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Answer Posted / h.r. sreepada bhagi
Letter of Credit (LC) is a commitment document by a bank or
financial institution to a Vendor/Supplier of goods
(Domestic or International) on behalf of the purchaser, to
pay the money on receipt of the intended goods specified in
the relevant documents as per the agreement between the
buyer & the supplier.
The LC is issued by the Bank/FI on receipt of LC application
and supporting documents (like agreement,quotation/Proforma
Invoice, etc.)and transmitted to the bank of the supplier.
Once the goods are supplied as per the Purchase Order & the
supply terms agreed up on while contracting, the supply
documents shall be submitted by the supplier to their/his
bank, who in turn will verify & forward it to the buyer's
banker. The buyer's banker verifies the duouments, and
remits the money to the supplier's banker, if the documents
are in order as per the Letter of Credit issued earlier. In
case of any discrepancy, it will be dealt with as per the
terms of the LC.
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