Overview
A Letter of Credit, also known as a Documentary Credit, is an irrevocable undertaking issued by the importer’s Bank (Issuing Bank) favouring the supplier (Letter of Credit Beneficiary).
The Letter of Credit Issuing Bank undertakes to honour payment when the Supplier presents a complying set of documents, meeting all the conditions stated in the Letter of Credit.
Payments of Letter of Credit are determined strictly on the documents presented, not with the goods delivered nor services rendered which the Letter of Credit refers to.
Letter of Credits are subject to governing guidelines stipulated in Uniform Customs and Practice.
Provides Assurance
A Letter of Credit provides assurance to the supplier that the buyer's payment obligation is undertaken by the Letter of Credit Issuing Bank.
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Better Negotiation
The importer may negotiate with the supplier for better payment terms.
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Convenient Access
A Letter of Credit may be financed under a Trust Receipt if the importer has a credit facility with the Bank.
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