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What does monetizing letters of credit exactly mean?

The bank will check the accuracy of the shipping documents and also evaluate whether the goods are shipped according to the #monetizingLetterofCredit.

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What does monetizing letters of credit exactly mean?

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  1. What exactly is the monetizing letters of credit

  2. It is a non-fund base credit facility like bank guarantee but having many variations or can say differences compared to the concept of bank guarantee. Monetizing letters of credit is often considered as a financial instrument issued by a bank to do certain import-export. The working of the monetizing letters of credit Here we can take mainly 4 parties say: • Buyer/Importer • Issuing bank • Advising bank • Seller/Exporter

  3. Let’s discuss each of the above-mentioned parties in brief: Buyer/Importer • Here, for example, we can consider the buyer is from India and wanted to purchase some electrical equipment from UAE. So for that he/she needs to submit a proposal and here by simply doing conversations through phone calls or emails does not work as well as both buyer and seller can't trust each other. Issuing Bank • So for doing the import activity, the buyer will request for the ‘Letter of Credit' from a particular bank which is termed as ‘ISSUING BANK'. After verifying the details of the buyer, the particular issuing bank will issue the ‘monetizing Letter of Credit’.

  4. Advising bank • Now the advising bank is the bank who informs the seller about credibility of the buyer after checking the ‘Letter of credit’ issued by the buyer’s bank. Seller/exporter • The seller/exporter is now confident about the buyer’s authenticity because the advising bank has sent the ‘Letter of Credit’ from the buyer’s side and he/she will be ready to ship the goods to India. • Now the seller gets a bill of lading after shipping the goods to another country. He/she will take this main document called the bill of lading to the negotiating bank which can be a separate bank or the same advising bank.

  5. This bank will check the accuracy of the shipping documents and also evaluate whether the goods are shipped according to the monetizing Letter of Credit. Ultimately, the payment is processed by the negotiating bank to the seller. • Now, these documents are sent to the Issuing bank for the payment approval and it is further sent to the buyer by the issuing bank to get the approval of the documents. • Now when the buyer sent an approval, the opening bank will demand the goods payment and the payment is received to the issuing bank from the buyer.

  6. Features of Letters of Credit • When ‘Letter of Credit' is issued, an FD(Fixed deposit) or bank deposit is kept as a security. • For issuing the ‘Letters of Credit’ certain fee is charged by the bank. • Inside ‘Letter of Credit': Name of the seller, Product name, code amount, date all the information must be precise and authentic. • Whatever details mentioned in this letter must be free from any typo error.

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