Letter of Credit is a written commitment to Pay given by Buyer or Importer’s Bank(issuing Bank) to Exporter or Suppliers Bank (accepting or paying Bank). In other words LC is a Bank guaranteeing that Buyer would pay certain amount after certain period of time only if terms and conditions mentioned on Letter are fulfilled. In casethe Buyer is not able to pay its supplier thenissuing Bank would pay theSupplier on behalf of the Buyer.
Bank usually perform a credit assessment for its customers Credit before issuing LC as it becomes Bank liability to pay supplier in case if Buyer is not able to make payment on Time.
LC is used mostly in International trade and in domestic market as well. It is internationally recognised guarantee of payment document used to bring trust and facilitate trade transactions.Letter of Credit is of various types:
After RBI banned Letter of Undertaking (LOU) backed Buyer’s Credit,currentlythe best available option with Importers to avail Import financing is Suppliers Credit.
It is almost similar to Buyer Credit but thekey difference is that in Suppliers Credit, Letter of Credit is required (mandatory).
24 May 2019 03:19 PM
1. Foreign exchange as the term says is an exchange of foreign currency. Exchange of one country’s currency against another country’s is done in the foreign exchange or forex market.
23 May 2019 12:04 PM
Foreign exchange depends on the value of the currency. And, as far as the valuation of currency is concerned, it again depends on a number of factors such as - trade, investment, tourism, and geopolitical risk. The foreign exchange market also repres
21 May 2019 05:13 PM
A letter of credit provides an irrevocable guarantee to the seller that provided the goods and/or services are delivered to the buyer according to contractual terms and with the required documents, it will be paid by the bank that issued letter of cr
16 May 2019 04:27 PM
Managing forex money is important to increase profits and reduces losses which can arise if not monitored. In the highly fluctuating forex market, the movement of one currency against the other creates opportunities.
15 May 2019 12:50 PM
Trade financing could be made directly to the supplier, to enable him to procure items to produce, or for immediate sale, and/or for storage for future activities.
10 May 2019 05:31 PM
Trade finance services are provided to an importer to avail a short term funding against the goods or services that they want to avail from an overseas supplier. There are different means of achieving this service.