Letter of Credit (Foreign/Inland)
A letter of credit is a financial document provided by a third party (with no direct interest in the transaction), mostly a bank or a financial institution, that guarantees the payment of funds for goods and services to the seller once the seller has submitted the required documents.
Letter of Credit (Foreign/Inland) is a product of Working Capital Finance.
Working Capital Finance
Each business has its own unique set of requirements so we have a dedicated team of experts who work with you to understand the specific nature of your business and structure solutions most suitable for you. We offer a complete bouquet of working capital facilities to help you manage your cash flow and ensure the smooth running of your business.
A working capital loan is a loan that has the purpose of financing the everyday operations of a company. Working capital loans are not used to buy long-term assets or investments and are instead used to cover accounts payable, wages, etc. Companies that have high seasonality or cyclical sales cycles usually rely on working capital loans to help with periods of reduced business activity.
Features and benefits:
- Quick and hassle-free process
- Customised and flexible financial solutions
- Customer-oriented services
Letter Of Credit Terminology
A letter of credit has three important elements – the beneficiary/ seller who is paid the credit, the buyer/ applicant who buys the goods or services and the issuing bank that issues the letter of credit on the buyer’s request.
TYPES OF LETTER OF CREDIT :
There are various types of letters of credit used in the trade transactions. The following are the different types of letters of credit:
COMMERCIAL LC: A standard LC, also called as documentary credit.
EXPORT/IMPORT LC: The same letter of credit can be called export or import depending on who uses it. The exporter will term it as an exporter letter of credit whereas an importer will term it as an importer letter of credit. This is the best way to engage in business transaction with an unknown buyer or seller. The LC based business guarantees payment and completion of obligation/transaction mentioned in the LC.
TRANSFERABLE LC: A letter of credit that allows a beneficiary to further transfer all or a part of the payment to another supplier in the chain. This generally happens when the beneficiary is just an intermediary for the actual supplier. Such letter of credit allows the beneficiary to provide its own documents but transfer the money further.
STANDBY LC: A letter of credit that is designed to assure the payment if something wrong happens. If the beneficiary proves that the promised payment was not made, a standby LC becomes payable. It does not facilitate a transaction but ensures the payment.
REVOLVING LC: A letter of credit used for several payments instead of issuing letters for each leg of the transaction.