Letters of credit are still one of 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 take on the Handling of Letters-of-Credit. It is common to use LCs in all cross-border Trade Activities.
We help you secure a Letter-of-Credit and manage the process: Application, Handling, and Pay-Out.
Just ask for a quote by using our contact form down below.
How Letters-of-Credit work
Sometimes referred to as documentary credit, a letter of credit acts 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. After these terms are completed and confirmed, the bank will transfer the funds. The letter of credit 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, it requests a letter of credit be provided in the purchasing contract.
The purchasing company then applies for a letter of credit 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 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 letter of credit 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?
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.
Furthermore, it is the most suitable way of safeguarding your trade.
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