LC and DLC – Letter of Credit and Documentary Letter of Credit explained by Geordon Saraveloz

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A documentary letter of credit serves as a written promise of payment provided by a buyer to a seller. With a letter of credit, the buyer’s funds for the required payment are held in a separate account for use when needed, similar to the process for escrow. The seller receives payment when all of the terms of the agreement are fulfilled.

• An FFDLC is a letter of credit backed by funds in escrow.
• Businesses can use an FFDLC to obtain some or all of the funds moved to an escrow account for final payment.
• Letters of credit can come in many different variations and may be either funded or unfunded. 

Specimen of a Documentary Letter of Credit issued via SWIFT MT700

DATE OF ISSUE : XXXXX
FORM OF CREDIT : IRREVOCABLE DOCUMENTARY LETTER OF CREDIT
ISSUER : PRIVATE BANK
CREDIT NUMBER : DLC/XXXXX
CURRENCY CODE : EUR/USD
CREDIT AMOUNT : XXXXX
DATE AND PLACE OF EXPIRY : XXXXX
APPLICANT : XXXXX
BENEFICIARY : XXXXX
BANK OF BENEFICIARY : XXXXX
PLACE FOR PRESENTATION : AT OUR COUNTERS
FORM OF PRESENTATION : PAPER / BY COURIER SERVICE
LANGUAGE OF ANY
REQUIRED DOCUMENTS : ENGLISH

27: SEQUENCE OF TOTAL 1/1
40A: FORM OF DOCUMENTARY CREDIT IRREVOCABLE
20: DOCUMENTARY CREDIT NUMBER SBLC/XXXXXX/1
31C: DATE OF ISSUE YY/MM/DD
40E: APPLICABLE RULES UCP LATEST VERSION
31D: DATE AND PLACE OF EXPIRY YY/MM/DD
51D: APPLICANT BANK – NAME & ADDRESS PRIVATE BANK, XXXXX
59: BENEFICIARY – NAME & ADDRESS XXXXX
32B: CURRENCY CODE, AMOUNT CURRENCY: EUR/USD AMOUNT: XXXXX
39A: PERCENTAGE CREDIT AMOUNT TOLERANCE
0/10
41D: AVAILABLE WITH… BY… – NAME & ADDRESS ANY BANK IN XXXXX
BY DEFERRED PAYMENT
42P: DEFERRED PAYMENT DETAILS XXXXX DAYS FROM B/L DATE
43P: PARTIAL SHIPMENTS NOT ALLOWED
43T: TRANSSHIPMENT ALLOWED
44A: PLACE OF TAKING IN CHARGE / OF RECEIPT XXXXX
44B: PLACE OF FINAL DESTINATION / OF DELIVERY XXXXX
44E: PORT OF LOADING/AIRPORT OF DEPARTURE XXXXX
44F: PORT OF DISCHARGE/AIRPORT OF DESTINATION XXXXX
44D: SHIPMENT PERIOD
WITHIN XXXXX DAYS FROM ISSUING DATE OF L/CY
45A: DESCRIPTION OF GOODS &/OR SERVICES
AS PER PROFORMA-INVOICE NO. XXXXX DD/MM/YY SIGNED BY THE BENEFICARY. MODEL DESCRIPTION XXXXX QUANTITY XXXXX PRICE XXXXX TOTAL XXXXX OF GOODS XXXXX PER UNIT.
DELIVERY TERMS: XXXXX

46A: DOCUMENTS REQUIRED:

