Import LC And Its Use in A Company
In International trade, a letter of credit is the most popular trade financing tool. This is because it serves the interest of both exporter and importer. Since the introduction of the trade finance system, exporters will no longer ship their goods down without payment or insurance by a bank. Thus, eliminating bad payment or delayed payment. The buyer can then appeal for timely delivery of goods. The import letter of credit at Capital goes beyond all these. We have highlighted a few key details you should know about this beneficial tool.
It Is A Documentary Credit
An import letter of credit serves as a credit in a documentary form. When a bank agrees to take responsibility and stand in place of a buyer to pay a seller or exporter. When issuing a letter of credit, the bank uses a middleman also known as an intermediary bank to speed up the transaction and pass the payment on to the exporter.
Different from The Sales Contract
Most people are of the opinion that the bank has a say on the type or quality of the product supplied. But this is not so with the letter of credit. Therefore, although the LOC is based on the sales agreement there is a limit to the involvement of the banks as regards the goods.
Payment Is Subject to Terms of The Agreement
According to the import LOC, the buyer’s bank is only responsible to make payment when the seller or exporter has fulfilled his side of the contract. This ensures regardless of a new or existing trade relationship no one is exploited.
Its A Choice Trade Transaction
The letter of credit is always a choice trade transaction instrument because there is a balance. Both buyer and seller have obligations to meet. Payment is earned when the products have been sent by the seller, who can't afford to send poor quality products if he does his money will be withheld.
It Facilitates Growth Globally
People are extremely careful when it comes to business transactions. No one wants to make a loss. It is even more intense in international trade. An import letter of credit is one of the tools used to reduce risk and enhance easy and smooth trade transactions. It also helps to facilitate the growth of the companies involved in the business trade.