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.
A letter of credit (LC) is a document that guarantees payment to the seller by the buyer. It's given by a bank and guarantees that the seller will be paid on time and in full. If the buyer is unable to make such a payment, the bank will cover the entire or remaining balance on the buyer's behalf.
A letter of credit is a document issued by a bank or financial institution guaranteeing that a seller will be paid on time and in full by a buyer.
A CAD transaction is less expensive for a buyer than an LC transaction, and it does not hold up financing like an LC transaction might. If the buyer refuses delivery and the vendor does not obtain payment, a CAD is riskier for the seller. At this point, the customer must pay for the product to be returned to its original location.
A bank's letter of credit assures that a seller will be paid if specific requirements are met. A letter of credit assures that, in the event that a foreign buyer alters or cancels an order, the seller will still be reimbursed by the buyer's bank for the shipping items, lowering production risk.
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