LC Tracking System

Letter of Credit
Introduction
In simple terms, a letter of credit is a bank undertaking of payment separate from the sales or
other contracts on which it is based. It is a way of reducing the payment risks associated with the
movement of goods.

Benefits of Letter of Credit

To the Exporter/Seller
Letters of credit open doors to international trade by providing a secure mechanism for
payment upon fulfillment of contractual obligations.
A bank is substituted for the buyer as the source of payment for goods or services exporte
d.
The issuing bank undertakes to make payment, provided all the terms and conditions
stipulated in the letter of credit are complied with.
To the Importer/Buyer
Payment will only be made to the seller when the terms and conditions of the letter of
credit are complied with.
The importer can control the shipping dates for the goods being purchased.
Cash resources are not tied up

Overview
This guide describes the process involved that are common in Letter of Credit and after reading
this guide you will be able to understand the following functions, including:

Purchase Requisition
Request For Quotation
Comparative Statement
Pre-Costing
Performa Invoice
Purchase Order
L/C Opening
Shipments
Clearance
Logistics
Warehouse
Actual Bills
Post-Costing
L/C Closing

Process of Letter of Credit Transaction

All the steps are in sequence

1) Purchase Requisition Form and RFQ

First of all, Personnel that involve in Planning in Supply Chain Department identify the
needs of procurement of Equipment, Material, Supplies, Capital Goods and Services
They prepare Purchase Requisition Form along with Quotation form in the system which
include following information:
Quotation form include following information:
o At least three vendors/Supplier
o Material
o Currency
o Rates
o Average Forecast
o Stock available

Finally Planning Section forward the Purchase Requisition form and Quotations to Purchase
section of Supply Chain Department for procurement of materials

2) Pre-Costing

Pre-Costing involve calculation of segregated expense which include entire costs until the
material receive, following are some costs:
o Total Quantity
o Exchange Rate
o Sales and income tax
o Port Expenses etc.

This aggregated cost used in the purchase order by procurement department.

3) Comparative Statement

This statement include the list of approved rates of purchasing material, currency,
supplier, payment and shipment terms

This statement form is almost same as Purchase Requisition form with only difference that this
statement used by purchase department and for auditing purpose by audit department.