First, a buyer (importer) and a seller (exporter) opt for a common activity. They agree on a price, quantity and other conditions and determine how and when the goods are delivered to the buyer. As part of the contract, we assume that the seller requires the buyer to use a creditor (LOC). Financing: when the bank issues the LOC, the bank makes a promise and the bank is responsible for sending money. This is what makes a letter of credit so safe for sellers – the fact that the bank assumes responsibility for the payment. For this reason, the bank must have confidence in the fact that the buyer can finance the payment. Before the bank issues the LOC, the buyer may be required to deposit money with the bank or the bank may arrange financing for the buyer under the LOC. An agreement between the parties on the payment by documentary credit (Letter of Credit, L/C) refers to any agreement, regardless of name or description, by a bank (the “issuing bank”), acting on request and on the instruction of a client (the “applicant”) or on his own behalf, www.investopedia.com/terms/l/letterofcredit.asp The letter of custody is also issued at times of good faith to assure a beneficiary of the creditworthiness of his client and to give him confidence to fulfill his or her cause. The comfort of this type of LC is that it could give a buyer enough time to obtain and sell property in order to raise the money needed to fulfill the promise of payment. This means that, although they may not have sufficient cash reserves, they can still act comfortably without having to apply for a bank line of credit. khanhled.wordpress.com/2014/07/08/why-to-use-a-confirmed-letter-of-credit-lc/ against pre-defined documents, provided they meet on their faces the credit conditions that must be determined according to standard international banking practices, as expressed in the UCP published by the International Chamber of Commerce.
It is most popular for intermediaries transactions and transfer details are clearly stated in the documentation, including the fact that the credit is transferable. This is a particularly useful document for this type of businessman who rarely need financial inputs as capital for large transactions Once the request for a letter of credit is received by the buyer`s bank, they work on the terms of the letter of credit. The request must be in accordance with the terms of the sales contract (order. Once the importer and the bank have agreed on the terms of the certification, the importer`s bank issues the accrediting.