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Client/applicant – assumed importer. Beneficiary of LC – exporter. Assumption: there is already an existing agreement to buy and supply. o Evidenced by: Invoice; Purchase order; Etc. Bank o Why it is there: The parties may not be comfortable with each other. Assurance/guaranty that the client will get the goods and the beneficiary will be paid. Gap the needs of both parties. To protect the rights of the client. Process: o Client applies for a LC. Requirements: Collateral; Financial Statement; Income Tax Returns; Etc. Based on the agreement, presents documents. o Bank assures supplier that if he goes to the corresponding bank abroad, he will be paid through the LC. o Supplier manufactures goods, collate needed documents, and ships the products. Presents required documents to corresponding bank. Documents based on kind of agreement. Bill of lading (if shipment by vessel). Airway bill (if shipment by airplane). Commercial invoice. Documents are sent back to the bank here. Bank will check documents if they are in accordance with the terms and conditions. o There must be no discrepancies or else it will be dishonored. o Assuming all are in order, bank will already be required to pay. Will collect from applicant.
“Bible” for trade transactions: UCP 600.