LETTER OF CREDIT; PAY IMPORTS TO NIGERIA

Letter of credit for what? Are you thinking of importing some goods or buying some services into the Nigerian environment? Are you wondering how to pay for such imported goods and services? Is your concern rooted on the fact that certain financial organizations like PayPal have eliminated their services to Nigeria? This article on letter of credit is freebie to help remove those concerns. It will give you a couple of government-approved mode of payment for imports into Nigeria. Consequently, the article will make life easier for you. Therefore, I encourage you to read every bit.

LETTER OF CREDIT AND TWO KIND OF INTERNATIONAL TRADE

This article will focus on the procedure for payment for visible trade. In the same way, we shall handle invisible trade in a separate article. By the term visible trade, I mean the kind of trade that involves import or export of physical goods. By regulation, all import of physical goods shall be after the issuance of Form M by the Nigerian Customs Services on behalf of the Central Bank of Nigeria. In addition, the pay option agreed with the exporter is to be in the Form M.

Recommended for you; FORM M IN NIGERIA: HOW TO PROCESS AND OBTAIN IT

The listed options in the e-Form M application portal are; letter of credit, bills for collection, advance payment, not valid for FOREX. In my article on how to process Form M, I said I will treat these pay options in detail on a separate article. Hence, here is the article. Let us now explain these terms.

LETTER OF CREDIT (LC)

The letter of credit is an import payment method that applies to visible goods only. In this mode of payment, a letter of guarantee is from bank to the buyer on request. The letter, stating that the buyer or an importer’s payment to the exporter or seller will be made at the stipulated time and for the required amount stated, upon presentation of documents, which conforms to the terms and conditions of the credit. Should the buyer prove unable to make payment on the purchase as at when due, the bank will be held liable to make the payment. Note however, that the letter only deals with documents not with the goods as it were. The obligation to pay therefore is independent of sale contract or any other contract relating to the transaction.

Categorization of letter of credit is in terms of number of banks or parties involved as Unconfirmed LC or Confirmed LC. It can also be in terms of pay date as either Payable at Sight LC or Deferred Payment LC.

Unconfirmed Letter of Credit:

Letter of credit in which the issuing bank bears the whole obligation for pay is unconfirmed letter of credit. In case of default by the buyer, without confirmation by any other bank, the issuing bank bears the obligation

Confirmed Letter of Credit:

An LC is said to be confirmed if carries the obligation of two banks i.e. the issuing bank and another bank as the confirming bank. In this case, the seller asks for confirmation of the credit by a named bank or just any other bank. This conformation carries a cost payable by either the seller or buyer and can be shareable between them, depending on agreement.

Payable at Sight Letter of Credit:

This is when payment is once the documents complying with the terms and conditions of the credit. This must be agreed and stated in advance.

Deferred Payment LC:

If the payment is to be on a later date upon presentation of agreed document to the credit, say like 90 days after receipt of invoice, then the LC is deferred payment LC. This must be in the agreement or letter.

BILL FOR COLLECTION

This is a useful trade transaction where the exporter willingly dispatches goods based on an agreed credit period to the importer. With the Bill for Collection mode of payment, the exporter, through a bank to the importer, sends applicable shipping documents. The exporter’s bank forwards documents and a collection order to the importer’s bank for release to the importer against acceptance of the bill of exchange.

ADVANCE PAYMENT

An advance payment, mostly called advance, is the part of the transaction cost, which is paid or in in view for goods or services, with the balance to follow delivery of such goods and services. Clear agreement is should state how this balance can be remitted.

Read also; BEST NIGERIAN AIRPORTS: AIRPORTS NIGERIA

NOT-VALID-FOR-FOREX

This is an import payment option, where funds for payment are not through or from the bank. The importer uses his domiciliary accounts to pay for such transactions.

IN CONCLUSION:

In summary, the modes of payment available for your import into Nigeria include letter of credit, bills for collection, advance payment, and not-valid-for-forex transactions. For the letter of credit, the parties usually involved are:

• The buyer or importer, who is the applicant in the Nigerian Customs’ terms, makes request for the LC.
• The seller or exporter who is the beneficiary by the Nigerian Customs. He benefits from the LC
• The buyer’s bank or his authorized dealer bank, who issues the LC
• The confirming bank in the case of confirmed LC, designated by the seller
• The seller’s bank or his authorized advisory bank who advises the LC

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