A letter of credit (LC) is a financial instrument typically issued by a bank to facilitate international trade by ensuring that payment will be made once specific documents are presented.
There are cheaper means of payments than a letter of credit , but this is the safest.
It depends of the whole prise of the goods that are imported/exported
Delayed receipt of the letter of credit may cause problems with the tinme limit for dispach the goods
3d. Disadvantages for seller
There may be extra work involved with the preparation of docs. for letter of credit
Possibility to obtain finance from the confirming bank
Security against amendment or cancellationof an order without the seller consent
Payment will be predictable
Security for obtain payment
The letter of credit cannot be cancelled unless accepted by the seller
The buyer has an obligation to pay for complying documents, regardless of the condition of the goods
3a. Advantages for buyer
3b. Disadvantages for buyer
Increased possibility to obtain discount of financing from seller
The letter of credit improves the cash flow
The buyer is only obliged to pay against of complying docs
Payment is not to be effected until the buyers bank has received the docs;
The seller of goods or services to whom the LC is addressed and who is
entitled to its benefits.
1. DEFINITION
An LC is a financial instrument issued, generally by a bank, to an individual or corporation by which the bank substitutes its
own creditworthiness for that of the individual or corporation. LCs facilitate importing and exporting by assuring the seller/exporter’s payment for goods sold against compliant documents. Without such assurances of payment, foreign trade
would be severely curtailed.
LETTER OF CREDIT
Letter of credit
2.The beneficary in a L/C
3c. Advantages for seller
4. Main documentation of L/C
Health Certificate of phitosanitarycertification
Insurance Certificate ( Proof of Quality)
Inspection Certificate (Proof of quality)
Certificate of Origin (Proof of Origin)
Packing list (Proof of Packing)
Bill of Lading (Proof of Shipment)
Commercial invoice (Proof of Value
5. Price of the Letter of credit
Typical buyer`s fee is 0.75 percent, but notes that in underdevelopedcountries it can range from 1.5 percent upward.
