Letter of credit- the bank's obligation, provided at the request of the client, to pay to a third party when the payee provides the bank executing the letter of credit with the documents stipulated by the terms of the letter of credit. The client company, on behalf of which a letter of credit is opened, is usually called the payer under the letter of credit, or the applicant. The recipient of payment under a letter of credit is called the beneficiary. At the same time, the bank's obligation is independent of the obligations of the parties under the main contract, which provides for a letter of credit form of settlement between the supplier and the buyer. Thus, the bank acts as a guarantor between them.
Suppose a seller and a buyer enter into a deal. They are dealing with each other for the first time and are not ready to work on an advance payment or on a preliminary basis. Then the buyer applies to the bank with an application to open a letter of credit for the amount due to the seller for the shipped goods. Evidence of the fulfillment of the contract by the seller may be, for example, documents on the shipment of goods. As soon as the subject of the transaction is transferred to the buyer or an independent carrier, the seller sends the required documents to the bank executing in accordance with the terms of the letter of credit. The buyer's bank makes payment under the letter of credit in accordance with the instructions received from the nominated bank. Letters of credit transactions involve a number of bank commissions paid in accordance with the terms of the letter of credit. Usually, the commission for opening a letter of credit is paid by the buyer.
Letters of credit allow you to guarantee payment to the supplier, while, as a rule, funds are not diverted from circulation.
The letter of credit form of payment is used both in foreign trade and in domestic. Letters of credit used in international settlements are subject to the Uniform Customs and Practice for documentary letters of credit, publications of the International Chamber of Commerce No. 600, as amended in 2007 (hereinafter referred to as ICC 600).
Letters of credit used for domestic settlements are subject to the Regulation of the Central Bank of the Russian Federation No. Money» No. 383-P dated 06/19/2012.
Domestic letters of credit can be classified into the following groups:
Revocable and irrevocable;
Confirmed and unconfirmed;
Covered (deposited) and guaranteed.
All letters of credit, in accordance with UOP 600, are currently irrevocable. Coverage in international letters of credit is rarely used - only in the case of confirmation of a letter of credit opened by an issuing bank, for which limits are not set by the confirming bank.
A confirmed letter of credit is one under which another bank, in addition to the obligation of the issuing bank, undertakes an additional obligation to make payment in favor of the beneficiary upon presentation latest documents who fully comply with the terms of the letter of credit, regardless of whether funds are transferred to him or not. If there is no obligation of another bank, then the letter of credit is unconfirmed.
Covered (deposited) - a letter of credit, the amount of which is transferred in full to the coverage account in the beneficiary's bank at the expense of the payer or at the expense of the loan provided.
Uncovered (guaranteed) - a letter of credit, upon opening which the issuing bank does not transfer funds to a letter of credit account in the beneficiary's bank, but gives him the right to write off the required amount within the amount of the letter of credit from his correspondent account or agrees to pay in another way. Usually big banks have open lines of credit with each other, so in developed countries virtually all letters of credit are uncovered.
In addition, letters of credit are of the following types.
Letter of credit with a red clause - a letter of credit under which the supplier receives a certain amount in the form of an advance payment before shipping or other documents evidencing the performance of obligations are provided. In this case, payment is made against the submission by the beneficiary of the documents stipulated by the terms of the letter of credit. The name comes from the time when such an important clause was highlighted in red ink in a document. Of course, in our time, almost all letters of credit are issued and confirmed in in electronic format.
Revolving - a letter of credit opened for a part of the amount of payments and automatically renewed as payments are made for the next batch of goods. Opens with regular deliveries and payments.
Transferable (transferable) - a letter of credit that provides for the possibility of transferring part of the letter of credit in favor of other beneficiaries.
A standby letter of credit, the so-called stand-by, is a form of bank guarantee in the form of a letter of credit, used where banks are prohibited from issuing guarantees (for example, in the USA). Payment to the exporter is made in the event that the importer refuses to make payment under the contract and presents to the executing bank the documents that meet the terms of the standby letter of credit. That is, such a letter of credit serves to ensure greater security for the supplier.
According to the method of execution, letters of credit are divided into letters of credit with payment on presentation of documents (by payment at sight), with deferred payment and with acceptance of drafts.
Nowadays, in order to ordinary person to make any purchase it is not necessary to have cash in your pocket. Any transaction, including the purchase of real estate, can be paid not only in a non-cash way, but also on credit, in installments, or through bank letter of credit.
At first glance, such a complex concept as "Bank letter of credit" is very difficult to understand. But in fact, everything is very simple. As statistics show, recently this form of calculation has been successfully used not only by legal entities, but also by individuals. So what's the point? Let's figure it out.
