A letter of credit, also called documentary credit and sometimes abbreviated as LC or LOC, is a promissory note extended by a bank or financing institution on behalf of a buyer to a seller guaranteeing the full or partial payment for a purchase. A letter of credit assures the seller he will receive full or the remaining partial payment for the sale from the issuing institution, regardless of the buyer's ability to pay.

Instructions

1

Identify lending institutions that grant letters of credit. There are many banks and financing institutions/entities that grant letters of credit so long as the applicants meet criteria such as creditworthiness, having assets that exceed their liabilities, and the legitimacy of the goods for which the letter of credit is being issued.

2

Apply for a letter of credit. Request an application package for a LOC from your bank or another lending institution. Provide the required personal and business information such as your full name, Employer Identification Number or Social Security Number, business name and address, description of the items/goods being purchased, the seller's name and address and the seller's bank.

3

Define in detail what you are purchasing and what documents the seller must present to the partner bank to collect payment. Specify those documents required to get the goods through Customs as well as those documents that correspond to the sales agreement, format purchase order or sales contract, such as a bill of lading, commercial invoice and certificate of origin.

4

Review all terms and conditions. Note the timelines/deadlines that you must meet and the terms of the sale. Complete your transaction with the seller within the terms of the agreement and the LOC.

 

( liyy )25 Sep,2010

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