Letter of credit - Reliable payment method in trade

Letter of creditReliable payment method in trade

What is a letter of credit?

A letter of credit is a documentary financial instrument that guarantees payment to the seller in international and local trade transactions only when goods are shipped or services are provided.

This instrument reduces risks for both the buyer and the seller, as payment is made only when the conditions specified in the contract are fulfilled.

What is a letter of credit?
For the seller The risk is minimal because payment is not made until the goods and documents are presented

For the seller

The risk is minimal because payment is not made until the goods and documents are presented

For the buyer The buyer is not required to pay before the goods are shipped — documents must be presented

For the buyer

The buyer is not required to pay before the goods are shipped — documents must be presented

For both the seller and the buyer The payment process is based on international rules and provides additional security for both the buyer and the seller

For both the seller and the buyer

The payment process is based on international rules and provides additional security for both the buyer and the seller

How does a letter of credit work?

The contract is signed

The buyer applies to the bank to open a letter of credit

Opening of the letter of credit

The bank sends a notification to the supplier about the opening of the letter of credit (advising)

The goods are shipped by the supplier

The supplier submits documents confirming shipment of the goods to the bank

Documents are checked and payment is made to the supplier (execution of the letter of credit)

The bank transfers the documents to the buyer