So, in this article we will talk about what constitutes a "Bank letter of credit", what is needed to issue it, and what advantages and disadvantages does it have?
Many financial terms are not only difficult to pronounce, but often difficult to understand. In addition, the descriptions for them are given in a very confusing language. In order not to find yourself in an awkward situation, and to successfully use the service, we will give the concept of "Bank letter of credit" an explanation in a more understandable language.
A bank letter of credit is a kind of protection against risks associated with financial transactions. This is a way to protect yourself and your savings from possible fraudulent actions when concluding contracts. A letter of credit is especially relevant when it comes to prepayments, or transactions are made with new, previously unfamiliar persons who have not yet managed to establish themselves as reliable partners.
The essence of the letter of credit is that a special account is opened in the bank, on which a predetermined amount is reserved. In cases where both parties participating in the auction fulfill all the conditions stipulated by the agreement concluded between them, the bank is obliged to transfer the amount of money on the account to the seller.
In this case financial institution acts as a kind of guarantor and takes responsibility for transferring money to the recipient. A certain fee will be charged for the services provided. It is noteworthy that each bank sets its own rates. For example, with regard to Sberbank, if a letter of credit is issued between two individuals, its rates are 0.2% of the transaction amount, a minimum of 1,500 ₽, a maximum of 5,000 ₽ per transaction.
Thus, a bank letter of credit is a form of payment that, on the one hand, has an increased level of security, and on the other hand, guarantees for both parties to the transaction. It should be noted that due to the presence of these two components, the process of transferring, for example, ownership rights is much faster.
A bank letter of credit, as it turned out, has several types. They differ depending on the powers of the bank and the number of parties. This information is presented in more detail in the table:
| Type of letter of credit | Description |
|---|---|
| revocable | This type of letter of credit is different in that banking institution has the right to close the account unilaterally if there is a written application from the payer. It is issued extremely rarely, since the seller does not have a guarantee. |
| irrevocable | The most common type. In this case, the buyer does not have the opportunity to withdraw the funds. And after providing the relevant documents, the seller will receive the money. |
| Confirmed | This type is most convenient in the first place for the buyer. The bank undertakes to transfer the required amount of money to the seller's account even if there is no money on the payer's account. Naturally, at the same time, the bank's risks increase, which means that an additional commission will be charged. |
| Unconfirmed | Funds are transferred to the seller's account only when they are received from the buyer. |
| Coated | Means that the buyer's bank undertakes to transfer funds to the beneficiary's account within a certain period of time. |
| Uncovered | With an interbank transfer, funds are first transferred to the correspondent account, and then directly to the recipient's account. With an uncovered letter of credit, the buyer's bank allows the seller's bank to write off the money due from the correspondent account. |
| Spare | This view is more like bank guarantee. Its essence lies in the fact that if the buyer violates the terms of the contract, the bank at its own expense undertakes to pay the seller the entire amount. |
| revolver | The type of letter of credit is most relevant for payments with a fixed schedule. It is not opened for the entire amount of the purchase, but only for part of it. After the buyer makes a payment, such an agreement will be renewed up to the previously agreed figure. |
| With red clause | According to such an agreement, the buyer's bank may instruct the recipient's bank to credit funds even before providing documents confirming the fulfillment of the terms of the purchase and sale agreement. |
As can be seen from the information presented, there are a whole host of types of bank letters of credit. In order to get acquainted with each of them in more detail, and choose the most convenient one for yourself, you should contact the authorized branch of the bank where you plan to draw up an agreement, go to the official page on the Internet, or call hotline institutions.
After the reader has become better acquainted with the letter of credit and has learned its types, it's time to study the sequence of actions that inevitably occur after the relevant agreement with the bank is signed and the compensation due to him has been paid.
The scheme of the letter of credit is as follows:
| No. p / p | Action | Note |
|---|---|---|
| 1 | The parties to the transaction enter into an agreement | Such a document should contain detailed clauses about the terms of the transaction. The greatest attention should be paid to the topic of calculation. |
| 2 | The buyer chooses a bank and opens an account | The choice of a banking institution should be treated with increased attention. Do not forget that large banks can request large commissions for their services. However, these institutions are high level trust. |
| 3 | Buyer pays money | The amount that the buyer must deposit into the account must correspond to the one that was agreed in the contract. In another way, this action is called booking funds. |
| 4 | The supplier or buyer provides securities to the bank | The essence of this stage is that the second party must submit to the bank documents confirming the fact that the terms of the agreement have been fully fulfilled. |
| 5 | Opening a letter of credit account | The letter of credit is the number of the seller's account, to which the buyer transfers the due amount of money. However, it will open after the bank examines the submitted documentation in detail. |
| 6 | Sending notice to the buyer | After all the above steps have been completed, the banking institution is obliged to notify the buyer that all conditions have been met by the seller. |
| 7 | Money transfer in progress | This operation takes place in strict accordance with the terms of the previously concluded agreement. |
15.10.2016 17 734 0 Reading time: 11 min.
