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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