International trade often involves amounts of risk and uncertainty due to possibly issues like distance, political instability, differing laws, etc. If the parties involved use a letter of credit, also known as an L/C, they can avoid these risks. L/Cs are usually written with fixed amounts and criteria, so they are often irreversible.
These credit letters are negotiation tactics made by banks on the behalf of buyers and suppliers. It guarantees that goods are paid for in full and on time. They are fulfilled when the beneficiary submits the necessary shipping documents and payments are made. There are many types of credit letters, and it depends on the needs and conditions of the two parties. These include sight, standby or non-performing, confirmed, or revocable.
The advising bank, or the issuing bank of the buyer, will be asked to provide a credit note stating all the terms and conditions of the negotiation. The note will be sent to the supplier's local bank for authentication. This supplier, or beneficiary, will use its issuing bank as an intermediary to send all shipping documents and miscellaneous files listed in the negotiation to the advising bank. This way, both the issuing and advising bank will have access to the transactional files and authenticate the letter as fulfilled.
Once the beneficiary has fulfilled its side of the terms and conditions, the issuing bank of the buyer will transfer the pre-determined funds to the advising bank. Once the advising bank receives said funds, it will credit the amount into the account of the beneficiary. One thing to keep in mind is that these letters can be sold or transferred to others because they are negotiable. Therefore, whoever is listed on the letter will receive the funds. Also, if the buyer's issuing bank fails to provide the funds, the advising bank also is not required to credit its beneficiary.
Sight credit letters are types that call for payment immediately after all necessary documents are sent to the issuing bank. Standby or non-performing letters protect the interests of the beneficiary, and provides security in case the buyer does not pay the pre-determined sum of money by the due date. Once the sum is paid by the buyer, this letter can be cancelled.
With confirmed credit letters, the beneficiary will be paid either by the issuing or advising banks. Normally, the advising bank doesn't have any obligations to pay the beneficiary if the issuing bank doesn't transfer any funds. However with this note, the beneficiary will be paid by the advising bank as long as the terms of the letter were met.
There can also be a revocable letter. In usual cases, credit letters can't be modified. However, with this last note, the deal can be cancelled or changed by the issuing bank even after the transaction has started.
There are certain fees that the beneficiary has to pay such as communication, general payment, advising, discrepancy, and reimbursement. If the conditions are met, the advising and discrepancy fees are voided. The buyer also must pay to create the letter itself. Based on the country, sum, and type of letter; the amount of the fee varies.
These credit letters are negotiation tactics made by banks on the behalf of buyers and suppliers. It guarantees that goods are paid for in full and on time. They are fulfilled when the beneficiary submits the necessary shipping documents and payments are made. There are many types of credit letters, and it depends on the needs and conditions of the two parties. These include sight, standby or non-performing, confirmed, or revocable.
The advising bank, or the issuing bank of the buyer, will be asked to provide a credit note stating all the terms and conditions of the negotiation. The note will be sent to the supplier's local bank for authentication. This supplier, or beneficiary, will use its issuing bank as an intermediary to send all shipping documents and miscellaneous files listed in the negotiation to the advising bank. This way, both the issuing and advising bank will have access to the transactional files and authenticate the letter as fulfilled.
Once the beneficiary has fulfilled its side of the terms and conditions, the issuing bank of the buyer will transfer the pre-determined funds to the advising bank. Once the advising bank receives said funds, it will credit the amount into the account of the beneficiary. One thing to keep in mind is that these letters can be sold or transferred to others because they are negotiable. Therefore, whoever is listed on the letter will receive the funds. Also, if the buyer's issuing bank fails to provide the funds, the advising bank also is not required to credit its beneficiary.
Sight credit letters are types that call for payment immediately after all necessary documents are sent to the issuing bank. Standby or non-performing letters protect the interests of the beneficiary, and provides security in case the buyer does not pay the pre-determined sum of money by the due date. Once the sum is paid by the buyer, this letter can be cancelled.
With confirmed credit letters, the beneficiary will be paid either by the issuing or advising banks. Normally, the advising bank doesn't have any obligations to pay the beneficiary if the issuing bank doesn't transfer any funds. However with this note, the beneficiary will be paid by the advising bank as long as the terms of the letter were met.
There can also be a revocable letter. In usual cases, credit letters can't be modified. However, with this last note, the deal can be cancelled or changed by the issuing bank even after the transaction has started.
There are certain fees that the beneficiary has to pay such as communication, general payment, advising, discrepancy, and reimbursement. If the conditions are met, the advising and discrepancy fees are voided. The buyer also must pay to create the letter itself. Based on the country, sum, and type of letter; the amount of the fee varies.
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When looking for a letter of credit from a financial institution, you can trust BW Trade Finance company to take care of such matters. To know more, visit the website at http://www.bwtradefinance.com.