1. By Rajendra Bavishi Finance Department GHCL Ahmedabad
Presentation on
Inland Letter of Credit By
Rajendra Bavishi
Finance Department
GHCL Ahmedabad

2. MEANING
What is Letter of Credit (LC)?
It is a guarantee document issued by customer’s bank on its behalf to make payment to us on the due date.

3. FACTS ABOUT LC
LC facility allows buyer to make payment on a later day.
Credit available under LC is ascertained from trade terms mentioned on the invoice/P.O.
LC is a Non Fund Limit, easily available; independently or in addition to existing facility or interchangeable with it.
LC which allows credit period is called usance LC. Although, usance LC are issued for 60/90/120/180 days, Tenor depends on IUBD limit sanction by bank to supplier.

4. FACTS ABOUT LC
We/supplier can get the LC discounted (after acceptance). LC discounting means that our bank, at our cost, pays us the amount  due under LC.
On the due date i.e. at the end of usance/credit period, buyer pays his bank and Buyer’s bank, in turn pays our bank.

5. MECHANISM
Supplier issues Performa invoice for the product to be supplied mentioning quantity, value, period of dispatch, shipment and all other transaction details on basis of buyer’s purchase order.
Buyer requests  his bank to issue Letter of Credit in favour of us. Value of Letter of credit should be equal to the value of goods to be purchased plus discounting interest and document handling charges.
The supplier dispatches the goods to buyer and prepares the documents as per Performa invoice, which will be submitted to our bank along with evidence that the goods have been dispatched / delivered to buyer as per LC terms. These documents are then sent to buyer’s bank for acceptance.

6. MECHANISM
Buyer’s bank checks these documents with the terms and conditions mentioned in the LC. After verification, bank advices buyer about receipt of documents under LC and seeks acceptance / confirmation from the buyer. After buyer’s acceptance, LC opening bank advices the same to our bank.
Now, after acceptance of LC, supplier’s bank discounts the letter of credit and credit Bills Amount after deducting discounting interest and document handling charges to supplier’s account.
On the due date i.e. at the end of usance/credit period, buyer shall make the payment to his banker who in turn, will make the payment to suppliers bank and transaction will be concluded.

7. OPENING OF LC
(1) A standard format of LC is as per Annexure C. ( Draft of L/c)
(2) Name and Address of the Beneficiary should be GHCL LTD, Ahmedabad office address)
(3) LC must permit negotiation with any bank anywhere in India. Or Unrestricted in any Bank in India.
(4) The L / c must be advised through our banker - presently
           DENA BANK 
Industrial Finance Branch
188-A, Ashram Road, Navrangpura
Ahmedabad  - 
RTGS / IFSC CODE : BKDN
Ph no
Fax no.   

8. NEGOTIATION OF DOCUMENTS
Following points keep in mind while preparing and forwarding documents for negotiation & Discounting.
(1) Documents must be sent to Account Dept. Ahmedabad within 7 days from the date of dispatch but in any case not later than 17 working days before due date as the bank will require minimum 15 clear days for discounting.
Moreover, documents can reach to customer’s bank in time / before due date and in case of any discrepancy, it can be sorted out.
(2) The draft / hundi must be drawn strictly in accordance with the terms and conditions mentioned in the letter of credit.

9. NEGOTIATION OF DOCUMENTS
(3) All documents along with Hundi shall be as per terms and conditions of the LC.
(4) Hundi for More than 90 days is not acceptable as per company’s policy, as the facility sanctioned by our Banks is for the period up to 90 days only.
(5) Whenever you receive any inland LC and bill of exchange is drawn, before you send the documents to Ahmedabad, please ensure the relevant bill of exchange is stamped properly and after stamping, relevant bill of exchange is to be filled and sent to Ahmedabad for onward submission to the bank for negotiation / discounting purpose. At present Up to 90 days bill of exchange requires stamping value at Rs per Rs.1000/-.

10. NEGOTIATION OF DOCUMENTS
(6) Discounting of hundi means, such amount shall be financed by the Bank and incase of non receipt of payment from customer by not retiring the documents from the bank, the banker will recover payments from our account after stipulated period alongwith interest, overdue interest and other applicable penalties.
(7) Before the due date, concerned person should follow up with customer and ensure that the payment is made to the bank on due date.
(8) Hundi will be discounted only after getting acceptance from LC opening bank to negotiating bank (GHCL Ahmedabad bank).

11. NEGOTIATION OF DOCUMENTS
(9) If necessary, Value of LC can be enhanced for further supplies alongwith extension of dispatch date and validity of LC by way of amendment to the LC.
(10) Incase of any clarification / doubt, please contact Ahmedabad office.

12. DRAFT INLAND LC

13. CONTACT DETAILS
Please feel free to contact on the below mentioned details for any clarification / doubt.
Rajendra Bavishi
Assistant Manager – Finance,
GHCL – Ahmedabad
Mobile No:
Landline :- (079) –
Fax : (079) -
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