Discuss the Procedures for Opening the L/C
Subject: Accounting | Topics:

Procedures for Opening the L/C:

The importer after receiving the proforma invoice from the exporter, by applying for the issue of a documentary credit, the importer request his bank to make a promise of payment to the supplier. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. As a rule accepted as the sole security for the credit particularly if they are not the short of commodity that can be traded on an organized market, such an arrangement would involve the bank in excessive risk outside its specialist field. The applicant must therefore have adequate funds in the bank account or a credit line sufficient to cover the required amount.

Banks deal in documents and not in goods. Once the bank has issued the credits its obligation to pay is conditional on the presentation of the stipulated documents within the prescribed time limit. The applicant cannot prevent a bank from honoring the documents on the grounds that the beneficiary has not delivered goods on redder reissues as contracted.



The importer submits the following documents before opening of the L/C:

Tax Identification Number (TIN)

Valid Trade License.

Import Registration Certificate (IRC)

The Bank will supply the following documents before opening of the L/C:

LCA form.

Application and Agreement form.

IMP form

Necessary charge documents for documentation.

The above documents / papers must be completed duly signed and filled in by the party according to the instruction of the banker.

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