The LC Letter of Credit is a fundamental instrument in international trade finance, particularly crucial for transactions where parties seek security and risk mitigation. Under U.S. jurisdiction, primarily governed by UCC Article 5 and complemented by international practices (UCP 600), this document serves as a bank's irrevocable promise to pay on behalf of a buyer. It's typically used when parties are in different countries, when they don't have an established trading relationship, or when regulatory requirements mandate its use. The document includes critical details such as payment terms, document requirements, shipping conditions, and compliance criteria. Letters of Credit are particularly valuable in high-value transactions or when dealing with new trading partners, offering protection to both buyers and sellers by ensuring that payment will only be made upon presentation of compliant documents evidencing the completion of the specified transaction.
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1. Letter Reference Number: Unique identification number of the LC
2. Date of Issuance: Date when the LC is issued
3. Type of Credit: Specification of whether it's irrevocable or revocable (though almost always irrevocable under UCP 600)
4. Applicant Details: Full name and address of the party requesting the LC (buyer/importer)
5. Beneficiary Details: Full name and address of the party in whose favor the LC is issued (seller/exporter)
6. Currency and Amount: Currency and amount of the LC in both figures and words
7. Expiry Date and Place: When and where the LC expires
8. Available With/By: Name of the bank where credit is available and manner of availability
9. Partial Shipments/Transhipment: Whether these are allowed or prohibited
10. Port of Loading/Discharge: Shipping details including ports and latest shipment date
11. Document Requirements: List of required documents for LC compliance
12. Goods Description: Brief description of goods/services covered by the LC
13. Payment Terms: When and how payment will be made (at sight, deferred payment, etc.)
1. Transferability Clause: Include when the LC needs to be transferable to another beneficiary
2. Red Clause: Include when advance payment to the beneficiary is permitted
3. Green Clause: Include when storage of goods is involved with advance payment
4. Revolving Credit Terms: Include for LCs that reinstate after each drawing
5. Back-to-Back Provisions: Include when the LC supports a back-to-back credit arrangement
6. Special Conditions: Include any additional terms specific to the transaction
7. Confirmation Instructions: Include when confirmation by another bank is required
1. Schedule A - Document Requirements: Detailed list and specifications of all required documents
2. Schedule B - Goods Specification: Detailed description of goods/services, including technical specifications if applicable
3. Schedule C - Payment Schedule: For usance LCs, detailed payment schedule and calculation method
4. Schedule D - Shipping Terms: Detailed shipping instructions and requirements
5. Appendix 1 - Form of Draft: Sample format of the bill of exchange to be presented
6. Appendix 2 - Form of Documents: Templates or formats for any special documents required
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