Basics to a Letter of Credit
The advantage of letters of credit is that it gives both parties a high degree of certainty, that the conditions will be fulfilled.
It allows the importer to ensure that the goods will be delivered under the terms provided, plus the ability for financial support, while the exporters can ensure their payment.
For the exporter to receive the payment for the goods he or she needs to present the actual letter of credit in the port of entry to be able to receive payment.
The responsibility of the bank regarding the payment of the good only goes as far as the documents allow it.
In short, the bank will not be responsible for aspects that are not covered in the documents.
Additionally when you use letters of credit, you will be supported by experts.
You will have expertise in the processing of your transaction and timely information about the status of its operations in commercial credits.
In addition, you will have proof of all commissions and fees charged for this service and copy of the message transmitted to the correspondent bank, including details of receipt.
Do you need many things to get a letter of credit? First of all you need to open a contract that will be contained in the letter of credit.
Additionally, you need to request a credit line to your bank that will give you protection in case of exchange differences.
You need to sign purchase orders, pro forma invoices and sales contracts in order to get a letter of credit.
We can divide the parties involved in the letter of credit into two.
First of all, the people who offer it.
The letter of credit is offered by banking institutions.
The issuing bank opens or issues the letter of credit.
Two: the ones that use it.
In reality it is the exporter and the importer who makes use of it but the exporter is the beneficiary of the payment.
The payer or the critical buyer is the Importer.
He or she requests the opening of the letter of credit.
The originator of the letter of credit is the person who goes to order the bank to open a letter of credit on his or her account and give it to a beneficiary.
The beneficiary can turn the letter of credit upon presentation of certain documents; usually documents evidencing the shipment of certain merchandise and get payment.
It allows the importer to ensure that the goods will be delivered under the terms provided, plus the ability for financial support, while the exporters can ensure their payment.
For the exporter to receive the payment for the goods he or she needs to present the actual letter of credit in the port of entry to be able to receive payment.
The responsibility of the bank regarding the payment of the good only goes as far as the documents allow it.
In short, the bank will not be responsible for aspects that are not covered in the documents.
Additionally when you use letters of credit, you will be supported by experts.
You will have expertise in the processing of your transaction and timely information about the status of its operations in commercial credits.
In addition, you will have proof of all commissions and fees charged for this service and copy of the message transmitted to the correspondent bank, including details of receipt.
Do you need many things to get a letter of credit? First of all you need to open a contract that will be contained in the letter of credit.
Additionally, you need to request a credit line to your bank that will give you protection in case of exchange differences.
You need to sign purchase orders, pro forma invoices and sales contracts in order to get a letter of credit.
We can divide the parties involved in the letter of credit into two.
First of all, the people who offer it.
The letter of credit is offered by banking institutions.
The issuing bank opens or issues the letter of credit.
Two: the ones that use it.
In reality it is the exporter and the importer who makes use of it but the exporter is the beneficiary of the payment.
The payer or the critical buyer is the Importer.
He or she requests the opening of the letter of credit.
The originator of the letter of credit is the person who goes to order the bank to open a letter of credit on his or her account and give it to a beneficiary.
The beneficiary can turn the letter of credit upon presentation of certain documents; usually documents evidencing the shipment of certain merchandise and get payment.
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