Letter of Credit

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Letter of Credit Adelaide

Letters of Credit are as old as banking itself.  They are based upon the fact that the creditworthiness of an unknown Buyer is thus replaced by the creditworthiness of a known Bank or financial company.  ATPI Services often has to stand in the shoes of its customers and give some form of undertaking that payment will be made provided certain conditions are complied with.  This mechanism is called as Letter of Credit or Documentary Credit.

Benefits

  • Access to a Global Trade Network
  • Experienced and Professional Trade processing service
  • Availability of financing against Assignment of Export Letters of Credit.

Letters of Credit are used in situations where proof of a seller or buyer’s standing is needed. You can exemplify this as a reference on a job application. Someone reputable is giving the necessary party information stating that the individual is responsible enough to partake in the transaction. These types of letters can be used in many types of transactions, including, but not limited to the following: real estate, international trade, stocks, and more.

A standard, commercial letter of credit (LC) is a document issued by a financial institution, used in trade finance, which provides an irrevocable payment undertaking against submission of documents and compliance of other conditions as per LC terms. Letters of credit are used primarily in international trade transactions, for deals between a supplier in one country and a buyer in another. LC is issued at the request of buyer (Applicant) in favor of supplier (Beneficiary) by the applicant’s bank (Issuing Bank). This service eliminates the risk of non-payment in international trade transactions.

How It Works:

  • The Buyer and Seller enter into a sale contract and a PO/PI is issued by the buyer in favour of supplier.
  • The Buyer (Applicant) arranges a LC in favour of the Seller (Beneficiary) covering the deal
  • The Seller ships the goods and submits all the documents in terms of the LC within the validity of the LC and complies with all the other terms and conditions of LC
  • The Seller is paid by the LC opening bank.

Benefits to the Buyer:

  • The Buyer is able to buy the goods and pay for them after shipment of goods
  • There is no financial risk to the Buyer if the goods are not shipped after the order is placed
  • The LC issuing Bank extends its credit to the Buyer which helps him to buy from new vendors.
  • No funds are blocked until documents are received after the shipment, thereby improving cash flow
  • The Buyer is also assured that goods are shipped in time failing which there is no liability to pay.

Benefits to the Seller:

  • The Seller does not run the risk of cancellation of the order as the LC is irrevocable.
  • Payment is assured after shipment on submission of documents complying with the terms of the LC and other conditions. So he does not run the risk of non-payment after the shipment.
  • It helps to raise finance for production of goods thereby meeting working capital requirements.

Types of Letters of Credt

There are 4 types of Letters of Credit

The issuing bank makes the payment to the beneficiary in this direct payment method. As well as commercial LC, I have something to say about Import Letter of Credit in Thailand, Export Letter of Credit in Thailand. In a word, import LC is issued by the importer’s bank and export LC is used by the exporter’s bank. Well, if you want to know detail information about export and import LC, you can read other articles. Let’s talk about the next three types.

This kind of letter allows a customer to make any number of digits within a certain period.

This draft is for those who go abroad. Actually, these letters will assurance that issuing will respect drafts made at certain foreign banks.

In this way, the beneficiary receives a second payment guarantee from another bank. In this case, mostly the confirming bank and the beneficiary are located in the same country.