Today we will continue talking about banking services and consider, what is a letter of credit where such a service can be used, why it is interesting. This service is more popular for representatives of large and medium-sized businesses, however, recently it has been increasingly extended to small entrepreneurs, and even to individuals not doing business. Therefore, knowing what a bank letter of credit is, what types of letters of credit are available will be useful to everyone, even just for general development.
A letter of credit is an obligation of the payer's bank to make a payment to the beneficiary's bank only after the payee provides his bank with certain documents stipulated by the conditions for opening a letter of credit.
Letters of credit belong to the so-called. documentary operations of the bank, that is, to operations based on document flow. Most often, documentary transactions, in particular letters of credit, are used by enterprises engaged in export-import activities, but this is not the only area of their application.
Why are letters of credit needed? In simple words- in order to exclude fraud between the parties to a particular transaction. The bank simply acts as a legal guarantor between the parties to the transaction, for which it receives its commission.
Consider the basic terms and concepts associated with the opening of letters of credit.
Letter of credit issuer- the bank to which the client applied, wishing to open a letter of credit.
Beneficiary bank- the bank in which the client is served, in whose favor the letter of credit is opened.
Beneficiary- beneficiary of payment under a letter of credit.
Deal- a certain sale and purchase operation, for the settlement of which a letter of credit is opened.
Letter of credit amount- the amount of the transaction, for the settlement of which a letter of credit is opened.
Letter of credit term— the limited period during which the letter of credit is valid.
Type of letter of credit– conditions for opening a letter of credit (I will consider the most common options below in more detail).
Commission for opening a letter of credit- the cost of opening a letter of credit, established by the bank's tariffs. Usually calculated as a percentage per annum of the amount of the letter of credit, it may also include some fixed or minimum payment. At the same time, the issuing bank pays part of the commission received to the beneficiary bank for its services.
Consider the scheme of the letter of credit on an example. Let's say we have a supplier and a buyer of a certain product who do not trust each other and want to make sure. The buyer is afraid to send money without seeing the goods, and the supplier is afraid to send goods without seeing the money.
In such a situation, opening a letter of credit can help. The buyer opens a letter of credit in his bank, pays the payment amount to a special account, and instructs the supplier to send it to his bank, but only after the supplier provides documents confirming the fact of sending the goods.
The buyer's bank sends the supplier's bank a notice of opening a letter of credit, and the supplier's bank informs the supplier about it. The supplier, knowing that the funds for payment for the goods have already been reserved and will be sent to him, sends the goods and provides his bank with documents confirming this fact. The supplier's bank checks the legality of these documents and, on the basis of this, makes the necessary payment, which is reported to the buyer's bank. After that, the buyer's bank transfers the reserved funds of its client to the supplier's bank. The supplier gets his money, the buyer gets the product, and the banks get their commission. Everyone is happy. This is the classic letter of credit scheme, and depending on the type of service, some actions may vary.
For clarity, an approximate scheme of the letter of credit can be presented in the following figure (numbers indicate the procedure):
Consider the most common types of letters of credit - they can be divided according to several criteria.
Based on whether it is possible to cancel the action of a letter of credit, there are revocable and irrevocable letters of credit.
Revocable letter of credit implies the possibility of the issuing bank to withdraw (cancel) its instruction to transfer funds before the moment of submission required documents by the opposite party, that is, cancel the operation, without notifying the beneficiary bank.
Irrevocable letter of credit does not imply the possibility of its cancellation without notifying the beneficiary bank and without the consent of the direct recipient of the payment. That is, it can also be canceled, but only with the consent of both parties, and not unilaterally as a revocable letter of credit.
Irrevocable letters of credit are used in practice much more often than revocable ones, since they satisfy the interests of both parties to the transaction more.
According to the degree of responsibility of both banks, confirmed and unconfirmed letters of credit are distinguished.
Confirmed letter of credit guarantees that the recipient's bank or another third bank will pay the recipient the amount due, even if the sender's bank does not transfer the money to him.
Unconfirmed letter of credit assumes that the payment will go to the recipient only if it is actually transferred by the issuing bank.
