An LC contract is a request by a customer to have a letter of credit issued, advised, or confirmed for a trade transaction. An LC substitutes the name and credit of a bank for the names and credit of the people concerned. Even if the remitter fails to pay, the bank promises to compensate the seller/beneficiary.
Commercial, Export/Import, Transferable and Non-Transferable, Revocable and Irrevocable, Stand-by, Confirmed, and Unconfirmed, Revolving, Back to Back, Red Clause, Green Clause, Sight, Deferred Payment, and Direct Pay LC are the different types. In trade operations, a letter of credit is an important financial tool.
You can open a Letter of Credit with your bank. The bank's responsible official assists you in completing the essential application for an LC. Because the LC is opened on the basis of your purchase contract, a copy purchase order / export contract, as well as other needed papers, must be produced.
An LC is a promise given by a bank on behalf of the buyer that payment will be made to the exporter if the LC's terms and conditions are followed, as evidenced by the presentation of all requisite documentation. To obtain this service, the buyer establishes credit and pays his or her bank.
A letter of credit might be 90 days, 60 days, or even 30 days in length: The letter of credit is abbreviated as "LC." Simply put, the cash promised in the letter of credit must be paid within 90, 30 or 30 days, otherwise the guaranteeing bank would be held liable.
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