Letter Of Credit Process
The Importer arranges for an LC to be opened in the Exporter’s favor by the issuing bank. The LC is sent from the issuing bank to the nominated bank, then sent to the Exporter. The products and documentation are delivered to a freight forwarder by the Exporter. The process of LC includes the following:
- Issuance of LC
- Shipping of goods
- Providing Documents to the confirming bank
- Settlement of payment from Importer and possession of goods
How Secure Is a Letter of Credit?
Suppose a buyer fails to pay a seller. In that case, the bank that issued the letter of credit is obligated to reimburse the seller as long as the seller complies with all of the terms of the letter of credit and satisfies all of the conditions of the letter credit. When the buyer and seller are located in separate countries, this gives additional protection.
Letters of credit may also be used to safeguard purchasers’ interests.
Who Accepts the Discrepancies in The Letter of Credit?
In the acceptance of the letter of credit following things can happen:
- The buyer asks his financial institution to accept the differences.
- The buyer directs his bank to make a lesser offer on his behalf.
- If the buyer disagrees with the conditions given, or if the Exporter does not accept the terms offered, the buyer’s bank will return the paperwork to the Exporter’s bank.
Read Also About what is meaning of Letter of Credit
Is Bank Guarantee a Loan?
One sort of financial safety net provided by lending institutions is the bank guarantee. That is to say, if a debtor does not pay, the bank will pick up the tab. Bank guarantees allow customers and debtors to make large purchases like equipment purchases or take out loans with confidence.
Is A Letter of Credit the Same as A Bank Guarantee?
A Bank Guarantee is similar to a Letter of credit in that they both instill confidence in the transaction and participating parties. The primary distinction is that a Letter of Credit guarantees a transaction, but a Bank Guarantee mitigates any damage if the transaction does not occur as planned.
Read Also About Simple Letter of Credit Form