According to the possible source of funds for the execution of the payment, covered and uncovered letters of credit are distinguished.
Covered (deposited) letter of credit means that the issuing bank transfers the payment amount to the beneficiary's bank for the entire period of the letter of credit. This amount is a guaranteed cover, and is immediately at the disposal of the beneficiary's bank.
Uncovered (guaranteed) letter of credit means that the issuing bank allows the beneficiary's bank to write off the payment amount from its correspondent account, or stipulates some other conditions for receiving a refund. In practice, this type of letter of credit is most often used.
Consider some other well-known types of letters of credit.
Letter of credit with a red clause means that the issuing bank undertakes to make the agreed amount of advance payment to the beneficiary's bank even before the receipt of supporting documents from the beneficiary.
Revolving letter of credit opens when it is necessary to regularly perform homogeneous operations. Each time it acts on a certain batch of goods and then resumes its effect on the next batch.
Transferable (transferable) letter of credit implies the possibility of transferring part of it to another beneficiary, if necessary.
Standby letter of credit or stand-by letter of credit- this is a kind of symbiosis of a letter of credit and a bank guarantee, under the action of which the supplier receives payment for the goods, even if the buyer refuses to pay him - the bank makes the payment at its own expense.
All the advantages and disadvantages of the letter of credit form of payment are reduced to one. The advantage is the bank guarantee that the client will receive the necessary product-service, his money will not be lost, the opposite side of the transaction is not a fraudster and will not deceive him. And the disadvantage is that opening a letter of credit costs money, as a rule, it is a few percent of the payment amount. Thus, for an increased level of security of the transaction, you just have to pay extra.
Consider the most common areas of application for letters of credit:
Now that you know the concept and essence of a letter of credit, let's summarize and highlight the most important thing.
A bank letter of credit is a kind of guarantee of the legal purity of a transaction, removing almost all the risks of fraud, because documents confirming the transfer of goods from the seller to the buyer are checked by experienced banking lawyers. Opening a letter of credit in the implementation of export-import operations is also interesting because, regardless of the countries where the supplier and buyer are located, such operations are regulated by a universal document - international Uniform Customs and Practice for Documentary Credits UCP-600, which eliminates the risk of non-compliance with legislation different countries carrying out a certain transaction. Opening a letter of credit will cost the buyer a certain amount, but this amount is significantly lower than, for example, when obtaining a loan, and a letter of credit of a certain type includes many parameters credit operation, but at the same time it also ensures a safe transaction. That is, this is a rather profitable service, but it requires additional costs.
Now you have an idea of what a letter of credit is, why it is needed, what types of letters of credit can be found in practice.
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Estimate:
If you are afraid to settle with counterparties on an advance payment, have started cooperation with a new supplier and want to insure yourself or plan to work with foreign partners, you should pay attention to such a form of payment as a letter of credit. This is one of the most profitable and reliable ways to pay under the contract, avoiding significant costs and risks. We will talk about him.
If you are afraid of banking terminology and it is difficult to figure out what a letter of credit is on your own, our material is just for you. In it, we tried to tell in simple terms what a letter of credit is, what types it is, what are its advantages and disadvantages.
To begin with, let's find out how the concept of "letter of credit" is deciphered in domestic legislation. And after that we will try to explain the essence of the phenomenon in simple words.
According to the Civil Code (Article 867), when making settlements under a letter of credit, the bank (issuer), on the basis of the payer's instruction, undertakes to pay the funds, pay the promissory note issued by the recipient, or perform other actions aimed at fulfilling the letter of credit, after the recipient presents certain documents.
Important: this is how a letter of credit is defined in professional language. If we state its interpretation in simpler words, then a letter of credit is an instruction to the bank to pay a certain amount, provided that its recipient provides certain documents. To put it even more simply: to open a letter of credit is to set aside money in a special bank account, which will wait there when they come with documents. In this case, you can use your own funds or borrow them from the bank.
After fulfilling the conditions of the letter of credit, the bank transfers the money to the recipient. This method of payment is used to make payments for the delivered goods, work performed and services rendered. The Bank participates in this process in the role of a guarantor that payments will be made in full and on time. Therefore, a letter of credit, in simple terms, can be called a guarantee of payment. It is also a special form bank lending because borrowed funds are often used.
Before opening a letter of credit, the parties must agree that payment will be made in this manner. The agreement is in the form of a contract. The next step is to contact the bank. The letter of credit is issued in paper form and must contain certain information:
The letter of credit can be executed by the bank in one of the following ways:
For clarity, we will demonstrate the use of a letter of credit for settlements using an example. Let's say you need to pay for a delivered product, but the required amount is not available. For this purpose, a letter of credit is opened with the attraction of credit funds, that is, in simple terms, you borrow money from the bank, but do not receive it yourself, but put it on a separate account and instruct the bank to pay them to the supplier when he fulfills certain conditions.
