Letters of Credit
Letters of credit (LCs) remain among the most versatile and widely used payment mechanisms in international trade. 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.
Please request a quote using our contact form below.
How Letters of Credit work
Generally, the issuing bank of a Letter of Credit ensures that payment to the seller of the goods is made, provided the goods are delivered 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 that 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 or delivered. After the buyer confirms delivery according to the terms, the bank will pay the wholesaler its 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.
Which Type of Letter of Credit is right for me?
Sometimes referred to as a documentary credit, a letter of credit (LC) acts as a promissory note from a financial institution, usually a bank. A Letter of Credit represents an obligation assumed by a bank to make a payment upon meeting specific criteria. The issuing bank will transfer the funds after these terms are completed and confirmed.
Letters of credit remain a common feature in international trade, catering to a broader range of individual needs. Therefore, it is no surprise that various forms exist. Even red-clause agreements are possible. You can learn more about the payment instruments used in international trade on our dedicated website, Redchilli Capital.
Furthermore, it is the most effective way to safeguard your trade.
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