A Letter of Credit (L/C) is a financial document issued by a bank on behalf of an importer, guaranteeing that the exporter will receive payment for the goods shipped, provided that the terms and conditions specified in the L/C are met.
A Letter of Credit is a crucial tool in international trade, providing security to both the exporter and the importer. For the exporter, it ensures that they will receive payment once they present the required documents to the issuing bank, demonstrating that they have fulfilled the terms of the sale. These documents typically include the bill of lading, invoice, packing list, and any other documents specified in the L/C. For the importer, it assures that the payment will only be made when the exporter meets the agreed terms, ensuring the shipment of goods as per the contract. The L/C reduces the risk of non-payment for exporters and provides assurance to importers about the shipment and quality of goods. Banks play a pivotal role in verifying and processing these documents, thus facilitating smoother international trade transactions.
Letter Of Credit