Importer Credit Letter
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An importer letter of credit is a bank's undertaking that the importer has to pay the exporter, the value of goods delivered or to be delivered, once the required documentation is complete.
When a contract of trade is signed between the importer and the exporter, the importer contacts his/her bank to request issuance of a letter of credit to the exporter. Once the exporter agrees to the credit letter's terms and conditions, the letter is then said to become irrevocable and it is no longer subject to alteration without consent of all the parties involved in the trade.
Upon delivery of the ordered goods, the exporter submits all the trade related documents requested by the bank issuing the import letter of credit. The bank in turn examines all documents for any discrepancies and reports them to the importer who may then accept or refuse the trade. Once the importer accepts the trade, the bank accordingly makes payment of the agreed amount to the exporter and immediately releases the documents to the importer.
In certain cases, the importer may intend to pay for the shipment on a future date, agreed by the exporter of course, thereby requesting a supplier's credit from the exporter. Here, the documents submitted by the exporter will be released to the importer only after the payment.
Following are certain documents that are required by the bank issuing the letter of credit -
Why do traders opt for a letter of credit?
Overseas trades have become quite risky these days in terms delivery of goods for the importer as well as payment of the delivered goods for the exporter. To be precise, when unfamiliar parties are involved in the trade, the safest way of ensuring delivery of goods ordered and payment for the goods delivered is with the help of an importer credit letter.
All letters of credit are administered in accordance to the rules set by ICC - International Chamber of Commerce where they have given significance to the traders' security and obligations. Hence trade parties feel secure throughout the process.
Name of the issuing bank
Date of issue: _____________.
Upon request of our customer, ____________ (name of the importer/applicant), we under the financial support of ________________ (name of the issuing bank), hereby establish this letter of credit in favor of ___________ (name of the exporter) for a total amount of $__________ from account number - ___________(a/c no. of the importer).
We authorize you to draw the above mentioned sum of dollars as your payment after the shipment of goods, only upon submission of originals of all the following trading documents:
We honor your trade and we expect you to abide by the terms and conditions of this letter mentioned below:
This letter of credit is in accordance to Uniform Customs and Practice for Documentary credits which is under constant regulation by the International Chamber of Commerce and is subject to alteration only with the consent of all parties involved in the trade.
Name of the bank
Name and position of the bank authority
Kindly note that the above sample is just an example for import letter of credit and it is meant only for your reference. Kindly restrain from copying it entirely for every bank's letter of credit varies. Also, you can look Advised Credit Letter Samples and Credit Card Transaction Letter Examples for more letters.