An Letter of Credit (LOC, LC) is one of the most secure methods of importing goods and it allows you to control shipping dates or facilitates a shipment schedule.
Many Exporters will not provide goods unless they receive payments in advance or are guaranteed payment by a bank. An LOC/LC is a conditional payment guarantee provided by an Importer's bank to the Exporter. The payment guarantee is conditional upon the Exporter providing documentary evidence of the shipment of goods in accordance with the terms of the LC. Letters of Credit are subject to credit approval.
What is a Letter of Credit?
An Letter of Credit (LOC,LC) is a promise by a financial institution to honour the financial obligations of the buyer due to the risk of the buyers failure to pay the seller. It is often used in a transaction to mitigate the risk of not being paid post-delivery of the products.
Letter of Credit is issued to the buyer after carrying out the necessary due diligence and collecting sufficient collateral. The letter is then presented to the seller as a proof of the buyer’s credit quality.
Letters of Credit are flexible and versatile instruments and are universally governed by a set of guidelines known as the Uniform Customs and Practice (UCP 600), which was first produced in the 1930s by the International Chamber of Commerce (ICC).