A letter of credit (LC) is a promise by a bank to pay to the seller (beneficiary) on behalf of the buyer (applicant). It is an international transaction facility which helps to run international business smoothly. Importer and exporter use LC to protect themselves. Here bank acts as an uninterested party except there the bank charges. A LC from a bank, guaranteeing that the payment from the buyer to the seller will made on time and correct amount. Because of international trading the factor like distance, different laws in each country and difficulty in knowing each party personally, LC has a very pivotal.
There are different types of method of LC, such as:
Irrevocable
Unconfirmed
Confirmed
Standby letter of credit
Revolving letter of credit
Transferrable letter of credit
Back to back letter of credit
You can find some important information using this link below.
http://www.investopedia.com/terms/l/letterofcredit.asp
Also you can find some important Business Letter format in this link below.
Letter of credit is a very important terms in any kind of international trade.LC helps to reduce the risk of default in international trade.
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