Letters of Credit is a tool for minimizing the risk involved in International Trade. Letter of Credit is defined as a written undertaking issued by banks on behalf of their clients to assure the seller that they receive the payment upon the submission of shipping documents, as stated in the issued LC. In this blog, let us explain the Purpose of Letters of Credit.
When a buyer & seller from two different parts of the world are going to deal with each other, there may be a chance for trust issues. This is because – suppliers will not be ready to supply the goods without getting some kind of advance payment, as they don’t have any assurance on whether the buyer will pay for the supplied goods or not. On the other hand, the buyer will not be ready to make the payment without knowing that whether the supplier will supply the goods or not. So, here comes the importance of using Letters of Credit. In international trade transactions, LC MT700 bridges the trust issues between the buyer and seller, especially when they are unknown to each other.
Letters of Credit assist both buyers and sellers to do global trade transactions in a safe and secure way. Let us see how it helps buyers and sellers with their trade transactions.
For importers – Using a Letters of Credit ensures the seller that you will make the payment, only after the supplier submitted the proof that they have shipped the products as agreed in the contract. Further, by doing so, it allows you to conserve your cash flow, as you don’t want to pay your seller instantly and this will help you to invest your money in other businesses. Also, since you don’t have to make any advance payments or deposits to the seller, you can conclude your deals without facing any issues. Also, LCs acts as a certificate to prove your credibility & financial ability in making the payment.
For exporters – Accepting LC as payment terms will act as a safety net for you. That is, in case, if the buyer fails to pay for the goods you shipped, then you can claim the LC to the buyer’s bank to get the payment for the supplied goods. But to be noted that you’re entitled to get the payment, as long as you have met the delivery conditions and submitted the documents as stated in the issued LC.
Have you decided to use Letters of Credit for your import & export needs? So, how you will open the LC at Sight? If you’re looking to get the LC from well-reputed banks at ZERO Collateral, you can always contact us with your DLC request!. Being the LC Providers in Dubai, we can assist you with your DLC transaction and will help you to get the DLC MT700 issued in just 2 days!
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