In case a buyer fails to make the payment, the bank is liable to do so on his/her behalf. In case the letter is transferable, then the beneficiary may ask the bank to make the payment to another entity.
The letter has immense significance in international Works and Who’s Involved trade because of the varied laws in each country and the barriers to learning about the genuineness of different parties. Here, the buyer of the goods is mostly the importer. He works with the bank to provide the letter to the exporter who happens to be the beneficiary or the seller.
Buyers who make bulk purchases mostly require this document and the bank issues it as a Works and Who’s Involved guarantee to the seller. Before issuing the letter, the bank does a thorough background check of the buyer and does all the essential paperwork to make sure the latter does not back off. A buyer requires proving that he is financially sound to make the payment to the seller and won’t act contrarily when the time comes.
Types of Letters of Credit
There are mainly eight different types of letters of credit. Here is a look at what each one of them offers:
- Commercial Letter of Credit
This type of letter is issued to guarantee direct payment portugal phone number list to the seller. This means that the bank issuing the letter is liable to make the payment to the seller directly after the Works and Who’s Involved dispatch of the goods or as decided.
- Standby Letter of Credit
This letter serves as a backup plan for the buyer. In case the buyer is unable to make the payment for the goods and services offered by the seller, the latter can demand the same from the buyer’s bank by producing this letter. The issuing bank requires making the payment on the buyer’s behalf in this case.
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Revolving Letter of Credit
This type of letter enables the buyer to draw the Works and Who’s Involved amount multiple times during a particular period. It shuns the need to draft and submit the letter frequently.
- Revocable Credit
This allows the issuing bank to rectify or change the terms and conditions of the letter of credit at its discretion. It is not liable to send any prior information to the beneficiary before making these changes.
- Transferable Credit
This letter of credit enables the bank to transfer the decided amount to another entity upon receiving a request from the beneficiary.
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Traveller’s Letter of Credit
This letter acts as a guarantee that the bank issuing it shall honour the drafts at some of the foreign banks.
- Confirmed Letter of Credit
It serves as a confirmation of the creditworthiness of marketing prepares the marketing strategy the issuing bank. In this case, the advising bank undertakes the responsibility of paying the seller in case the buyer or the issuing bank fails to do so. This offers added security to the seller.
- Sight Letter of Credit
Also referred to as Usance Credit, a sight letter of credit enables the beneficiary to claim the payment from the issuing bank by showing necessary documents.
Real-World Examples – Putting Letter of Credit into Context
ICICI Bank: ICICI issues letters of credit that antigua and barbuda business directory are accepted globally. It has a stronghold in the global market because of its widespread network of correspondent banks around the world.