Now-a-days, Letter of Credit & Bill Discounting plays crucial role to enhance business activities as it helps to avoid risk & insecurity while involving in transaction with any stranger.
Sanvi group helps you to enjoy the facility of Letter of Credit & Bill Discounting.
Meaning & Uses:
A letter of credit is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank is required to cover the full or remaining amount of the purchase. A letter of credit is often abbreviated as LOC or LC, and is also referred to as a documentary credit. The parties to a letter of credit are usually an applicant who wants to send money, a beneficiary who will receive the money, the issuing bank and the advising bank.
Letters of credit are often used for international transactions to ensure that payment will be received. They have become an important aspect of international trade, due to differing laws in each country and the difficulty of knowing each party personally. The bank also acts on behalf of the buyer, or holder of the letter of credit, by ensuring that the supplier will not be paid until the bank receives confirmation that the goods have been shipped.
In the event of the borrower defaulting, the seller can go to the buyer’s bank for the payment. Instead of the risk that the buyer will not pay, the seller only faces the risk that the bank will be unable to pay, which is unlikely. This means that if the applicant obtaining the letter of credit fails to perform his or her obligations, the bank must pay. The letter of credit can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit. A letter of credit is less risky for the merchant, but even riskier for a bank.