21 Letter of Credit
What is Letter of Credit ? what is Deferred Letter of Credit ? Where to use? & How to get it from 3rd party bank ?
What is a deferred payment credit (LC)?
A deferred payment credit (LC) specifies a maturity date for payment of drawings under the LC. Payment is made after a set number of days from an event like shipment or invoice.
How does a deferred payment LC differ from a sight payment LC?
A deferred payment LC allows payments to be made at maturity, while a sight payment LC requires immediate payment upon presentation of documents.
What are the different methods of LC availability as per the Uniform Customs and Practice for Documentary Credits (UCP)?
The methods include deferred payment, acceptance, and negotiation. Each represents a different approach for how a nominated bank (NB) or issuing bank handles the credit.
How does a nominated bank honor a deferred payment LC?
A nominated bank honors a deferred payment LC by incurring a Deferred Payment Undertaking (DPU) and making the payment at maturity.
What is the role of a nominated bank in an acceptance credit?
In an acceptance credit, a nominated bank honors the credit by accepting a bill of exchange drawn by the beneficiary and paying at maturity.
What happens in a negotiation credit?
In a negotiation credit, a nominated bank advances funds to the beneficiary before the maturity date, with reimbursement expected from the issuing bank.
What is a nominated bank (NB)?
A nominated bank is a bank with whom the LC is available, apart from the issuing bank, and the beneficiary can present their documents to this bank.
Can a nominated bank act without a prior agreement with the beneficiary?
No, a nominated bank is not obligated to act on its nomination unless it has expressly agreed to do so with the beneficiary.
Why are deferred payment LCs issued instead of sight payment or negotiation LCs?
Deferred payment LCs are often issued to avoid drafts or stamp duties in certain jurisdictions. They are a direct alternative to acceptance credits.
How does the use of drafts differ between deferred payment and negotiation LCs?
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In deferred payment credits, drafts can be avoided, just like in negotiation credits. However, drafts are typically used in negotiation credits as a legacy practice.
What is the issuing bank's obligation in a deferred payment LC?
The issuing bank is obligated to honor a complying presentation, and if the nominated bank does not honor or negotiate, the issuing bank must pay at maturity.
Can a negotiation credit be issued when there is no nominated bank (NB)?
No, negotiation credits require the presence of a nominated bank to advance funds before reimbursement, so they cannot be issued solely by the issuing bank.
What happens if the nominated bank is prepared to act on its nomination under a deferred payment LC?
If the nominated bank is prepared to act on its nomination, it incurs a Deferred Payment Undertaking (DPU) and ensures payment at maturity, offering a commitment to pay in addition to the issuing bank’s undertaking.
What is the most convenient LC availability for the beneficiary?
Availability by negotiation would be the most convenient if the nominated bank is willing to negotiate or advance funds to the beneficiary.
What is the ideal method of LC availability for a beneficiary?
For a beneficiary, if the nominated bank is prepared to act on its nomination under a deferred payment credit, it provides an ideal method of availability due to the additional commitment to pay.
120-Character Rich Description:
Deferred payment credits allow payment at maturity, offering flexibility for beneficiaries and minimizing drafts.
80-Character Rich Keywords:
Deferred payment LC, nominated bank, acceptance credit, negotiation credit, UCP
Are your looking for Letter of Credit? or Deferred Letter of Credit ? Here, we can support !