Letters of Credit

A Letter of Credit (LC) is a written commitment issued by a bank on behalf of a buyer (importer) to pay a specified amount to the seller (exporter) upon the fulfillment of certain conditions.

Types of LCs

The different types of LCs, such as Revocable, Irrevocable, Confirmed, and Standby LCs, each serving specific purposes and offering various levels of security.

Initiating the LC

Normally, the buyer (importer) asks their bank to issue the LC in favor of the seller (exporter) to begin the process of beginning an LC.

Terms and Conditions

LCs allow parties to establish a wide range of terms and conditions for the transaction, including the quality of the items, shipping dates, and payment terms.

Banks' Role

The crucial role of banks in LC transactions. Emphasize that banks act as intermediaries, ensuring that the seller receives payment when they fulfill the terms of the LC.

Documentary Compliance

LCs are contingent upon the presentation of specific documents, such as invoices, bills of lading, and certificates of origin. These documents must match the LC's requirements for the transaction to proceed.

Payment Guarantee

LCs provide a guarantee of payment to the seller. Once the seller meets the LC conditions, the buyer's bank is obligated to make the payment.

Lifeline of International Trade

Letters of Credit are the lifeline of international trade, facilitating billions of dollars in transactions worldwide. They enable businesses to engage in global commerce with confidence and security, promoting economic growth on a global scale.