Letter Of Credit
Letter of Credit is given by a buyer to his bank, which the bank, in turn, sends to the bank of the seller. Upon receipt of the letter, the seller must provide the necessary documentation as stated in the letter’s attachments and as required by the bank so that the verification is done and the transaction can then be completed for the purchase and sale of the commodity as previously agreed. It is used as a payment method predominantly in international trade so that instances of fraud are avoided, and the transaction runs smoothly across the countries. There is a timeline of 5-10 days once the letter is issued by the seller’s bank and the documents furnished for the payment to be credited.
A Letter of Credit must contain, first of all, the amount that is to be paid, the issuing bank, the bank to which it is issued to, and the name of the person selling the commodity / providing the service. The tone should be formal and concise, as it is nothing but an instruction. It must be affirmative urging the bank to go ahead with the payment.
The following is a sample of a Letter of Credit
Subject: Letter of Credit
APPLICANT: Mohammed Ali
BENEFICIARY: Paris Museum
Near Eiffel Tower
LETTER OF CREDIT ISSUED BY:
Bank of Paris, 10 Jacqueline Center, Paris
The following is a Letter of Credit stating the terms of Agreement and mentioning the payment details between Mohammed Ali and the Paris Museum for the sale of the painting “A Sunny Night” by Vincent Van Jogh. The agreement was made between the two parties, last Saturday, i. e DD/MM/YYYY, at the Paris museum between Mr. Ali and Mr. Remi. You can find the document certificates attached with this letter.
I am delighted to tell you that I have decided to buy the painting ” A Sunny Night” by Vincent Van Jogh. After my knockout of Tyrese Gibson, I had gone to the museum that night, where I immediately fell in love with the painting and agreed to terms with Mr. Remi who was very forthcoming in informing me that the painting had a price, as with most things in life.
Please note that the agreement has been completed, and the painting has been delivered to me, but it will be collected back in fifteen days if the payment is not made.
So, consider the following as an instruction to transfer a sum of $20,000,000 to Mr. Remi as payment for the painting ” A Sunny Night.”