LC contract is a popular international payment tool in import and export activities. In the increasingly growing import-export context, applying the LC payment process plays an important role in reducing risks and creating transparency for international transactions. This is a written commitment from the issuing bank to make payment to the beneficiary upon receipt of a set of valid documents. Follow the following article by Long Phan for a detailed analysis of the main content of the LC contract.

What is the LC contract?

• LC (Letter of Credit) contract, also known as a letter of credit, is issued by the bank at the request of the importer.
• To put it simply, an LC (Letter of Credit) contract is a written commitment of the issuing bank. The bank commits to pay a certain amount of money to the beneficiary. Payment condition is that the beneficiary presents a set of valid documents according to the provisions of the LC.
• After the foreign trade contract is signed, the buyer-importer will rely on the content and agreement between the parties in the foreign trade contract and go to the bank in the importing country to request issuance of LC to commit to payment for exporters.

The main content of the LC contract

An LC contract usually includes the following basic contents:

• Number, location (where the LC issuing bank commits to pay the exporter), LC opening date (starting date of the LC contract’s validity period);
• Type of LC (Revocable LC contract, irrevocable LC contract, irrevocable LC contract with confirmation, transferable LC contract);
• Names and addresses of relevant parties: Exporter, importer, LC issuing bank;
• Amount and currency;
• Validity period, payment period, and delivery period;
• Regulations on delivery terms: delivery conditions, delivery place;…
• Content of goods: name, quantity, weight, packaging, packaging…
• Documents the exporter must present;
• Commitment of the LC issuing bank;
• Other contents;…

Procedures for opening an LC contract for businesses

Profile components

To open an LC contract, businesses need to prepare a complete and accurate set of documents. Dossier to open LC includes:

• Application to open LC;
• Decision to establish an enterprise (enterprise making transactions for the first time);
• Business registration certificate (enterprise making transaction for the first time);
• Register import-export code – if any (enterprise making transaction for the first time);
• Original foreign trade contract;
• Entrusted import contract (if any);
• Import license from the Ministry of Trade (if any);
• Payment commitment, loan contract, approval letter for opening deferred payment LC of Incombank;
• Foreign currency purchase and sale contract (if any);
• The LC opening explanation is prepared by the branch’s credit department and approved by the branch director or the person authorized by the director.

Note, all of the above documents must be presented in originals and copies must be kept at the headquarters with the company’s stamp, except for the following documents, which must be kept as originals:

• Payment commitment
• Loan contract
• Foreign currency purchase and sale contract
• Application to open LC
• LC opening explanation

Implementation procedures

The LC opening process is carried out through the following main steps:

Step 1: Request to open LC

First, capital sources:

• LC issued with equity capital, customers must deposit 100%.
• Letters of credit issued with equity capital, customers who do not deposit 100% and request to waive/reduce the deposit level must be approved in advance by the Bank Director.
• LC issued with Bank loan capital.

Second, the customer must completely fill out the LC Opening Request Form and carefully review the contract content to ensure there are no conflicts when included in the LC;

Third, prepare a complete set of documents to apply for LC opening.

Step 2: Open the LC

First: Check and amend LC

• After issuing the LC, the customer will receive a copy of the LC.
• Customers need to review and compare the LC content with their request to ensure the LC is consistent with the contract. If there are errors, the customer must notify the bank to make adjustments or modifications.
• Present a request to amend the LC with a written agreement between the buyer and seller if the customer needs to amend the LC.
• If the LC modifies the price content, the customer must add a corresponding margin and collateral to ensure the ability to pay the LC.

Second: Receive and check documents

• After receiving documents from the bank, customers need to check the LC content with the received documents.
• If you receive notice of document errors from the bank, you must notify the customer of your opinion on whether the error is acceptable or not.
• When receiving documents, businesses need to carefully check and compare them with the LC content. If there is any discrepancy, it is necessary to notify the bank within the prescribed time limit.

Consulting services for opening LCs in Long Phan

When a business needs to open a L/C (letter of credit) to carry out transactions. LC opening consulting services will provide in-depth advice, ensuring procedures are carried out in accordance with regulations. Long Phan is ready to provide comprehensive support services for you when opening an LC. Our services include:

• Legal advice on L/C: Provides detailed information about legal regulations related to conditions and procedures to be followed when opening an LC.
• Support during the L/C opening process: Guide customers to complete documents and instructions on filling out information.
• Resolve problems that arise during the LC opening procedures for you.

Opening an LC contract not only helps significantly enhance trust between the parties involved in the transaction, but also ensures safety and smoothness of the international payment process. Long Phan provides consulting services and supports you throughout the entire process. For detailed advice and support in opening LC, please contact hotline 0906735386. Our experts will answer all questions and provide the most suitable solution for your business.