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Letter of Credit Meaning

How to get a letter of credit with some simple steps and easy documentation.
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Letter Of Credit

A Letter of Credit is a piece of instrument, generally provided by the Bank that gives a gurantee of payment from the buyer to the seller. If the buyer couldn’t able to make such payment due to any reason, then the Bank takes the responsibility to pay full or the remaining amount on behalf of the buyer.


There are mainly four Types of letters Credit of credit examples.

  1. A revocable Letter Of Credit
  2. Revolving Letter Of Credit
  3. A standby Letter Of Credit
  4. Irrevocable Letter OF Credit

 Also Read:-Supplier credit and Buyers credit

How to Open an Letter of Credit?

Signature a sale contract: At first importer needs to find a supplier. Then sign a sales contract with supplier.

Request for Letter OF Credit application-Once the sales contract is duly signed the importer request for letter of credit application to his bank in favor of the exporter.

Complete the Letter OF Credit application form:- Cross check yourself whether all points are properly mentioned in sale contract, then ask your bank to provide a Letter Of Credit application form which needs to be filled with correct value to submit.

Evaluation of application: here the Letter of Credit is Issued by analysis the letter of credit application.

Approval of the application. - The issuing bank made the letter of credit and send it to the importer for approval.

 Document Requested In Letter of Credit CREDIT?

These are some documents you required:-

Commercial invoice- Commercial invoice is a document between supplier and the customer. It describes the goods sold to a customer and the amount due to the customer.

Transport Document: - A transport document is a kind of document used to communicate with someone directly about the goods that are carried in a ship or an airway that is being transported.

Insurance Document: - The documents refer to the proof of the contract between the insurer and the insured.

Inspection Certificate: -A inspection document certifying that perishable goods were in good condition at the time of inspection.

Certificate of Origin: - The certificate of origin refers to the information regarding the goods, their destination, and the country goods are exporting.

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