A letter of credit is generally a document issued by a bank or financial institution, which authorizes the recipient of the letter (the “client” of the bank) to attract large sums of money up to a certain amount , in accordance with the terms and conditions set forth in the letter. This generally occurs when the customer’s bank seeks to ensure a seller (the “recipient”), he will receive payment for any goods it sells to the customer.
Letter of credit is document to do the exports and import. The asumption, if you are the importer posisition, This is the simple process
1. Make the sales contract with the suplier
2. Visit the Bank, and open the L/C
3. Wait the product from the suplier.
For example, the bank could extend the letter of credit subject to the provision of documentation of the beneficiary that the goods purchased with the credit line were shipped to the customer. The customer can use the letter of credit to secure the beneficiary only if it satisfies the conditions set forth in the letter, they will be paid for all goods he sells and ships to the customer.
In simple terms, a letter of credit, it can be said that the document of a bank customer of the credit line, and terms associated with the use of this line of credit. Letters of credit are the most commonly used in combination with long-distance and international business transactions.
Letter of credit confirmed
A letter of credit issued by a foreign bank, which was verified and guaranteed by a bank in the event of failure of the foreign bank or the buyer. Typically, this type of letter of credit will be sought when an exporter domestic demand assurance of payment of a foreign importer.
Commercial Letter of Credit
A letter of credit trading, the vendor assures that the bank will provide payments for goods or goods shipped to the customer’s bank, assuming that the vendor provides all required documentation of the transaction and its shipment of the goods purchased.
Irrevocable Standby Letter of Credit
An irrevocable letter of credit includes a guarantee by the issuing bank that if all the terms and conditions contained in the letter are met by the recipient, the letter of credit will be honored.
Letter of credit revoked
A revocable letter of credit may be cancelled or modified after the date of its issuance, by the issuing bank.
Letter stand-by credit
In cases where the customer’s bank to default on a payment to the beneficiary and the beneficiary of documents evidence of his loss, compatible with all the terms set forth in the letter, a letter of credit may be used by recipients to ensure payment Bank of issuance.
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