International trade often involves amounts of risk and uncertainty due to possibly issues like distance, political instability, differing laws, etc. If the parties involved use a letter of credit, also known as an L/C, they can avoid these risks. L/Cs are usually written with fixed amounts and criteria, so they are often irreversible.
When two parties want to make a deal, their banks use these letters to represent their interests and the terms of the negotiations. This way, the guarantees presented in the deal can be fulfilled correctly. Banks will use the letters to make sure all shipping documents are provided for payment to be made. There are also many types of credit letters, which depends on the deal itself. Parties can agree to sight, non-performing, standby, confirmed, and even revocable letters.
A buyer will request a note from a local bank so deem a seller as a beneficiary. The buyer's issuing bank will send the copy of the credit letter to the supplier or beneficiary's advising bank. The advising bank then needs to check the authenticity of the note and send any required documents back to the issuing bank. This would include delivery confirmations that state the goods were received by the buyer within the decided time frame, and also any documents that prove that the terms of the deal were met.
The issuing bank of the buyer will authenticate the documents that prove that the terms and conditions were met, and will transfer the agreed upon sum of money to the advising bank. Once the money is received by the advising bank, it is transferred to the beneficiary. Since credit letters are negotiable to begin with, it's possible to transfer the title to someone else. In this case, whoever is listed on the note will be the one who receives the money. For whatever reason the issuing bank does not send the money to the advising bank, the advising bank has no obligation to pay the beneficiary.
Sight letter types are payable when the documents are all submitted to the issuing bank. Non-performing or standby letters pose as a fallback for the supplier or beneficiary if for any reason the buyer refuses to pay the specified amount by the due date, even when the goods were delivered. This is a good way to protect the interests of the beneficiary, and is fulfilled or cancelled once the sums are paid.
With confirmed credit letters, the beneficiary will be paid either by the issuing or advising banks. Normally, the advising bank doesn't have any obligations to pay the beneficiary if the issuing bank doesn't transfer any funds. However with this note, the beneficiary will be paid by the advising bank as long as the terms of the letter were met.
There can also be a revocable letter. In usual cases, credit letters can't be modified. However, with this last note, the deal can be cancelled or changed by the issuing bank even after the transaction has started.
There are fees the beneficiary must pay. The fees include general payment, advising, reimbursement, communication, and discrepancy. The buyer also is required to pay a fee, but only to open the initial letter. The amount of this fee varies based on the sum of the payments, type of note, and country.
When two parties want to make a deal, their banks use these letters to represent their interests and the terms of the negotiations. This way, the guarantees presented in the deal can be fulfilled correctly. Banks will use the letters to make sure all shipping documents are provided for payment to be made. There are also many types of credit letters, which depends on the deal itself. Parties can agree to sight, non-performing, standby, confirmed, and even revocable letters.
A buyer will request a note from a local bank so deem a seller as a beneficiary. The buyer's issuing bank will send the copy of the credit letter to the supplier or beneficiary's advising bank. The advising bank then needs to check the authenticity of the note and send any required documents back to the issuing bank. This would include delivery confirmations that state the goods were received by the buyer within the decided time frame, and also any documents that prove that the terms of the deal were met.
The issuing bank of the buyer will authenticate the documents that prove that the terms and conditions were met, and will transfer the agreed upon sum of money to the advising bank. Once the money is received by the advising bank, it is transferred to the beneficiary. Since credit letters are negotiable to begin with, it's possible to transfer the title to someone else. In this case, whoever is listed on the note will be the one who receives the money. For whatever reason the issuing bank does not send the money to the advising bank, the advising bank has no obligation to pay the beneficiary.
Sight letter types are payable when the documents are all submitted to the issuing bank. Non-performing or standby letters pose as a fallback for the supplier or beneficiary if for any reason the buyer refuses to pay the specified amount by the due date, even when the goods were delivered. This is a good way to protect the interests of the beneficiary, and is fulfilled or cancelled once the sums are paid.
With confirmed credit letters, the beneficiary will be paid either by the issuing or advising banks. Normally, the advising bank doesn't have any obligations to pay the beneficiary if the issuing bank doesn't transfer any funds. However with this note, the beneficiary will be paid by the advising bank as long as the terms of the letter were met.
There can also be a revocable letter. In usual cases, credit letters can't be modified. However, with this last note, the deal can be cancelled or changed by the issuing bank even after the transaction has started.
There are fees the beneficiary must pay. The fees include general payment, advising, reimbursement, communication, and discrepancy. The buyer also is required to pay a fee, but only to open the initial letter. The amount of this fee varies based on the sum of the payments, type of note, and country.
About the Author:
You can visit www.bwtradefinance.com for more helpful information about The Importance Of Letter Of Credit Uses.
No comments:
Post a Comment