An export letter of credit is a commercial document issued by an importer’s bank that guarantees payment for goods purchased from an exporter. The issuing bank calls it an import letter of credit, while the advising bank calls it an export letter of credit. Letters of credit make international trade more secure for both parties.
An export letter of credit is the designation given by an exporter’s bank to a commercial document issued on behalf of an importer, which guarantees payment for purchased goods. In international trade, there are two banks involved in a sales transaction. The issuing bank creates the letter of credit on behalf of the importer or buyer, and calls it an import letter of credit. On the other side of the transaction, the advising bank is the bank of the exporter or seller, which accepts the letter to process payment from the issuing bank. Advising banks call the letter an export letter of credit.
Letters of credit facilitate international trade and make transactions more secure for both importers and exporters. In a general sense, a letter of credit is very similar to a certified check, guaranteeing payment by a bank if certain conditions are met in advance so that the seller can deliver the goods knowing that the payment is in escrow by a third party. impeccable. Once a sales contract is signed between the importer and the exporter, the importer takes it to his bank for a letter of credit to be issued. The issuing bank refers to the letter as the import letter of credit because it deals with the importing side of the transaction.
An importer generally transfers the letter of credit to the exporter. At this point, the letter exists on the export side of the transaction. The exporter ships the goods and takes the bill of lading and letter to their bank, the advising bank, for processing. The advising banks refer to the letter as an export letter of credit because the fees he will incur to complete the transaction are exclusively in the name of the exporter. The advising bank presents the documents to the issuing bank and accepts the corresponding payment in return.
Issuing banks pass the bill of lading received from the advising bank or exporter to the importer, who uses it to claim the goods from the shipping company. An export letter of credit eliminates the risk of shipping products and paying money to third parties by inserting banks into the transaction to act as escrow agents. Both the issuing bank and the advising bank are bound by the exact terms detailed in the letter. There is no real possibility that one party could defraud the other by accepting payment without shipping goods or receiving goods without transferring payment.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
