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 case the Buyer is not able to pay its supplier then issuing Bank would pay the Supplier 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:
5 things to know about Letter of Credit format are
Is suppliers Credit the Most Trending thing now?
Yes it is.
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).
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