Procedure for opening cash LC and deferred LC

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Formalities required/procedure for opening cash LC and deferred LC


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Formalities required/procedure for opening cash LC and deferred LC:

Formalities required/procedure for opening cash LC and deferred LC Lecturer: Ziauddin S.Ghani Executive Vice President & Manager Foreign Exchange Branch

Required Documents for Opening L/C::

Required Documents for Opening L/C: The person or institution, who comes to open L/C, must be an importer. There are Six types of importer. They are: 1. Commercial Importer 2. Industrial importer 3. Lease financing importer 4. Public Sector & 5. Actual User. 6. EPZ Customer


Generally Importer must have a certificate, named IRC(Import Registration Certificate) From CCI&E. Exception or Exempted from the provision of the said order Public sector. Instead of IRC they required specific recommendation from the concerned Ministry. Actual User New industrialist for capital Machineries For EPZ industry IRC is also not required.

Before opening LC the importer have to submit the following documents.:

Before opening LC the importer have to submit the following documents. 1)Valid IRC or Equivalent certificate or Exempted. 2) Valid Trade License 3) Indent/Proforma Invoice/Contract 4) Membership Certificate from Chamber of Commerce or Trade Association. 5) Income tax certificate with TIN 6) Last Three Years audited/Provisional Balance Sheet (if any).


Cash flow Statement. Copies of the Bio-Data of the proprietor/partner/director. Declaration of liability with the branch/with other branches/with other bank-with loan status Declaration of Assets & Liabilities of the proprietor/partner/directors. LCA form registration signed by the authorized person. Application and Agreement for irrevocable L/C on bank’s prescribed form. IMP form signed by the authorized person


Insurance Cover note with premium paid receipt. Rent receipt of the business center (if necessary) lease agreement & letter of consent (if necessary) Nature and details of business/Products. Declaration regarding source of retirement. Particulars of collateral security (if any) Inquiry forms to obtain CIB report. Other papers (if any).

Documentary letter of credit Summary of Procedure:

Documentary letter of credit Summary of Procedure The buyer and seller conclude a sales contract providing for payment by a documentary credit. The buyer instructs his bank –the “issuing Bank”-to issue a documentary credit in favor of the seller (Beneficiary) The Issuing bank issued the documentary credit and asks another bank (the advising bank), usually in the country of seller to advice or confirm the documentary credit.


The advising bank informs the seller that the documentary credit ha been issued. As soon as the seller receives the documentary credit and is satisfied that it meets the terms of the sales contract and that he can meet the documentary credit terms and conditions, he is in a position to effect of shipment. Seller then sends the required documents to the bank where the documentary credit is made available( the nominated bank)


The bank examines the documents against the documentary credit. If they meet the requirements of the documentary credit, the bank will negotiate, according to the terms of the documentary credit. The bank which takes up the documents sends the documents to the issuing bank.


The issuing bank examines the documents and if the documents meet the documentary credit requirements, reimburses in the pre-agreed manner the confirming bank or any other nominated bank that has negotiated under the documentary credit. When the documents have been examined by the issuing bank and are found to meet the documentary credit requirements, they are released to the buyer.


The issuing bank Obtains reimbursement from the L/C issuing bank as per LC terms. The issuing bank handover the original document duly endorsed to the applicant to take delivery of the goods observing all the customs formalities.

Basic Difference between cash LC and deferred LC :

Basic Difference between cash LC and deferred LC Cash LC Deferred LC LC clearly stipulated payment at sight LC clearly stipulated payment to be made after certain period i.e. on maturity. Upon receipt of Documents at the LC opening Bank counter reimbursement is made to the negotiating Bank (if the documents are in order) Upon receipt of documents Bank obtain applicants acceptance and convey the maturity date (as per LC terms) to the negotiating Bank. LC must stipulated that upon receive of compiling documents payment shall be made within 3 or 5 working days. LC must stipulate the deferred payment period I.e. 60,90 120, 180, 360 days as per Invoice/indent also stipulate from which date the deferred period will be calculated i.e. from the date of B/L, negotiation or from the date of acceptance.


Applicant must retire the documents either by cash or as per post import facilities i.e. TR, HPSM etc. Applicant must retire the documents against acceptance by paying acceptance commission.

Risk that are involved in the both type LC :

Risk that are involved in the both type LC Customer may not retire the documents against cash payment Customers may fail to build up necessary fund on maturity.

How risk to be mitigated:

How risk to be mitigated Customers back ground, payment history, business history, commitment, credit worthiness, cash flow must be properly investigated. Customer cash flow, source of income must be properly verified. Sufficient collateral security, preferably easily liquid able asset (MTDR,DPS,etc) must be obtained. Continuation follow up to realize the sales proceeds of goods to build up margin. From the date of release of goods strict monitoring and follow up and sales of goods to be maintained to make sure well ahead of the maturity that no forced loan would be required to pay the import Bills at maturity date.

Thank You:

Thank You

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