A letter of credit (commonly known as an LC) is a guarantee from a bank that a particular seller will receive a payment due from a particular buyer. The bank guarantees that the seller will receive a specified amount of money within a specified time. In return for guaranteeing the payment, the bank will require that strict terms are met. It will want to receive certain documents - for example shipping confirmation - as proof.
Why use a letter of credit?
Letters of credit are most commonly used when a buyer in one country purchases goods from a seller in another country. The seller may ask the buyer to provide a letter of credit to guarantee payment for the goods. The main advantage of using a letter of credit is that it can give security to both the seller and the buyer.
Advantages for sellers
By asking for an appropriate letter of credit a seller is reassured that they will receive their money in full and on time. A letter of credit is one of the most secure methods of payment for exporters as long as they meet all the terms and conditions. The risk of non-payment is transferred from the seller to the bank (or banks).
Advantages for buyers
When a buyer uses a letter of credit they get a guarantee that the seller will honour their side of the deal and provide documentary proof of this.
THE APPLICATION PROCESS FOR AN AT SIGHT LC
Universal Trade Finance Ltd.
152 - 160 City Road
Telephone: +44 208 050 4075
Companies House Reg: 11778640