What is an LC (Letter of Credit)?
Letter of Credit (LC) is a commitment from a bank provided to the buyer and seller, ensuring that the buyer’s payment to the seller will be made on time and for the correct amount.
The bank, acting on behalf of the buyer who holds the Letter of Credit, will not release the funds until confirmation is received that the purchased goods have been shipped.
The benefits of Letter of Credit (LC)
- The seller's assurance that, upon presentation of shipping documents, they will receive the Letter of Credit payment according to the credit terms from the issuing bank, intermediary bank, or confirming bank
- The possibility of controlling the shipment date and final delivery of the goods.
- Receipt of shipping documents in accordance with the terms of the initial agreement under the conditions of the contract between the parties.
- Assurance that payment under the Letter of Credit will only be made to the seller after the transfer and confirmation of ownership of the goods from them.
- The possibility of obtaining additional facilities for the seller against the opened credit for the procurement of the ordered goods.
- The bank's commitment to payment instead of the selling party in transactions.
