A letter of credit is a promise by a bank on behalf of the buyer (customer/importer) to pay the seller (beneficiary/exporter) a specified sum in the agreed currency, provided that the seller submits the required documents by a predetermined deadline. Advantage for the seller: The security that the supply of goods will be paid. Advantage for the buyer: The security that payment will be effected only against delivery of the agreed documents.
Procedure for a Letter of Credit
Opening
Upon opening a LC the bank undertakes an obligation on behalf of the buyer to pay the seller. To this end the buyer must have sufficient assets/credit with the issuing bank. Axios Credit Bank Ltd provides a special order form to facilitate the formulation of the order for the letter of credit service provider Malaysia.
Notification/confirmation
Upon receipt of the notification the bank sends the LC to the seller without incurring any liability for its part. However, the bank must take reasonable care to check that the credit appears authentic. When confirmation is requested the bank sends the letter of credit to the seller with its own promise to pay.
Amendment
If the wording of the global letter of credit does not reflect the requirements of both parties, the letter of credit can be adjusted by means of an amendment.
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