Documentary Credits

Letter of Credit – Follow Up

A letter of credit is typically a business “letter” that enables the recipient to make purchases and receive payment with greater security and less risk of fraud. It is often used by those looking to buy goods from an international supplier and it guarantees that the payment will be made so long as all specified conditions are met.

A Letter of Credit (LC) also serves as a way for a buyer to ensure that the seller will meet their terms and conditions as outlined in the purchase agreement. LCs also protect sellers from buyers who might not pay what they owe. In addition, LCs provide a way for buyers to limit their risk when dealing with foreign suppliers since it serves as a guarantee of payment.

The process of setting up a letter of credit typically involves a series of steps that the buyer and seller must go through beforehand. The process usually begins with the buyer negotiating the terms with the seller. Then, the two parties will agree on the specifics of the Letter of Credit and how it will be structured. This agreement typically involves detailed information such as the delivery date, the type of goods being purchased, and the payment terms.

Once the agreement has been established, the buyer will submit the details of the Letter of Credit to the bank or the financial institution that is acting as the issuing party. The issuing party will then issue the letter of credit, which will include all relevant information such as the date and amount of the transaction. The letter of credit is then sent to the seller and the seller has to review all the terms and conditions to ensure that everything is in order.

Once the seller has reviewed and accepted the letter of credit, the issuing party will then request payment from the buyer and may request documents from the seller as proof of delivery. In order for the payment to be released, the issuing party must check the documents and the buyer must send the payment.

It is important for buyers to follow up on the status of their letter of credit to ensure that the payment has been properly released. Buyers should also keep a copy of the letter of credit in case there are any disputes that arise. In addition, buyers should also verify the details of the letter of credit with the issuing party to ensure that all terms and conditions stated in the document remain in effect.

Overall, a letter of credit can be an efficient and secure payment arrangement for both buyers and sellers. By following up on the status of their letter of credit, buyers can ensure that they are receiving the correct payment when they engage in transactions with their international suppliers.

说明

A documentary credit, also known as a letter of credit (L/C), is a written obligation of a sellers bank to the buyers bank to pay a fixed amount of money on behalf of the buyer, under specified conditions. It serves as a payment method that is widely accepted and widely used in international trade.

The document credit usually involves three parties; the buyer and seller, who, as part of the terms of sale, enter into an agreement to use the documentary credit as a payment means; the issuing bank (the buyers bank), who issues the documentary credit on behalf of the buyer; and the receiving or negotiating bank (the sellers bank) who negotiates payment on behalf of the seller.

Under a documentary credit, the issuing bank binds itself to the seller and pays for the goods or services as stipulated under the terms of the credit, based on documents presented to it subject to the terms and conditions. The seller is then assured that payment from the buyers bank will be made under the terms of the credit. In other words, the issuing bank provides a guarantee of payment to the seller and relieves the seller from the risk of non-payment.

The document credit can be classified either by its type or by the standby or revocable nature. Types of documentary credit can include financial, commercial, or standby. They can also be revocable or irrevocable; a revocable document credit can be changed or revoked by the issuing bank while an irrevocable document credit cannot be changed or revoked without the agreement of all the parties involved.

Document credits are frequently used in international trade as they help reduce risk for both parties involved in the transaction. They also provide a secure and straightforward method of payment and settlement.