How to open LC for Apparel Business in Bangladesh
LC
LC is a letter of credit, L/C a short-term Letter of Credit, a commercial bank document of credit. LC is an undertaking letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
Import Registration Certificate
(IRC):
Collect the form from the office
of the Chief Controller of Imports and Exports
↓
↓
Submit the application along with the required documents
Necessary
documents for import registration certificate:
1. Trade license
2. Passport size photo (3 copies)
3. Tin number
4. Membership Certificate from Chamber of Commerce and Industries or related association
5. Original copy of treasury invoice
6. Copy of Partnership Deed if Partnership Business
7. Limited Company Certificate of Incorporation, Article of Association, Memorandum of Association
You can check on below address:
Office of
the Chief Controller of Imports and Exports
111-113
Motijheel or / a, Dhaka-1000
Import via LC: Determining the type of LC:
First, you
have to decide what kind of LC you want to open. According to the current
rules, there are three types of LCs for importers:
One: Trade
based importers
Two: Industry-based
importers
Three:
Importer under WES (Wage Earner’s Scheme)
Currently, the following 12 types of LCs are in circulation:
1.
Revocable LC
2.
Irrevocable LC
3.
Confirmed LC
4.
Transferable LC
5.
Divisible LC
6.
Revolving LC
7.
Restricted LC
8. Red-clause
LC
9. Green
clause LC
10. Back
to back LC
11. With
Recourse LC
12.
Without Recourse LC
What documents are required to open
an LC?
The bank
will give you the following documents to open a commercial LC:
Required
documents:
1. LC
application form
2. Letter
of Credit Authorization Application Form
3. IMP
form
4. TM form
5.
Contract form
6. Charge
document
7.
Guarantee form
Document
for opening Cash / WES LC:
Required
Documents:
1. LC
opening application
2. LC
application form
3. Indent
/ Proforma Invoice
4. Letter
of Credit Authorization Form
5. Import
permit
6. Charge
document
7.
Insurance cover note
You have
to fill up the above-mentioned forms and submit the required documents to the
bank after verification and signing.
Required
documents:
1. Trade
license
2. Import
Registration Certificate
3. Income
tax or tin
4. VAT
certificate
5.
Membership Certificate
6.
Memorandum of Article
7.
Registered Deed (in case of partnership firm)
8.
Resolution (in case of partnership firm)
9.
Pictures
10.
Insurance cover note and premium payment receipt
11. Copy
of indent / proforma invoice.
Collateral Security:
The bank
requires collateral security to open an LC under a project loan.
Documents
required for an equitable mortgage:
1.
Memorandum of Title Deed
2. Personal
Guarantee
3.
Original deed of the property
4.
Mutation record
5. Receipt of rent (up to date)
6. CS
leaflet
7. SA parches
8. R. S. Parches
9. Non-Incumbencies Certificate (with charges)
10.
Valuation Certificate
11.
Lawyer's Certificate
12.
Affidavit by the first class magistrate
13.
Registered Irrevocable Power of Attorney
In the case of a private limited company more is required:
1. Board
Resolutions (Directors)
2.
Personal guarantee of all directors
3. Copy of
Memorandum and Articles of Association
4.
Certificate of incorporation issued by a joint-stock company
5. Charge
document by joint-stock company
Necessary Documents for Imports of
Machinery:
In order
to exempt imported machines/goods and accessories from customs, the following
documents have to be handed over to the bank approved C&F:
One:
Commercial Invoice, Packing List, Bill of Lading (BL) or Airway Bill (AWB) or
Truck Receipt has to be endorsed by the concerned bank.
Two:
Indemnity with Copy Document Non-negotiable Document if the original copy of Commercial
Invoice, Packing List, Bill of Lading (BL) or Airway Bill (AWB) or Truck
Receipt is not available. An endorsement has to be collected from the
respective Shipping line.
Three: LCA
must be endorsed by the bank.
Four:
Performa Invoice/indent Import Certificate, Export Certificate, and Photocopy
of Insurance must be attested by the Bank.
Five:
Utilization Declaration (UD) which is issued by BGMEA.
Six:
General Bond License and Bonded Warehouse License required.
Seven: The
importer has to collect the customs application form from Dock Customs House
and sign it.
The
following documents have to be handed over to C&F if any consignment of
machine papers is to be cleared from customs:
Export
Debentures, UDs, General Bond Licenses, and Bonded Warehouse Licenses should be
excluded from the said documents and in addition, the following documents will
be required.
One:
Promise of the importer with two witnesses on a stamp of Rs.500
Two: The
main catalog
Three:
Certificate from the bank. This means that the bank will issue a certificate to
the effect that you are transacting satisfactorily with the bank.
Opening the LC of Principle
Machineries:
To open an
LC related to importing original machines for a new entrepreneurial industry,
the following documents have to be submitted to the bank:
One:
Application form to the bank on the pad of the concerned institution.
