Five Tips For Drafting A Letter Of Credit In India

A letter of credit is a document that states that a supplier will be paid once good are imported into a country. This is an important document as international trading will frequently involve working with new people, and it is important for all parties involves to know that they will be paid. When generating a letter of credit in India, it is important to know that it should contain five important things.

List All Parties Involved

A letter of credit needs to designate who is involved in this transaction. It should mention their first and last names so that they will not be confused with other people. In addition, it should contain each person’s address, phone number, and the company they work for. The same information should be included for all businesses involved.

Detail All Amounts Owed And When

In India the letter of credit should detail how much is owed for each one of the items being delivered. It should mention how much should be paid in total, and what currency it should be paid in. The letter of credit should state when the amount should be paid. If amounts are to paid in installments or with part of it upfront, information should be included on how much and when each payment should take place.

Mention Escrow Account Numbers

Frequently, a letter of credit details when money should be paid from an account that holds the amount owed until the transaction is completed. These accounts may hold the full amount owed, or they may act as a bond that that ensures that the bank will pay the full amount owed.

The letter of credit should state which bank is going to make the payments, when the money can be removed from the account, and what the name of the account that it is held under. The letter of credit should then state the names of the persons who are allowed to validate payment from the account or the bond. Usually, this will require the signatures of multiple people, and a designated person will have to go to the bank. The letter should state who needs to sign it, what identification they need to use, and who needs to go to the bank. The letter should also contain a transfer clause that allows for the payments to be transfered to a third party.

Detail The Bank That Will Pay

In the event that the bond is held by a separate bank, then the bank that is making the final payment needs to be listed. It is important to distinguish what bank has which responsibilities involved. The bank will have a designated employee whose job is to authorize payment. This person needs to be listed by name.

Include Contact Information For The Drafter

If the letter of credit was drafted by a law firm, or if it was notarized, then the people involved need to be listed with their contact information. This will allow for the signatures to be validated, and the drafters should be able to clear up any questions about the letter of credit.