You Can Import Goods With Letter of Credit in Nigeria, see how it works
April 6, 2018
You Can Import Goods With Letter of Credit in Nigeria, see how it works. The purpose of this guide is to reveal to intending importers how actually they can import goods using a seamless and easy means to source foreign exchange, which arguably has been the major challenge limiting importation of goods in Nigeria.
I will suggest you go through this guide with keen interest and concentration as it contains everything you will ever need for a successful importation of goods and services to as well guarantee profit after sales.
Letter of Credit commonly known as LC will form the pivot of this guide.
WHAT IS LETTER OF CREDIT?
Letter of credit is an order or document by a buyer through a bank, intending that a seller/shipper in another country be settled for the goods after all conditions are being met by both parties. The issuing bank is however acting or providing the foreign exchange for settlement on behalf of the buyer/importer. The shipper however could on his own choose a favorite bank in his own country he wish the payment routed through, otherwise it goes through the issuers corresponding bank.
WHAT DOCUMENTS DO I NEED TO PROCESS LETTER OF CREDIT (LC)?
To access Letter of Credit (LC) you will have to make available the following documents to your bank.
1 Valid Form M: Form M is a statutory document to to be completed by all importers for importation of goods and services in Nigeria.
HOW CAN I GET FORM M?
To get Form M you will need the following:
A SONCAP, is issued by the regulatory agency in charge of standard and quality of the product to be imported and for possible inspection.
B Insurance certificate: Like the name goes, this is to insure your goods in case of any eventuality.
C TIN Number: This is Tax Identification Number, by obligation you are required to pay tax to the government, this will serve as an evidence of tax payment. Recently Voluntary Asset and Income Declaration Scheme (VAIDS) was held in Nigeria as a way of granting tax amnesty to evaders, businesses, individuals to come out and declare their assets as well pay tax.
D Proforma Invoice: This is a document containing details of items to be imported, ranging from sizes, unit price, quantity, quality etc.
2 Application letter, you will have to apply officially to the bank stating your intention to access letter of credit (LC). This application must be made with your company letter headed paper, at this point you now understand that you need a company account for this transaction.
3 Bid request: This is simply an item showing that you voluntarily requested to source foreign exchange using letter of credit through the bank as every transaction is legally binding and can be enforced should anything go wrong.
4 LC application form: Apart from your initial letter, you are required to fill an (LC) Letter of Credit application form.
Having made provision for the above listed you are on your way to a successful letter of Credit (LC) offer.
5 Your Bank Account must be funded: Over the tune of the amount being sourced equivalent in USD.
HOW DOES THIS LETTER OF CREDIT WORKS?
Here is a typical example: Say an importer Mr. IK with the company name Ike God Investment Nig, Ltd approached a commercial Bank in Nigeria say Skye Bank Plc. Requesting a letter of credit to source foreign exchange to enable him pay his seller/shipper in China, whom he has agreed a specified price, items, quantity and quality as contained in the Proforma Invoice.
Read also: How to source FX in Nigeria
Note: Mr IK and the shipper, may be say Mr Chin Gao in China may not have necessarily known each other, their business could be on referral etc.
The bank will now require Mr Ik to apply for letter of Credit using his company/business letter head. He will as well be issued a bid request form, and letter of Credit application form. MR IK will then provide his Valid Form M which the bank could still help him access via the Form M window. Mr IK will have to fund his account to the tune of the amount being sourced in USD.
At this point the journey is half way done, the issuing bank (Skye Bank) will now reach to a corresponding bank In the Mr Chin Gao’s country i.e China. Mr Gao can decide or make a reference to a particular bank he wish to receive his money from. Once there’s a transmission the bank in China will contact Mr Gao with a notification of letter of credit on his behalf.
Mr. Gao will then release the shipping document to the bank in China, the bank in China will then contact Skye Bank with the details of the shipping document to ascertain if it’s actually what is contained in Mr Ik’s Proforma Invoice. All things been equal, the bank in China will be instructed to pay Mr Gao then Mr Ik will receive the shipping documents, will then wait for his goods to arrive Nigeria then clear his goods afterwards.
Hope it’s very clear and concise, importation does not involve a rocket science. You just need to equip yourself with necessary knowledge on how some principles involved work.
NB: You must pay attention to the details of a letter of credit, ask questions, seek clarity where in doubt before you accept some terms, because once they are binding on you, they can be enforced.
None of these banks is a shipping agent and they do not have business with the quality of the product, all they do is act as foreign exchange providers and intermediaries on behalf of the seller and the buyer for accomplishing a smooth and healthy transaction between the shipper and the importer.
Also remember that the shipper will only get paid after he might have proved shipment in accordance with the dictates of the Proforma Invoice as well handed over the shipping document to the Bank.
You may ask how did the sourcing bank make its’ money? well, the bank provides the letter of credit on a particular rate to the customer, usually better than what is obtained in other foreign exchange markets.
Are there questions you wish to ask, avail yourself the opportunity to seek clarity where in doubt by simply using the comment box below.
Raphael Orji is a freelance writer, professional blogger and a content marketing consultant. I work with small businesses, startups and entrepreneurs in building their brand image with high quality blogging and content marketing strategy.
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