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An LC is a financial document which is provided by a third party i.e. a bank or a financial institution that guarantees the payment for goods and services to the exporter once the exporter submits the required documents. A letter of credit has three important elements – the beneficiary i.e. seller who is the recipient of the LC, the applicant i.e. buyer who buys the goods and services and the issuing bank that issues the LC on the buyer’s request.
International trade includes many factors such as distance, different laws in each country and the lack of personal contact and for these factors letters of credit act as a reliable payment mechanism. It is the most versatile and secure instruments for international traders. LC can also be termed as letter of guarantee. The required documents are responsible to protect the interests of both the buyer and seller as they can get paid immediately or at a later predefined date. If the required payment is done immediately to the seller than we call it on sight, but there are chances that the importer might do the payment once the shipment has reached the destination. It can be classified into two categories i.e. revocable and irrevocable. Irrevocable cannot be changed until both parties agree over it whereas, revocable can be changed as per one. Thus revocable is inadvisable to avoid risks.
It is suggested that both the parties should inspect the documentation to avoid delays, further costs or deferred payment. Even though the guidelines and form of Letters of Credit are majorly the same around but the content may differ. Inspections of documentation include a check for errors and mistakes because minor negligence can cost a fortune in this case. Hence it is advisable to check the documentation several times and stay double sure.
Letter of credit can be availed by the following process:
Features of Connect2India finance
Complete online application process makes it easier for us to process forms faster and provide same day loan approvals.
With online loan processing, business loan is disbursed within 3-5 business days of loan approval.
No need to put your valuable assets in risk, we have unsecured loan that do not require any collateral.
Our advanced algorithms determines the best rates for the type of loan you business require.
There will be no hidden costs or any other charges involved. Only processing fee of 2% is charged
Loan repayment structure can be customized depending upon how your business is growing.