Letter of credit is a fee methodology utilized in export and import transactions. It is usually used for funds that have to be made in worldwide commerce.
A letter of credit, no matter its identify and designation, means any association of an irrevocable nature which constitutes the issuing financial institution’s specific obligation to satisfy correct presentation.
Buying and selling with letters of credit is of nice significance in lowering the chance concerned. That is why all firms that import and export use this fee methodology.
The letter of credit fee methodology is potential via banks.
LETTER OF CREDIT PAYMENT FUNCTION
The operation of the letter of credit fee methodology is as follows;
– Purchaser and vendor make a gross sales contract between them
– They decide the fee methodology as letter of credit
– Purchaser fills the letter of credit provide kind and sends it to the issuing financial institution
– The issuing financial institution opens the letter of credit and sends it to the discover financial institution within the vendor’s nation
– The discover financial institution notifies the vendor of the letter of credit
– The vendor submits the loading paperwork to the assigned/issuing financial institution after loading
– The Officer/Issuing financial institution examines the paperwork in response to the phrases of the letter of credit, worldwide guidelines to which the letter of credit is topic, and normal banking observe.
– If the paperwork are appropriate, the submission is welcomed
– If the paperwork aren’t appropriate, the paperwork are rejected and a Discover of Refusal is despatched to the presenter.