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Korean: 한국 고객을 위한
Staff Answer
Feb 02, 2020 - 05:49 PM
Hi, A Letter of Credit is a type of payment term used by importers and exporters, is a commitment by a bank on behalf of the buyer that the payment will be made to the exporter, as long as the terms and conditions stated in the letter of credit have been met, as verified through the presentation of all the required documents. It is an assurance from the bank that a buyer's payment to a seller will be received on time and for the correct amount and thus makes the elimination of possible risks. If the buyer is unable to make the payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Due to the nature of international dealings, including factors such as distance, contrasting laws in each country, and difficulty in knowing the reliability of each party personally, the use of letters of credit has become a vital aspect of international trade. A letter of credit is typically a negotiable instrument, the issuing bank pays the beneficiary or any bank nominated by the beneficiary. If a letter of credit is transferable, the beneficiary may assign another entity, such as a corporate parent or a third party, the right to draw. Banks typically require a pledge of securities or cash as collateral for issuing a letter of credit. Banks also collect a fee for service, typically a percentage of the size of the letter of credit. An LC is useful when reliable credit information about a foreign buyer is hard to get, but the exporter is satisfied with the creditworthiness of the buyer’s foreign bank. An LC also secures the buyer because no payment obligation arises until the goods have been shipped or delivered as promised or guaranteed. Learn more about it, here. I hope I answered your question.
Thanks and regards,
go4WorldBusiness.com Team
Thanks and regards,
go4WorldBusiness.com Team
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