Letters of Credit
Letters-of-Credit
Letters of credit (LCs) are still among international trade’s most versatile and widely used payment mechanisms. Whether you import or export, using a letter of credit can provide a high level of security. Nevertheless, many corporate customers may consider letters of credit administratively cumbersome and difficult to procure.
Overcoming these perceived obstacles requires professional guidance and technical assistance from experienced Professionals. We handle LCs, which are common in all cross-border Trade Activities.
We help you secure an LC of credit and manage the process: Application, Handling, and Pay-Out.
Just ask for a quote using our contact form below.
How Letters-of-Credit work
Sometimes referred to as documentary credit, a letter of credit (LC) acts as a promissory note from a financial institution, usually a bank. It represents an obligation taken on by a bank to make a payment once specific criteria are met. The bank will transfer the funds after these terms are completed and confirmed. The LC ensures the payment will be made as long as the services are performed as indicated.
For example, if someone receives an order from a new client, the wholesaler cannot know whether this new client can fulfill its payment obligations. Hence, the seller requests an LC be provided in the purchasing contract.
The purchasing company then applies for an LC at a bank with funds or a line of credit (LOC). The bank issuing the letter of credit holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped. After the goods have been shipped, the bank would pay the wholesaler it’s due as long as the sales contract terms are met, such as delivery before a particular time or confirmation from the buyer that the goods were received undamaged and as specified.
The LC substitutes the bank’s credit for that of its client, ensuring correct and timely payment.
Source: Investopia.
Which Type of Letter-of-Credit is right for me?
Letters of credit are still quite common in international trade and cover a broader range of individual needs. So, it doesn’t come as a surprise that various forms exist. Even red-clause agreements are possible. You may find out more about payment instruments used in international trade on our dedicated website, Redchilli Capital.
Furthermore, it is the most suitable way of safeguarding your trade.
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