About Us

Payment Using Letter of Credit (L/C)

1. Understanding Letter of Credit (L/C)

Letter of Credit (L/C) is a payment method in international trade issued by a bank at the request of the buyer (importer) to guarantee payment to the seller (exporter), provided that the terms and conditions in the L/C are met.

2. Parties Involved

• Applicant (Importer) - The party requesting the issuance of the L/C.
• Issuing Bank - The bank that issued the L/C.
• Beneficiary (Exporter) - Beneficiary of the L/C.
• Advising Bank - The bank that delivers the L/C to the exporter.
• Confirming Bank - The bank that guarantees payment.
• Negotiating Bank - The bank that purchases the export documents.

3. Types of Letters of Credit

• Revocable L/C
• Irrevocable L/C
• Confirmed L/C
• Unconfirmed L/C
• Sight L/C
• Usance L/C
• Transferable L/C
• Back-to-Back L/C
• Red Clause L/C
• Standby L/C

4.Payment Procedure

1. The importer submits an L/C to the bank.
2. The issuing bank sends the L/C to the advising bank.
3. The exporter sends goods and documents according to the L/C.
4. The bank checks the documents.
5. If appropriate, the bank pays the exporter.
6. The importer pays the bank and receives the documents.

5. Benefits and Risks

Advantages

• Certainty of payment for exporters.
• Importers only pay if the documents comply.

Risks

• Complex administrative process.
• High costs.
• Risk of document errors.