Letter of Credit
What exactly is a “Letter of Credit”?
A letter of credit is a financial tool. It is a legal written document. It is a letter coming from a bank that states a guarantee: that a buyer’s payment to a seller will be payed on a set date in the correct amount in a stated currency. In any and all cases that the buyer is not able to deliver the amount on time or in the right amount, the bank will be required to cover the remaining or the full amount the buyer is not able to pay. The usage of letters of credit has become very important because business extends nationally and internationally. Different distances and laws in each country differs and since there is a hardship in being able to know your partners personally, a letter of credit is very helpful.
Bank usually and generally issue a pledge of cash or security to be used as collateral in the case that the buyer is not able to pay and the bank will have to cover. The International Chamber of Commerce Uniform Customs and Practice for Documentary Credits is in charge of overseeing the letters of credit used in world-wide transactions.
In the case that you are the buyer, what you need is the form. Fill out the form with the date, the details of who the letter will be sent to, the amount and date of the payment you are promising to make and your name.
In summary, A letter of credit is an effective tool in business. a letter of credit ensures that you can receive the payment for any and all items you have sold in a transaction. It is given by and taken from banks.
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Date: _________LETTER OF CREDIT (GENERAL)
__________________________
__________________________
__________________________
Sir:We hereby agree to accept and pay at maturity any draft or drafts on us, at sight, issued by __________________________, of __________________________, to the extent of $_____(________________________ & _____/100 dollars), and negotiated through your bank.
Most respectfully yours,
_______________________________________________________________ by: ________________
Letter of Credit
Review ListThis review list is provided to inform you about this document in question and assist you in its preparation. A L/C is a standard document to provide for guaranteed payment. This document will suffice.
1. Make multiple copies. Give one to each related party and keep one with the transaction file involved.
