There's always some level of uncertainty and risk involved in international trade due to distance, possibly political instability, differing laws, etc. These risks can be avoided by implementing a letter of credit, or L/C. These letters are usually irrevocable and will allow two parties to deal with certainty.
Banks used these letters to represent two parties of a trade or deal and negotiate the terms of the transaction. This guarantees that all goods are supplied for and paid for on time. Once the required shipping documents are provided and the payments are made, the banks can deem the transaction as finished. There are a variety of letters that depend on the negotiation made beforehand. They can be non-performing or standby, sight, confirmed, and even revocable.
A buyer will request a note from a local bank so deem a seller as a beneficiary. The buyer's issuing bank will send the copy of the credit letter to the supplier or beneficiary's advising bank. The advising bank then needs to check the authenticity of the note and send any required documents back to the issuing bank. This would include delivery confirmations that state the goods were received by the buyer within the decided time frame, and also any documents that prove that the terms of the deal were met.
The issuing bank of the buyer will authenticate the documents that prove that the terms and conditions were met, and will transfer the agreed upon sum of money to the advising bank. Once the money is received by the advising bank, it is transferred to the beneficiary. Since credit letters are negotiable to begin with, it's possible to transfer the title to someone else. In this case, whoever is listed on the note will be the one who receives the money. For whatever reason the issuing bank does not send the money to the advising bank, the advising bank has no obligation to pay the beneficiary.
Sight letter types are payable when the documents are all submitted to the issuing bank. Non-performing or standby letters pose as a fallback for the supplier or beneficiary if for any reason the buyer refuses to pay the specified amount by the due date, even when the goods were delivered. This is a good way to protect the interests of the beneficiary, and is fulfilled or cancelled once the sums are paid.
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.
The last type of note is revocable. Normally, credit letters are deemed final and irrevocable. However, if this letter was agreed to before the transaction, the issuing bank can cancel or change the entire deal after the process has started.
The beneficiary has to pay fees with these letters. They are payment, advising, discrepancy, reimbursement, or communication fees. The buyer only has one fee to open the letter initially. However, the amount of this fee can vary based on the country, sum of funds, and type of the letter.
Banks used these letters to represent two parties of a trade or deal and negotiate the terms of the transaction. This guarantees that all goods are supplied for and paid for on time. Once the required shipping documents are provided and the payments are made, the banks can deem the transaction as finished. There are a variety of letters that depend on the negotiation made beforehand. They can be non-performing or standby, sight, confirmed, and even revocable.
A buyer will request a note from a local bank so deem a seller as a beneficiary. The buyer's issuing bank will send the copy of the credit letter to the supplier or beneficiary's advising bank. The advising bank then needs to check the authenticity of the note and send any required documents back to the issuing bank. This would include delivery confirmations that state the goods were received by the buyer within the decided time frame, and also any documents that prove that the terms of the deal were met.
The issuing bank of the buyer will authenticate the documents that prove that the terms and conditions were met, and will transfer the agreed upon sum of money to the advising bank. Once the money is received by the advising bank, it is transferred to the beneficiary. Since credit letters are negotiable to begin with, it's possible to transfer the title to someone else. In this case, whoever is listed on the note will be the one who receives the money. For whatever reason the issuing bank does not send the money to the advising bank, the advising bank has no obligation to pay the beneficiary.
Sight letter types are payable when the documents are all submitted to the issuing bank. Non-performing or standby letters pose as a fallback for the supplier or beneficiary if for any reason the buyer refuses to pay the specified amount by the due date, even when the goods were delivered. This is a good way to protect the interests of the beneficiary, and is fulfilled or cancelled once the sums are paid.
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.
The last type of note is revocable. Normally, credit letters are deemed final and irrevocable. However, if this letter was agreed to before the transaction, the issuing bank can cancel or change the entire deal after the process has started.
The beneficiary has to pay fees with these letters. They are payment, advising, discrepancy, reimbursement, or communication fees. The buyer only has one fee to open the letter initially. However, the amount of this fee can vary based on the country, sum of funds, and type of the letter.
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