Nearly all types of commerce and trade have expanded internationally in the current era of globalization. And in this case, it is seen that the buyer-seller does not know anyone. In that case, the seller is left with a little extra risk. To avoid this risk, international buyers want LC or a letter of credit. You must open an LC through a bank if you want to import products from abroad. The only legal method of doing international business is through an LC. Traders import and export goods from one country to another through LC. How to open LC for import and export!
All you need to do LC:
1. Having a valid trade license for your business is all that’s required to apply for an LC.
2. Rearmost inspection report.
3. An Respectable IRC (IRC-Import Registration Certificate)
4. Certificate of class from the original chamber of commerce or the association concerned.
5. Income duty impunity or income duty protestation for a new association.
6. VAT registration certificate.
The documents mentioned before applying for LC should be collected.
You will also need some more documentation:
1. LC application form
2. Indenture/ Performa Tab (PI)/ Purchase Order/ Purchase Agreement
3. Properly and properly executed charge documents
4. Properly sealed and signed LC Approval Form (LCAF)
5. Insurance notes
After collecting all these documents, you have to submit the documents to the bank to which you want to do LC. Still, you must have a bank account in that bank. It’ll take many days to check and sort out the bank documents. When all the work of LC is completed, the concerned bank will inform.
How will your LC deal with the bank?
At first, you have to deposit all your money in the bank. Suppose your LC value is 40,000. Then you have to deposit 32 lakh rupees in the bank. Still, if you gradationally increase your business with the bank, also you can open an LC with a periphery of 10-20. As soon as you deposit money in the bank, you will have to give some more documents.
3/4 copies of all your company’s papers (trade license, tin, vat, IRC) indent / PI. Bank Credit Report Insurance Cover Note of the supplier company (it has to be taken by paying the fee by showing indent to any insurance company) then the bank will give you a copy of your desired LC. And will send the original to the supplier abroad.
The way your business will be transacted through LC, in all business transactions there are two parties, one buyer and one seller.
Let’s try to find out how your transaction process will be complete through LC.
1. The buyer must first communicate with the dealer.
2. The buyer will contact the bank to which he intends to do LC.
3. Send the seller’s advice from the issued LC bank to the bank. 4. The seller’s consultant bank will send the LC documents to the seller.
5. The seller will look at the documents and inform the buyer about the date of shipment. And at the same time, the seller will give all the documents of the transaction to the consulting bank. . The consultant will send the bank documents to the bank where the buyer has done the LC.
6. After reviewing the documents, the LC will send the clearance of the issued bank transaction to the consulting bank. And immediately send a clearance to the buyer. The consulting bank will also send a clearance to the seller. And after receiving the clearance, the buyer-seller is ready for the transaction.
What to do before and after the LC
You must have your own company account in the bank. PI / Proforma Invoice must be brought from the supplier of the product or parts. PI / Proforma Invoice mentions the price, quantity, and terms of the product or parts. The paper of PI / Proforma Invoice should be signe by the managing director/director of the company and submit to the bank where the account is kept.
After receiving the paper of PI / Proforma Invoice, the bank provides 6 forms. Subject to signature and seal by the Managing Director / Director, Form 6 and LC margin is to be paid from a minimum of 20% to a maximum of 30%.
Import products/parts have to be insure at one’s own risk or with the help of a bank. After sending the insurance and bank documents to the supplier, he sends the goods or parts by sea/road. The remaining amount of LC has to be paid to the bank after the goods/parts reach the land/seaport. The bank then issues NOC and other required documents. These NOCs and necessary documents are to be unloaded at the Land / Sea Port Customs Department through the designated C&F agent and the goods or parts are to be unloaded. How to open LC for import and export!