How to fill Letter of credit Application📝

Summary

Highlights

• Step-by-step walkthrough of filling out an LC application form, crucial for secure international trade. 🌎
• The role of Swift and why it's the faster choice between issuing options. 📡
• Setting an expiry date is vital—learn how shipment and presentation days affect it. 📆
• Double-confirmation on credit—what it means and when it's necessary. 🔍
• Guidance on deferred payments and how they alter receipt timelines. ⏳

Key Takeaways

• Learn how to accurately fill out an LC application post-contract signing. 📝
• Understand why the Swift method is preferred for quicker processing. 🕒
• Know the importance of correctly setting an expiry date and shipment details. 📅
• Get insights on options for payment confirmation to safeguard transactions. 💰
• Explore the flexibility of shipment options and the role of Incoterms. 🚢

Overview

Starting with the basics, this video demonstrates how to correctly fill out a Letter of Credit application form. Essential for anyone engaged in international trade, the session kicks off with the importance of knowing the contract terms and how they shape the details you fill in the form, like the buyer and seller information.

The host offers a practical tip: selecting Swift for document issuance due to its speed over courier methods. The video continues to describe setting expiry dates properly—highlighting how shipment and presentation days come into play in determining the timeline for your trade documentation's validity.

The second half of the instruction explores more sophisticated concepts like confirming credit, an added layer of protection that secures payment if the issuing bank fails. Closing with shipment terms and Incoterms, the tutorial ensures you understand each checkbox and choice on the form, making you adept at handling LC applications.

Chapters

• 00:00 - 00:30: Introduction to Filling LC Application Form This chapter explains the process of filling out an LC (Letter of Credit) application form after a contract is signed and terms agreed upon. The chapter emphasizes the importance of approaching the bank to obtain the LC application form and the necessity of providing detailed buyer (importer) and seller information in the form. The example assumes the filler's location is UA and the seller's unspecified location.
• 00:30 - 01:00: Choosing Swift for Issuance The chapter titled 'Choosing Swift for Issuance' discusses the advantages of selecting Swift over courier services for issuance, highlighting Swift's superior speed. It appears to be part of a guide or tutorial, as the transcript involves choosing random names and demonstrating the process step by step. The focus is on efficiency in choosing methods of issuance, with a brief allusion to additional details such as expiration dates.
• 01:00 - 02:00: Determining Expiry Date The chapter discusses how to determine the expiry date in a Letter of Credit (LC). It uses a scenario where the shipment date is on December 1st, and there is a provision of 21 days for the supplier to present the document to the advising bank. Additionally, grace days are provided to account for potential late shipments due to unforeseen circumstances.
• 02:00 - 03:00: Presentation and Amount Details The chapter discusses the details related to presentation and amounts in certain transactions, focusing particularly on shipment and expiry dates. The speaker mentions that typically there is a one-month gap between the shipment and expiry dates, and suggests setting the expiry date as December 30th. Additionally, there is a mention of China as the place of presentation.
• 03:00 - 04:30: Supply Tolerance and Confirmation In the chapter titled 'Supply Tolerance and Confirmation,' the discussion revolves around the logistical and procedural aspects of presenting banking documents in a Chinese bank. The speaker mentions that the individual is unable to travel to UA to present these documents in person and discusses financial logistics such as maintaining an amount of 100,000. There is an emphasis on the necessity of providing supply bank details, including the bank name and account number, although the latter is not mandatory. However, the SWIFT code is highlighted as mandatory, underscoring its importance in international financial transactions.
• 04:30 - 06:00: Payment Options This chapter discusses the available payment options for claims. One option ensures that claims do not exceed a total of $100,000. It also addresses cases where a tolerance must be provided to the supplier, particularly when purchasing from a manufacturing unit, as the requested quantity may sometimes differ from the received quantity.
• 06:00 - 07:30: Shipment Details In this chapter, the focus is on shipment details involving a specific order and delivery situation. It is mentioned that although an order was placed for 900 units, the actual production resulted in 910 units. Consequently, the supplier delivered the surplus quantity of 910 units despite the original order. This instance is indicated as uncommon, yet possible, in the manufacturing process.
• 07:30 - 09:00: Partial Shipment and Transshipment The chapter discusses the concept of partial shipment and transshipment in the context of international trade. It highlights the role of confirmation in letters of credit, explaining that confirmation serves as a double assurance from a second bank. This becomes relevant if the issuing bank fails to honor the payment, due to various possible reasons.
• 09:00 - 10:00: LC Description and Inco Terms The chapter discusses the potential risks associated with issuing banks in the context of letters of credit (LC) and Inco terms. Specifically, it highlights the possibility of an issuing bank going bankrupt. This risk is associated with certain factors such as the bank's location in politically unstable regions, areas prone to natural disasters like earthquakes, or other unforeseen circumstances that may affect the bank's stability.

