| 5 | GST Registration Certificate | GST Registration Certificate | GST Registration Certificate | |
| 6 | Partnership Deed | MOA and AOA | ||
| 7 | List of partners and shareholding pattern onletter head | List of Directors and Shareholding pattern on letter head | ||
| Income Documents | ||||
| 1 | GST Returns – 1 Year | GST Returns – 1 Year | GST Returns – 1 Year | |
| 2 | Income Tax Returns – 3 years | Income Tax Returns – 3 years | Income Tax Returns – 3 years | |
| 3 | Bank Statement – 1 year | Bank Statement – 1 year | Bank Statement – 1 year | |
| Additional Documents Generally Required | ||||
| 1 | Existing loan – Sanction letter (if any) | Existing loan – Sanction letter (if any) | Existing loan – Sanction letter (if any) | |
| Sr. No | Document |
|---|---|
| 1 | Sale Agreement or Sale Deed with Registration Receipt, Stamp Duty, Index II |
| 2 | Chain of Agreement
with Registration Receipt, Stamp Duty, Index II This is required is there are resale transactions |
| 3 | Share Certificate |
| 4 | Occupancy Certificate ( OC ) |
| 5 | Commence Certificate ( CC ) |
| 6 | Approved Building Plans |
| 7 | Building Completion Certificate |
| 8 | Society Registration Certificate |
| 9 | Tax Paid Challan |
| 10 | Society Maintenance Receipt |
| Note: - As there are different properties types like residential, commercial, industrial, etc. Property documents required will always change based on type of property and location at which the property is located. We have just given the general list of property documents. | |
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