5 Advantages Of Letter Of Credit And How You Can Make Use Of It A letter of Credit is a written instrument issued by a bank at the request of its client, the importer (Buyer), by which the bank guarantees to pay the Exporter (Beneficiary) for goods or services, on condition that the exporter presents all documents called for, exactly as specified in the Letter of Credit, and meet all other terms and conditions set out in the Letter of Credit. Letter of Credit is a two-way advantageous instrument.
Advantages of Letter of Credit to Importers:
Documentary proof, security and reduces risk to the buyer for future plans Exporter receives payment of exported goods only after shipment and meeting of all necessary requirements under LC terms and conditions with the extension of documentary proof including evidence of shipment. Smooth and efficient performance of the business plan As the buyer is the holder of Letter of Credit, Bank acts for the benefit of the buyer. This arrangement protects importer and minimizes time as well. Easier planning for the importers
Advantages of Letter of Credit to Exporters:
Minimization of Credit risk as payment is assured by the buyer's bank Any conflict in the transaction can be settled easily, as LC terms and conditions are under the guidelines of uniform customs and practice of documentary credit Exporter receives payment on time Stands as a security to the exporter