In this article, we will explain to you examples of Letter of Credit, on the assumption that Al-Quds Company asked its bank which is Al-Aqsa Bank, and it opened a Letter of Credit after it has implemented the procedures and conditions for opening issued Letter of Credit and the bank’s approval of credits according to the conditions.
Before Opening Letter of Credit
Before the opening of Letter of Credit by the Al-Aqsa Company, a preliminary agreement is reached between the two parties, who are the exporter and the importer stating:
The quality of the goods, the prices related thereto, the shipping method and date, and the buyer receives a copy, which is the importer
from this preliminary agreement, then Al-Quds Company comes to Al-Aqsa Bank to open a Letter of Credit after having obtained an import license for the Letter of Credit merchandise.
Submit a Letter of Credit Application
Al-Quds applies to its bank, Al-Aqsa, for opening Letter of Credit by filling in a special form prepared and conditions for opening accreditation are determined to be following the international norms and rules of Letter of Credit.
The credit value, the required documents, the shipment date, and the expiry date of the approval are determined, and the Jerusalem company signs the general terms to open Letter of Credit and authorize Al-Aqsa Bank to record expenses and payments related to credit on his account with the bank.
Study the Application
Then the bank studies the application of opening a Letter of Credit to ensure that it meets all the general conditions and required data and its approval of international regulations and customs.
Unloading the Application into a Letter of Credit Book
Al-Aqsa Bank then downloads the credit opening request information on the Letter of Credit approved by the bank and is signed by the bank’s delegates and sent to the correspondent bank in the source country and after ensuring that there is sufficient balance covering the cash, commission and other expenses in the account of the importing customer.
After that, the cash and commission deposits and postal expenses related to Letter of Credit are deducted from the Al-Quds Company account, and this matter varies from Al-Quds to another customer, as well as an evaluation based on its financial position, type of goods, Al-Aqsa Bank’s experience with Al-Quds and shipping.
Registering Information in the Special Register
Then record the information related to documentary credit in a special record called the Letter of Credit record, which contains the most important data related to the documentary credit, including the Letter of Credit number and its amount in the local and foreign currency, the name of the customer, the creditor, the beneficiary name, the date of opening the credit and other things.
Sending a Letter of Credit to the Correspondent Bank
After the correspondent bank receives the Letter of Credit, it informs the beneficiary of that, who in turn studies this credit to ensure that it agrees with the terms agreed with the importer and the ability to prepare the documents required for approval.
Preparing the Goods and Issuing the Required Documents
After that, the beneficiary prepares the goods and issues the required documents with approval, and they are delivered to the correspondent bank or the buyer’s bank, which in turn sends them to the credit-opening bank, which is Al-Aqsa Bank.
Al-Aqsa Bank Receives and Reviews Documents
Upon receipt of the documents, the bank approves the documents, and it checks them to ensure their compliance with the issued conditions of credit and that they are modern and not obsolete, and we must ensure that the content of the documents matches with each other and there is no conflict between them in terms of description, quantities, date of shipment, and all things written in documents are checked.
This is the last stage in which the goods are shipped to the port of the importer and the financial value is received from Al-Aqsa Bank for the benefit of the supplier.
In this case, Letter of Credit shall be terminated after the completion of all procedures and conditions signed by the contract.
Also read: Letter of Credit in Saudi Arabia