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bank guaranteed letter against lc

ali mushta (senior accountant) (40 Points)

25 June 2011

what is the bank guaranteed letter and it purpose because i see this letter entry in accounts company also open lc account and bank guarantee amount.why we need to show in seprate account.this letter showed to supplier by bank or take by bank on cutomer behalf .what is this

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U S Sharma (glidor@gmail.com) (21063 Points)
Replied 25 June 2011

when any buyer open L/C, he submit the bank 1) margin money 2) letter of guarantee ( against which 10-25% TDR is made and ratained by bank), which get released on maturity of payment against L/C.

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chaitanya cherukuri (Articled Student) (241 Points)
Replied 26 June 2011

Letter of credit is a form guarantee given to the foriegn supplier. Usually foriegn suppliers as a condition of supply ask for letter of credit. Once the receipt of suppliers is acknowledged by importer, then exporter, along other documents, presents letter of credit, to his banker. That bank collects the amount from the bank which has issued letter of credit. Importer bank is bound to pay the money wether or not importer has money in his account because it guaranteed payment to exporter by issuing LC. Generally, LC is given on deposit of margin money and LC charges are collected by bank.