Letter Of Credit And Its Features
A letter of credit is a most popular trade finance instrument used in international trade transactions where both the buyers & sellers are entirely uninformed about each other’s financial status & integrity. The exporter is often hesitant to ship goods or services against a sale contract where he/she is not sure whether the buyer would accept the documents or make the on-time payment. To ensure timely payment, the buyer usually obtains a legal undertaking from the bank, which is known as the International Letter of Credit Services. Let’s find in detail what an LC is and its features.
What is a Letter of Credit?
A letter of credit is a legal, financial document issued by a bank or financial institution in the favor of the exporter that guarantees an on-time payment on behalf of the buyer once the seller submits the required documents to the bank. In the event, that the buyer defaults or is unable to make the payment, the payment will be made by the issuing bank.
Availing of Letter of credit services Malaysia is a good way to ease payments in international transactions. This letter provides an assurance to the seller that they wound up paid on time, even though the buyer defaults as the risk of non-payment is transferred to the bank. Before issuing an LC, the bank must have certain documents in its possession.
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