Letter of Credit - Direct Letter of Credit - 2012 Best ways for Avoiding the Fraud of Letter of Credit

Letter of Credit

Direct letter of credit is not paid through an advising bank but must be presented at the issuing bank for payment. Collection of information for letter of credit includes standby letter of credit, documentary letter of credit and sample letter of credit.

Letter of Credit: News Headlines

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Letter of Credit: All News

All news and headlines about Letter of Credit. Browse news on Letter of Credit by date to get detailed information.

• Stand by letter of credit for financial help

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• What is SBLC or Standby Letter of Credit ?

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• Proof Of Funds - Leased Capital Letter of Credit

  By Social Media Systems recomends Louie Moss, famous author on the topic of Proof of Funds, Letters on August 18, 2009 - The only real requirement is that the asset be assigned and lien-able securing the lenders position. Most of our leased funds range from (10,000,000.00) to Billions... [+]

  ) and are for a period of one(1) m Read more
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• Fast Letter of Credit is giving 2 % discount on Instrument for a year

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• Standby Letter of Credits, Bank Guarantees, Proof of Funds, Trade Platforms.

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Letter of Credit

Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped. More direct letters of credit provide for people.

Elements of a Letter of Credit

1. Beneficiary
The beneficiary is entitled to payment as long as he can provide the documentary evidence required by the letter of credit. The letter of credit is a distinct and separate transaction from the contract on which it is based. All parties deal in documents and not in goods. The issuing bank is not liable for performance of the underlying contract between the customer and beneficiary. The issuing bank's obligation to the buyer, is to examine all documents to insure that they meet all the terms and conditions of the credit. Upon requesting demand for payment the beneficiary warrants that all conditions of the agreement have been complied with. If the beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank.
2. Issuing Bank
The issuing bank's liability to pay and to be reimbursed from its customer becomes absolute upon the completion of the terms and conditions of the letter of credit. Under the provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a reasonable amount of time after receipt of the documents to honor the draft.
The issuing banks' role is to provide a guarantee to the seller that if compliant documents are presented, the bank will pay the seller the amount due and to examine the documents, and only pay if these documents comply with the terms and conditions set out in the letter of credit.
Typically the documents requested will include a commercial invoice, a transport document such as a bill of lading or airway bill and an insurance document; but there are many others. letters of credit deal in documents, not goods.
3. Advising Bank
An advising bank, usually a foreign correspondent bank of the issuing bank will advise the beneficiary. Generally, the beneficiary would want to use a local bank to insure that the letter of credit is valid. In addition, the advising bank would be responsible for sending the documents to the issuing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank does not pay the beneficiary, the advising bank is not obligated to pay.
4. Confirming Bank
The correspondent bank may confirm the letter of credit for the beneficiary. At the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank would not confirm the credit until it evaluated the country and bank where the letter of credit originates. The confirming bank is usually the advising bank.

Types of a Letter of Credit

There are five commonly used types of letter of credit. Each has different features and some are more secure than others. The most common types are:
1. Irrevocable and revocable letters of credit
A revocable letter of credit can be changed or cancelled by the bank that issued it at any time and for any reason. An irrevocable letter of credit cannot be changed or cancelled unless everyone involved agrees. Irrevocable letters of credit provide more security than revocable ones.
2. Confirmed and unconfirmed letters of credit
When a buyer arranges a letter of credit they usually do so with their own bank, known as the issuing bank. The seller will usually want a bank in their country to check that the letter of credit is valid.For extra security, the seller may require the letter of credit to be 'confirmed' by the bank that checks it. By confirming the letter of credit, the second bank agrees to guarantee payment even if the issuing bank fails to make it. So a confirmed letter of credit provides more security than an unconfirmed one.
3. Transferable letters of credit A transferable letter of credit can be passed from one 'beneficiary' (person receiving payment) to others. They're commonly used when intermediaries are involved in a transaction.
4. Standby letters of credit A standby letter of credit is an assurance from a bank that a buyer is able to pay a seller. The seller doesn't expect to have to draw on the letter of credit to get paid.
5.Revolving letters of credit A single revolving letter of credit can cover several transactions between the same buyer and seller.
6. Back-to-back letters of credit Back-to-back letters of credit may be used when an intermediary is involved but a transferable letter of credit is unsuitable.

Letter of Credit: How Letters of Credit Work?

A letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do. Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller.
1. Letter of Credit Lingo
To better understand letters of credit, it may help to know the following:

• Abbreviations for 'letter of credit' include L/C, LC, and LOC
• Applicant - the buyer in a transaction
• Beneficiary - the seller or ultimate recipient of funds
• Issuing bank - the bank that promises to pay
• Advising bank - helps the beneficiary use the letter of credit

2. The Money Behind a Letter of Credit
A bank promises to pay on behalf of a customer, but where does the money come from?
The bank will only issue a letter of credit if they know the buyer will pay. Some buyers have to deposit (or already have) enough money to cover the letter of credit, and some customers use a line of credit with the bank. Sellers must trust that the bank issuing the letter of credit is legitimate.
3. Executing a Letter of Credit
A seller only gets paid after performing specific actions that the buyer and seller agree to. For example, the seller may have to deliver merchandise to a shipyard in order to satisfy requirements for the letter of credit. Once the merchandise is delivered, the seller receives documentation proving that he made delivery. The letter of credit now must be paid even if something happens to the merchandise. If a crane falls on the merchandise or the ship sinks, it's not the seller's problem.To pay on a letter of credit, banks simply review documents proving that a seller performed his required actions. They do not worry about the quality of goods or other items that may be important to the buyer and seller.

The Pitfalls of Letter of Credit

Letters of credit make it possible to do business worldwide. They are important and helpful tools, but you should be careful when using letters of credit.

• Carefully review all requirements for the letter of credit before moving forward with a deal
• Understand all the documents required
• Can get all the documents required for the letter of credit
• Understand the time limits associated with the letter of credit, and whether they are reasonable
• Know how quickly your service providers (shippers, etc) will produce documents for people
• Can get the documents to the bank on time
• Make all documents required by the letter of credit match the letter of credit application exactly