An international letter of credit is one of the secure methods of payment in global trade to secure high-value transactions. The issuing bank guarantees an exporter to pay the full-fledged amount for delivered goods/services in the event the importer ie. the applicant is unable to pay or at default to do so. Through this, the exporter gets peace of mind of getting paid, irrespective of the buyer's financial capability while the importer also proves his/her creditworthiness towards the transactions.
The occurrence of a global Letter of credit service in international transactions is a result of either foreign government regulations, geographical distance, or a lack of trust between the importers-exporters. This lack of trust leads to a requirement for a reliable & neutral trade payment method that provides a financial safety net to the exporters as well as ensures importers on-time delivery of ordered goods & services.
Import Letter of Credit
As the name suggests, an import letter of credit is issued by the importer's bank on behalf of the importer, guaranteeing a timely payment to the exporter for ordered goods in a transaction. Here, since the financial obligation of paying the exporter gets shifted to the issuing bank from the importer, the exporter gets relief from the risk of non-payment or payment failure. Therefore, it reduces the risks of fraud. Important terms & conditions regarding the type, quantity, place of delivery, or delivery time are mentioned in the LC. International letter of credit services makes sure that the transactions go ahead as planned.
