Getting a Letter of Credit In Nigeria.
Do you want a faster, affordable and reliable mode of payment for importation of goods in Nigeria? Know more about a Letter of Credit.
In simple terms, a Letter of Credit (LC), also referred to as Documentary Credit, is the guarantee a foreign seller is given from a Nigerian bank in favour of a Nigerian buyer or a buyer based in Nigeria to the Seller’s bank on the account of the seller, that his/her goods would be paid for, following a genuine contract established between both parties.The parties involved are the importer (the buyer requesting Letter of Credit issued, the exporter (the seller – the receiver of the LC), the issuing bank (which gives the written undertaking) and the seller’s bank (the advisor of the beneficiary). A letter of credit is usually needed for importation of raw materials or finished goods.
Guaranty Trust Bank defines LC as “a written undertaking given by a Bank (issuing Bank) at the request of its customer (applicant), in which the Bank obligates itself to pay the exporter (seller/beneficiary) up to a stated amount within a prescribed time frame upon presentation of stipulated documents that conform to the terms and conditions of the documentary credit.”
How to Obtain a Letter of Credit
- You must be an importer or a trade master.
- You must have an operating account in the bank for at least six months.
- A trader tracker log in and a token are required if the request is done online.
- You can also go to your nearest branch. Ask for the Fund Transfer unit or Foreign Operation Unit.
- Request for form “Q” (for SME’s and Retail Businesses) or form “M” (your questions would be answered at the comment box).
- Request for the recommended exchange rate of the bank. For instance, if the current exchange rate of the bank is 380naira to one dollar, the CBN rate may be 350naira to one dollar. Click here to check the current CBN rates. The CBN exchange naira equivalent would be reflected into your account after transaction is made. Hence, your remaining balance is refundable.
- Fill the LC Application form and fund your account using the bank’s recommended exchange rate.
- Attach required documents and submit your application.
Letter of Credit Application Checklist.
A checklist of documents that should accompany your letter of credit application include:
- KYC documentation
- Form M or Form Q.
- Proforma Invoice.
- Risk Assesment Report (RAR).
The maximum tenor of an LC is 6 months for normal goods and 12 months for specialized items. An LC can be extended via application to the Central Bank.
For help with getting an LC, respond in the comment section below.
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