A letter of credit is basically a bank guarantee which promises that the exporter is fully covered for the goods he delivers to the importer. The buyer’s bank usually issues it and is either presented to the seller or the seller’s chosen financial institution. Once the seller has completed certain specific terms mentioned in the LC, they can be assured of receiving the payment.
An LC is particularly useful for newer businesses, as it is a form of financial credibility to attract foreign parties. Indian, UAE companies can also benefit from incorporating letters of credit in their international deals. Most western businesses are not comfortable about trading with businesses based with new companies in India, Middle East. However, with an international letter of credit, Indian, UAE companies can guarantee payment to their western partners in the event of a disaster. Letters of credit are of several types, namely, commercial, business, documentary, and irrevocable letter of credit. At TradeFinancing.net , we specialize in securing each of these LCs and other key financial banking instruments. As one of the top LC providers in Dubai, we have worked with countless Indian and UAE establishments to facilitate deals with international parties. To know more about Letter of Credits and how it can help your business, contact our team today!
How Does LC’s Work?
Whether it is a commercial, business, or international letter of credit, the process of acquiring one begins at a bank. A good credit score and appropriate income are two of the basic essentials to avail any form of LC. Most business owners find the LC bank process to be intimidating. Under such circumstance, you should consider availing the service of a proven team such as TradeFinancing.net. Our team of financial experts will work with you to ensure that your application is approved without any troubles. Listed are some of the primary ways in which letter of credits can benefit importers and exporters.
- A letter of credit ensures payment is sent to the exporter once they have fulfilled the document’s terms. It helps to build trust between a buyer and seller who have not worked together in the past.
- When a reputable bank and LC agency are involved, a letter of credit can be obtained and put into place quickly.
- Letters of credits are markedly more customizable than alternative methods of financing. It allows importers and exporters to craft terms and conditions that are specific to their situation.
- For those hoping to take their business international, a letter of credit acts as a risk-free foundation for expansion.
Types of Letter of Credits, we assist with,
Commercial Letter of Credit
A commercial letter of credit is the most basic LC. It has applications in a variety of international trade deals. At TradeFinancing.net, we offer ourselves as a hassle-free route to obtain a commercial letter of credit.
Import/Export Letter of Credit
The name of this form of LC depends on the party utilizing it. If being used by an importer, it is dubbed an “import letter of credit.” It becomes an “export letter of credit” when its obtained by an exporter.
Revocable & Irrevocable Letter of Credit
A revocable letter of credit allows the buyer or their bank to alter the terms of an LC if required. The changes can be done without the seller’s approval. However, a revocable LC is a rarity as most businesses opt for irrevocable LCs.
Revolving Letter of Credit
A revolving letter of credit grants a buyer the necessary financing for multiple purchases from the same seller. In most cases, a revolving letter of credit is considered active for a period of one year.
Back to Back Letter of Credit
A back to back letter of credit consists of two LCs. The first LC is between the buyer and the seller. The seller presents the second LC to their supplier. It is suitable only for three-party deals.
Documentary Letter of Credit
A documentary letter of credit ensures payment to the seller as long as they can provide the required documentation. These documents generally come in the form of proof of shipment or certificate of authenticity.
Standby Letter of Credit
A standby letter of credit serves as something of a “last resort.” No party involved in a standby LC expects to have reason to invoke it. However, should events transpire which inhibit the buyer’s ability to pay, the seller can fall back on the standby LC.
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To whom this may concern
We have recently registered a company in the DMCC with a trading licence.
We have successfully procured a gold trading opportunity from Ghana delivered to our refinery (end-buyer) in Dubai. The transaction is on CIF basis. The transaction results in very good commercial profit margins.
In terms of our SPA we are required to issue SBLC to seller (Mine, Ghana) bank of 1 month consignment. SBLC value is $22,500,000 USD.
Please advise process