How to fill Letter of credit Application📝 Transcription

• 00:00 - 00:30 let us understand here how to fill the LC application form now that your contract is signed and the terms has been agreed as letter of credit so now you want to open the LC so you approach the bank and Bank gives you this LC application form so here you need to provide the buyer information the Importer and here you need to provide the seller information so we'll start filling this so let us assume that we are based in UA and the seller is based in uh
• 00:30 - 01:00 maybe China so I'll choose any random [Music] name so next we have here is issue by Swift or through career so we'll choose this as Swift as this is a faster way compared to The Courier and the next we have here is expiry date so how do we we
• 01:00 - 01:30 determine the expiry date in the LC let's assume the shipment date is 1st of December and the presentation days the days we give to the supplier to present the document to the advising bank is 21 days and we'll give him the grace days in case of maybe there is a late shipment due to unforeseen
• 01:30 - 02:00 circumstances [Music] so so this will be my expired date so the gap between the shipment date and expiry date is usually 1 month so you can keep it as a 30th of December so we will mention here the place of presentation as China as he
• 02:00 - 02:30 will be presenting the documents in his Chinese Bank he cannot come to UA to present the document and the amount here will keep it as 100,000 so here you will mention the supply Bank details so the bank name Ian number not mandatory but this is Mand shift code is mandatory
• 02:30 - 03:00 we have two options here uh if you want your claim not to exceed this 100,000 you will choose this option here uh in some cases you need to provide the supply with the tolerance especially if you are buying from the manufacturing unit sometimes the quantity uh requested May differ from the quantity we receive from the supplier
• 03:00 - 03:30 uh let's say here you ordered 900 M but after the production it was 910 the quantity produced was 910 so he supplied the same so it's not always the case it's very unusual but it happens with the manufacturing unit
• 03:30 - 04:00 and it is very common and the next we have here is confirmation of the credit a few Supply may ask for the confirmation on letter of credit but it's not always the case now what is confirmation it's just a double Assurance from the second bank if the first bank that is issuing bank is failing to honor the payment now why should Bank fail to make the payment the reasons may be many let's understand
• 04:00 - 04:30 understand the issuing Bank may go bankruptcy in some cases will mention here as bankruptcy or maybe the issuing bank is located in country of wall or uh Place R to earthquake
• 04:30 - 05:00 so in such cases the supplier doesn't want to take any chance so he wanted to secure his payment so is requesting for the double confirmation from the other bank so the charges will be upon the beneficiary because this is upon his request we are uh adding the confirmation and the next options we have here is a credit available with so if you're choosing payment at site the supply will get the money immediately upon submission of of the complying
• 05:00 - 05:30 documents to the advising bank so by the word you can understand it site so upon sighting of the documents upon seeing of the document bank has to pay him immediately yes of course we have to consider the minimum turnaround time uh required uh for verification and the the internal process from the bank usually it takes 5 to seven working days so and the next we have here is deferred payment this payment will be made in the later stage whatever has been defined
• 05:30 - 06:00 here we can mention here as 30 days from invoice date or you can mention 30 days from shipment date so whatever has been defined here bank will make the payment on the basis of it so it's just a delay in the payment and uh we have here is uh mixed mixed can be like you wanted to pay 90 %
• 06:00 - 06:30 upon shipment and 10% after 1 year so and next we have here is shipment from uh if the shipment is coming from China so we'll mention any port in China so we'll mention the same thing here and shipment to
• 06:30 - 07:00 you mention any port in UA and you want to you want the shipment to come in specific Port so then you will mention this as uh if it is if the port is nearby uh to your company you will mention jabali port or you can mention it as Abu Dhabi port or fuera whatever it is so I'll mention
• 07:00 - 07:30 any put in here and the shipment date so it has been already agreed in the purchase purchase and sale agreement the shipment date will be 1st of December so we'll keep it as 1st of December and the next option we have here is partial shipment uh if you're keeping this as allowed
• 07:30 - 08:00 uh now the supplier has an option to partially ship few materials in one stage and the balance material in the latest stage let's say you have ordered 500 quantity so the supplier has an option to ship 300 quantity under one shipment and 200 quantity in the second shipment so and if you're choosing it as not allowed then it becomes obligatory to the supplier to ship all in uh one go
• 08:00 - 08:30 or all in under one shipment and the next we have here is trans shipment uh it's always recommended to keep this as not allowed unless there is no direct vessel coming from you know from China to UA now let's say the The Vessel has to come to Saudi first and it will gets unloaded there and it will reload to another vessel then it has to come to UAE because there is no any direct coming from China to UA
• 08:30 - 09:00 in such cases we can uh keep it as allowed and the next we have is description here uh we'll fill the description uh in this box so let's keep it very generate supply of material so whatever description you're mentioning here has to appear in all the commercial documents so we'll mention supply of material as per
• 09:00 - 09:30 Saye order number something like this so once this is done the next we have here is incor terms I'll make a separate video on incor terms because this video will be lengthy and long uh let's choose here CF as a incor terms uh here C refers to cost I refers to insurance and F refers to Fright charges so this all these charges has to be bor by the supplier and he has to uh arrange for
• 09:30 - 10:00 this