How is a letter of credit release
Letters of Credit - What is a Letter of Credit (Trade Finance Global LC Guide)
hi I'm Sam and I want to tell you all
about letters of credit and along the
journey this might even help your
clients
did you know SMEs account for 99 percent
of UK businesses and 46 percent of them
experienced some form of Catholic
problems most of the trade in the world
is done internationally in order to
facilitate this a business needs to have
trade agreements with their partners and
counterparts Trust is incredibly
important when agreeing payment at
putting this on the scale at the riskier
end trade can be done on Aven account
tap where the risk of the seller bears
the risk of not being paid a letter of
credit or LC is less risky and in this
video we'll explain why parrot trade
finance global we help companies find
debt funding in the market with various
financing structures to meet the
businesses needs we want to help you
explain depth m to your clients and help
grow your clients or help recognize
future cash flow challenges a letter of
credit is relevant where there is an
exporter and an importer and there needs
to be prepayment or confirmation of
payment in order for goods to be shipped
a letter of credit is an instrument from
a bank which guarantees a buyers payment
to a seller if certain criteria are met
if the buyer can't pay due to the agreed
contract through the letter of credit
the bank will cover the remaining price
letters of credit of fundamental
components of international trade
they're governed universally by a set of
guidelines called the UCP 600 which are
issued by the International Chamber of
Commerce so what is a letter of credit
an LC is a promise written on a legal
document that comes from a bank with a
promise to pay the holder if the holder
fulfill certain obligations obligations
include payment when the goods are
shipped if certain criteria are met a
letter of credit is usually used when
the buyer and seller do not know each
other very well and this is why it is
you so frequently
in international trade letters of credit
are incredibly specific and the close
attention to detail is required if there
is a misspelling in the contract for
example the name of the goods is
incorrectly spelled there may be a
non-payment until a new corrected LC is
issued and accepted so what are the
advantages of LCS
for the buyer they are certain to
receive the goods are stipulated in the
letter of credit and they do not need to
pay for the goods upfront for the seller
they're somewhat protected against
non-payment from the buyer there are
lots of different types of LCS and
they'll cover most of them today often
people get confused between commercial
letters of credit which act as a primary
mechanism for a transaction and the
standby letter of credit
the secondary payment mechanism a
fail-safe guarantee depending on the
perspective of the buyer or the seller
there are also import letters of credit
set up by the importer or fire of goods
or services and exporter letters of
credit which is set up by the exporter
or the seller so how does the letter of
credit work on behalf of the buyer the
issuing bank promises payment to a
seller or beneficiary an advising bank
may act on behalf of the seller the
advising bank will receive payment
normally when they have been presented
of specified documents representing the
supply of goods so wire letters of
credit used their safe letters of credit
are usually legally binding and so all
parties need to agree to cancel them
they offer clarity the gives defined in
an LC are specific and well-defined so
the details of a transaction are
generally very transparent they offer
risk production the exporter or payment
to the seller is guaranteed payment
providing the terms of the LCA met they
allow for safe trading letters of credit
are a focus of international trade and
allow companies to
safely in unfamiliar market with
unfamiliar suppliers their efficient
letters of credit can be raised
electronically using an online trade
banking service there are several
different types of letter credit I'm
going to cover a few of them the
irrevocable letter of credit allows
cancellation or amends to the letter of
credit by the buyer but the buyers bank
seller and/or sellers bank agree a
confirmed letter of credit is a second
guarantee by the sellers bank it adds
additional security for the seller it
means that if the issuing bank from the
buyer fails to make a payment
the sellers bank agrees to guarantee
payment a transferable letter credit can
be passed from one beneficiary to others
they're commonly used when
intermediaries are involved in a
transaction and others are supplying the
seller in the transaction a letter of
credit at site these are payable as soon
as the agreed documentation has been
presented and verified the third or use
ons letters of credit means that the
payment to the seller is delayed until
an agreed period of time has passed a
red Clause letter of credit permits the
seller to receive partial payment from
the issuing bank prior to shipping
products or performing the services so
how is payment collected on letters of
credit to receive payment the
beneficiary must present documentation
of completion of their part in the
transaction to the issuing bank and must
present documents such as invoices bills
of exchange or government documents
thanks for listening to this talk on
letters of credit by trade finance
global be sure to check out our other
training videos and don't hesitate to be
in touch with trade finance global
should you have any questions