  1. COMMERCIAL INVOICES, CERTIFYING THAT THE QUALITY, QUANTITY AND DESCRIPTION OF MERCHANDISE SHIPPED ARE STRICTLY IN ACCORDANCE WITH ATTACHED PROFORMA-INVOICE NO. XXXXX, DD/MM/YY, TO BE SIGNED AND STAMPED BY THE BENEFICIARY IN 1 ORIGINAL AND 2 COPIES.
  2. PACKING LISTS, CERTIFYING THAT THE QUALITY, QUANTITY AND DESCRIPTION OF MERCHANDISE SHIPPED ARE STRICTLY IN ACCORDANCE WITH ATTACHED PROFORMA-INVOICE NO. XXXXX, DD/MM/YY, TO BE SIGNED AND STAMPED BY THE BENEFICIARY IN 1 ORIGINAL AND 2 COPIES.
  3. FULL SET (3/3) OF CLEAN, SHIPPED ON BOARD OCEAN BILLS OF LADING PLUS 2 COPIES ISSUED BY THE CARRIER OR AGENT MADE OUT TO THE ORDER OF ISSUING BANK, SHOWING GROSS AND NET WEIGHT, DISPATCH DATE, VESSEL NUMBER, MARKED FREIGHT PREPAID AND NOTIFY THE COMPANY XXXXX.
  4. INSURANCE CERTIFICATE/POLICY, TO BE COVERED BY SELLER AND ENDORSED TO THE ORDER OF PRIVATE BANK FOR 110PCT OF CIF-INVOICE VALUE, COVERING ALL RISKS AND SHOWING CLAIM PAYABLE TO THE ORDER OF PRIVATE BANK.
  5. CERTIFICATE OF ORIGIN ISSUED BY XXXXX COMPETENT AUTHORITY IN 1 ORIGINAL AND 2 COPIES.
  6. HEALTH CERTIFICATE ISSUED BY XXXXX COMPETENT AUTHORITY IN 1 ORIGINAL AND 2 COPIES.
    47A: ADDITIONAL CONDITIONS
    a. DRAWING UNDER THIS CREDIT MUST BE FOR 100PCT OF THE INVOICE VALUE.
    b. DOCUMENTS BEARING A DATE PRIOR TO THE ISSUING OF THIS LETTER OF CREDIT ARE NOT ACCEPTABLE.
    c. THIRD PARTY DOCUMENTS ARE NOT ACCEPTABLE.
    d. INVOICE EXCEEDING THIS CREDIT AMOUNT IS NOT ACCEPTABLE.
    e. TOLERANCE IN QUANTITY OF GOODS +/-10PCT ALLOWED.
    f. DISCREPANT DOCUMENTS WILL BE SUBJECT TO A DISCREPANCY HANDLING FEE OF EUR 300.00 FOR BENEFICIARY’S ACCOUNT.
    g. ALL DOCUMENTS MUST BE ISSUED IN THE ENGLISH LANGUAGE.
    h. ALL SIGNATURES OR SEALS REQUIRED ON ANY DOCUMENTS MUST BE AS PER THE APPLICANT’S BANK RECORD.
    i. WE, XXXXX, SEND THIS MESSAGE WITHOUT ANY UNDERTAKING, RESPONSIBILITY OR LIABILITY WITH RESPECT TO THE TRANSACTION AND THE APPLICANT BANK.
    j. THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, ICC PUBLICATION NO. 600,
    LATEST REVISION AND SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF ENGLAND. ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS DOCUMENTARY CREDIT SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION OF THE COMMERCIAL COURT OF ENGLAND.
    k. THIS IS AN OPERATIVE INSTRUMENT AND NO CONFIRMATION SHALL FOLLOW. 71B: CHARGES
    ALL BANKING CHARGES OUTSIDE ISSUER COUNTRY ARE FOR BENEFICIARY’S ACCOUNT.
    48: PERIOD FOR PRESENTATION
    WITHIN 21 DAYS AFTER B/L DATE (DOC.3 DATE) BUT WITHIN L/C VALIDITY.
    49: CONFIRMATION INSTRUCTIONS WITHOUT
    78: INSTRUCT TO PAYG/ACCEPTG/NEGOTG BANK
    PAYMENT UNDER THIS CREDIT WILL BE EFFECTED BY THE APPLICANT BANK AT MATURITY UPON RECEIPT OF COMPLYING DOCUMENTS
    AT COUNTERS OF PRIVATE BANK.
    57A: ADVISE THROUGH BANK – FI BIC SWIFT CODE
    72: SENDER TO RECEIVER INFORMATION
    YOUR CHARGES FOR BENEFICIARY’S ACCOUNT.

FOR AND ON BEHALF OF (NAME OF THE ISSUING BANK)

AUT HORIZED OFFICER AUTHORIZED OFFICER
(NAME, TITLE. PIN CODE) (NAME, TITLE, PIN CODE) 

 

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