Two: LC
Application Form which has to be collected from the bank and signed by the
importer.
Three:
Letter of Credit Authorization (LCA) 1 set which is provided by the concerned
bank and has to be signed by the importer.
Four:
Charge Document-1 set which is supplied by the concerned bank has to be signed
by the importer.
Five:
Insurance cover note with receipt of Rs.
In
addition, if an importer wants to import goods through back-to-back debentures,
he has to submit the export credentials along with the above documents to the
bank. In this case, the credit report of the exporter of your machine or
product has to be collected by the bank.
Examining the LC:
You need
to check the LC that the bank has sent or is sending to your seller. In other
words, it is necessary to test whether the things that should be in the LC are
correct. Things to look for in an LC:
One:
Whether the buyer's name and address are spelled correctly.
Two:
Whether your / your organization's name and address are correct.
Three:
Product price according to Performa Invoice/indent.
Four: Who
will do the inspection before export, his name, and address.
Five: We
have to see from which port the export will come and to which port it will
come.
Six: It
has to be seen whether the packing is being done according to the export
standard.
Seven:
Whether the Payment Clause has been established.
Eight: The
name, address of the buyer's bank, and whether the name and address of your bank
are correct.
Nine: LC
test member is duly mentioned.
Ten:
Whether the Marine Insurance cover note is appropriate.
Eleven:
Whether the Bill of Lading (BL) clause is appropriate.
Export, Import, and Unloading of
Merchandise:
Under
the terms of the LC, the exporter will export the goods as per the date and
send a set of shipping documents to the buyer and the LC opening bank. You need
to check the document according to the LC rules. The original document will be
given by the bank to its designated C&F for unloading the goods. If your LC
is not bank financed, you can redeem it with C&F as you wish. When fixing the
C&F, you must know the good and bad of the C&F and give him the
original document to unload. Otherwise, various difficulties (if bad C&F)
may occur.
FOB, CFR, & CIF
Price:
Factory
or ex-factory costs are calculated by adding packing, marking, and labeling
costs to raw materials and labor costs. The ex-factory price is obtained by
adding the profit margin to the ex-factory cost. The F.O.B. by adding the
internal shipping cost and the forwarding agent's commission to the ex-factory
price. (Free on Board) Price is calculated. In this case, the seller is
responsible for delivering the goods to the ship or aircraft at the sea or airport
mentioned in the sales contract. The risk of loss or destruction of goods after
lifting on a ship or aircraft rests on the buyer rather than the seller. If the
exporter is willing to sell the product on CFR (Cost & Freight) basis, he/she can apply for FOB. Ship freight must be added to the price. In this case, the cost of transporting the goods to the destination port and the ship fare is
to be borne by the seller. But after unloading the goods on the ship, the risk
of loss or damage to the product or any unexpected expense falls on the buyer
instead of the seller. The actual freight rates of ships of any line can be
collected from authorized shipping companies or their agents. If the exporter
is a CIF. (Cost, Insurance & Freight) If he wants to sell the product, he
has to take out a marine insurance policy to cover the risk of loss on the
product. The rate of insurance premium under the said policy depends on the
amount of risk and varies depending on the product and destination. This
insurance cost is usually calculated at the rate of 1% on the CFR value. C.F.R.
The CIF adds insurance costs to the original. The price is figured out.
Documents required
for import:
The
documents to be submitted to C&F Customs House for import are as follows:
One:
Bill of entry
Two:
Copy of Bill of Leading (Bill of Leading copy)
Three:
Copy of invoice
Four: Packing list
Five:
Certificate of Origin (CO)
Six:
UD / UP
Seven:
VBF-6
Eight:
Bond / Stamp (Bond / Stamp) Stamps are not required in the garment industry. In the case of other imports, a bond with a stamp of Rs.1000 has to be paid for goods
worth less than Rs.10 lakhs and Rs.2000 for goods worth more than Rs.10 lakhs.
Nine:
Copy of Master LC
Ten:
Letter of Credit Authorization (LCA)
Eleven:
Performa Invoice
Twelve:
Insurance Cover Note Copy
Thirteen:
PSI certificate if not an export-oriented industry.
Back to back LC:
Through
back-to-back LCs, exporters provide funds for the purchase, processing,
manufacture, and packaging of goods for export purposes.
The
following documents are required to open a back-to-back LC:
One:
Application to open LC
Two:
LC application form
Three:
Indent / Performa Invoice
Four:
LCF
Five:
Import Permit (IMP Form)
Six:
Insurance cover note
Seven: Original copy of export LC
Author of this Article
Sharmin Akther Diba
Industrial & Production EngineerRajshahi University of Engineering & Technology (RUET)
Email: dibasrmn@gmail.com
LinkedIn: Sharmin Akther Diba