Letter of Credit Benefits
Not just the importer, but the exporter also gains many benefits by using Import LC as a payment term. And it includes:
For Exporter
The buyer cannot cancel or alter an order without the approval of the vendor. Hence, the assembly risk becomes zero.
The buyer’s bank must buy the shipped goods.
The buyer cannot refuse to buy the supplied goods once the vendor complies with the terms of credit.
Payments are secured if the customer opts for a credit.
For Importer
The bank is responsible for the payment of products or services on a precondition that the vendor would offer all the documents required, consistent with the terms of MT700.
Through an LC, the importer is indeed proving their solvency.
In most cases, the customer can control the shipping of products.
If the vendor provides a credit option, it means the vendor has been granted a credit period for the payment.
Prepayments become negligible under import LC.
Types of Letters of Credit
These can’t be amended or changed without the consent of all parties involved. Most of the traders prefer Irrevocable LCs. This is often because Irrevocable LC gives the safety that the majority of suppliers want.
Transferable Letter of Credit
This will be transferable to the principal supplier upon request of the first beneficiary. This is because, in some cases, the primary party is playing the role of a middle party under this sort of Letters of Credit.
Confirmed Letter of Credit
In some cases, sellers might not trust issuing bank that gives LC on behalf of the customer. So, they require a bank in their home country to verify the LC.
LC at Sight 60 Days/LC 90 Days After Sight
These types of LC are usually utilized in domestic and global trade. This guarantees that the bank will release the payment, once the vendor submits all the documents as mentioned within the credit.
Back-to-Back Letter of Credit
This type is normally issued against the Master LC. Firstly, the LC is opened in favor of an exporter from an importer’s bank. After that, as per the Master LC, the credit facility available within the exporter’s account, the exporter’s bank will open a replacement LC, in favor of their principal supplier.
Letter of Credit Cost
The cost of Letters of Credit depends on the quantity and its tenure. Usually, the value may include bank commission, processing fee and swift charges. Further, the value is borne by the applicant (buyer). And it should be clearly stated on the issued LC. For more info on the value, get in touch with us.
