How Important Is A Letter Of Credit To The Exporter?
An exporter can use a letter of credit to ensure that he receives the whole Amount specified in the LC, which aids the seller in planning future business ideas. Another benefit of a Letter of Credit transaction is that the money is delivered on time to the Exporter. As you may be aware, ‘financing at the right moment’ is an essential consideration in any company deal.
Can Lc Be Issued After Shipment?
As usual, LCs are granted as “Usance LCs” or “Sight LCs.” After the paperwork are delivered, the initial payment is given “at sight.” Payout occurs “85 days after shipping,” for example.
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Do You Pay Interest On A Letter Of Credit?
A customer doesn’t pay interest for a letter of credit. Instead, the bank charges fees and commissions for playing the part of an intermediary. When you open a line of credit, you’ll typically pay opening and annual fees.
How Do Banks Make Money From Letters Of Credit?
When looking at it from the standpoint of trade, banks make money by providing numerous services in service charges, transaction fees, interest costs, currency conversion fees, and commissions, among other things. Transaction fees are comprised of a variety of charges that are dependent on the risk associated with the handling of trade documents.
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Trade banks provide their customers with two types of financing: fund-based financing and non-fund-based financing. Banks provide their customers with a non-funds-based service known as a letter of credit (LC). It charges a fee for the service it provides.
Pre-shipment financing and post-shipment finance, on the other hand, are fund-based facilities in which banks lend money to companies to complete production, and by agreeing to advance cash before the actual party pays, the banks gain interest as well as a fee for providing the service. Bank guarantees are also an excellent product for banks to use to generate revenue through service fees.