Letter of Credit
Letter of credit (LC) is a financial instrument used in domestic and cross-border trade. It is a written commitment by the buyers’/ importers bank (LC issuing bank) to the seller/ exporter's bank to pay on due date to the seller on presentation of credit compliant documents as per the terms of the LC.
Letter of Credit can help you to –
Expand your business in new geographies
Negotiate better pricing and terms with sellers as letter of credit ensures payment
Enhance working capital efficiency & cash flows
Reduce the risk of non-performance of the seller and ensure timely supply of goods
A letter of credit can have multiple clauses, which may take a lot of time to formalise. ICICI Bank offers a unique facility for instant generation of draft letter of credit.
- Available for both customers and non-customers of the bank
- No dependency on sellers/ seller’s bank to provide the draft LC format
Unlock speed & efficiency with ICICI Banks’ Instant LC draft generation.
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How does a Letter of Credit work?
- Step 1 - You (the buyer) and the supplier sign a contract stating that payment will be made on the basis of Letter of Credit
- Step 2 - You approach ICICI Bank to issue a Letter of Credit in supplier’s favour
- Step 3 - ICICI Bank issues the Letter of Credit, advised by its own branch or correspondent bank in supplier’s country
- Step 4 - Advising Bank advises Letter of Credit to the supplier
- Step 5 - The supplier receives the Letter of Credit, sends the shipment of goods and deliver’s documents to its own bank
- Step 6 - Supplier’s bank sends the documents to ICICI Bank for payment
- Step 7 - You now pay the amount due to ICICI Bank, and get the documents in turn
Types of Letter of Credit
Sight Letter of Credit
The issuing bank makes the payment once the documentation is received in order
Usance Letter of Credit
The issuing bank accepts the draft once all documentation received is in order, and agrees to pay on the maturity date
Standby Letter of Credit
This is typically used to ensure that the applicant will meet the payment or contractual obligations. A Bank Guarantee can also serve the same purpose.