What is Letter of Credit (Documentary Letters of Credit) – Advantages of Letter of Credit For Exporter & Exporter
What is Letter of Credit (Documentary LC)
LC is a bank service ensuring payment of the amount indicated in the letter of credit to the Seller as per the Buyer’s instructions against the shipment of goods, performance of other conditions stipulated in the letter of credit and submittal of relevant documents.
Thus, upon transfer of ownership over the goods sent by the Seller to the Buyer and submittal of the document confirming the fulfillment of other conditions of the LC, the Bank (issuer) will ensure the transfer of payment to the Seller’s account.
Advantages of LC for the Buyer (Importer):
– Elimination of risk of losing money for the Buyer
– Payments are made after fulfillment of the Seller’s contractual obligations
– Transfer of ownership over shipped goods to the Buyer within the period indicated in the LC and according to other terms.
Advantages of LC for the Seller(Exporter):
– Guarantee of payment independent of the Buyer (subject to the fulfillment of contractual obligations)
– Possibility of payment before handing the goods over to the Buyer
– Possibility of execution of complex commercial contracts
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