An international business called A that sells consumables wants to import one million product bottles. They locate a manufacturing business B in India and discuss their requirements. After providing the complete price, the manufacturer requests an advance payment as security before starting manufacturing. The importer does not, however, want to take the chance of making an advance payment and later, not receiving goods.
In this case, both parties agree to use the ‘LC at Sight’ payment technique to avoid risk. All terms and conditions governing the trade agreement are accepted by the parties. Business A requests that its bank, a reputable US financial institution, issue a Letter of Credit at Sight to the exporter – Business B, which is located in India. All of the agreed-upon terms and conditions should be included in the LC.
The document is issued by the importer’s bank and delivered to the exporter’s bank in India. The exporter then receives the LC from the bank and begins the production process after reviewing the paperwork. When the goods are ready, the supplier ships them and delivers the packing bill and Bill of Lading to the Indian bank for review. The bank then sends the paperwork to the importer’s bank after checking for any inconsistencies.
After reviewing the documentation, the importer’s bank requests payment of LC amount to obtain the document. The importer, Business A, cannot obtain the documents without paying the LC amount since the bank has issued a Letter of Credit at Sight. Without it, the importer also cannot receive the goods that the exporter has delivered. The bank transfers the funds to the designated bank when the importer pays the amount and gets the necessary paperwork.