Letters of Credits (LC)/Documentary Credits are written undertaking issued by a UTB, on behalf of a buyer, to the seller, to pay for goods or services. The seller must present documents which comply with the terms and conditions of the credit to the bank.
- LC can either be Import or Export LC
- LC guarantees payment from buyer to seller.
- It can be irrevocable or revocable.
- It is an insurance contract for both parties involved to eliminate credit risk
- It also clears up payment delays.
- It assures expert examination of documents
- Title documents are controlled by the bank
- LC is expensive
- Offer degree of safety when importer or exporter are in untested business relationship
- Quick and more secure means of payment for seller
- Customers have access to foreign currency at very competitive rates
- The customer/buyer lowers the risk of paying for substandard goods
- Facilitating Financing