After the goods are delivered, the supplier submits supporting documents to the bank, and the agreed amount is transferred to his account. As such documents, as a rule, bills of lading are bills of lading. You just have to return the debt to the bank with interest, like a simple loan.
Important: when opening a letter of credit, it is not necessary to borrow funds - you can use your own money.
The person to whom the funds are to be paid applies to the bank with the documents stipulated by the terms of the letter of credit, and they can also be issued in electronic form. Further, within 5 working days, they can be checked, after which the bank makes a payment or refuses it. If within the period for which the letter of credit is issued, the necessary papers are not applied for, the funds are returned to the one who opened the letter of credit.
Important: a letter of credit is widely used not only in business, but also when paying for purchased apartments in new buildings. This method of payment allows both the buyer and the developer to insure against fraud. The client does not have to transfer money before registering the ownership of the apartment, and the company that sells the apartment may not be afraid that it will issue its transfer, but will not receive payment.
Depending on the possibility of cancellation and revision of conditions:
Based on the availability of coverage, that is, in simple words, the preliminary transfer of funds:
By mode of use:
Depending on the availability of additional warranties:
According to the payment procedure (form of execution):
Subject to other conditions, other types of letters of credit are also distinguished:
Like any other form of settlement, a letter of credit has both advantages and disadvantages that should be considered when choosing it as a payment method. Let's start with the positives.
Advantages of a letter of credit:
Cons of a letter of credit:
When working with counterparties, it is necessary to choose the best way to make settlements with them, which will allow you to make payments on time and insure yourself against dishonesty of the counterparty. One of the most profitable and safest forms of payment is the opening of a letter of credit. In simple terms, it can be defined as an instruction to the bank to pay funds to a certain person (company), provided that certain requirements are met. As a rule, in order to receive payment, it is necessary to provide documents confirming the fulfillment of obligations.
Depending on the terms of the letter of credit, in particular on the availability of coverage, confirmation and the possibility of revocation, there are various types of this form of payment. Its main advantages are savings and the ability to protect the parties to the contract from fraud. Among the shortcomings can be called a voluminous document exchange and the presence of restrictions on the use of a letter of credit.
Hello! In this article we will talk about the system of settlements by letters of credit.
Today you will learn:
The business sphere is not only full of bona fide companies that operate in accordance with the norms of the law and the terms of the contract. There are also scammers whose main goal is to leave the counterparty with nothing. You give them a product or money for it, and as a result you are left without both.
However, the expansion of the enterprise's production volumes implies that it will cooperate with new business partners, whose integrity cannot always be verified.
What to do if you enter into an agreement with a company unknown to you and are worried about the outcome of the transaction? What if there is a delay in payment by the other party or if there is no shipment of goods in response to your advance? Such issues and the resulting problems are easily resolved with the help of a letter of credit.
Letter of credit - This is a special settlement system that guarantees both parties to the transaction its positive outcome. it banking product with the participation of two banks: in the first, an account is opened for the seller, and in the second for the buyer. The credit institution transfers funds from the account only if the terms of the agreement between the parties to the transaction are fulfilled and supporting documents are provided.
The letter of credit implies the presence of two participants in addition to banks:
The initiator of the contract is the buyer. It is he who is interested in obtaining the object of the transaction, and therefore applies to the bank with an application for opening a letter of credit.
This service is provided on a reimbursable basis: banks charge commissions, which in some cases are quite impressive. However, a letter of credit is a guarantee of the performance of the contract, which plays an important role for both parties to the agreement.
The buyer's bank will transfer funds to the seller's account only when the terms of the signed agreement are fulfilled (for example, when goods are shipped). If the seller violates the clauses of the agreement, the bank will return the funds to the buyer's account.
A letter of credit is a rather complicated operation that requires complex registration. However, it is very popular, as it is the key to successful cooperation between participants in different transactions.
A letter of credit is a fairly universal concept that can be used in transactions between:
Legal entities are the main users of such a banking service. Often, companies are involved in transactions, the name of which is not well known, and therefore one of the parties to the transaction tries to play it safe.
One firm delivers the goods, and the second purchases it. The letter of credit allows them to avoid disputable situations when making settlements. The same applies to the provision of various services or the performance of work.
Individual entrepreneurs can also offer the counterparty to issue a letter of credit if they doubt its reliability. When planning the shipment of goods for a large amount, it is better to fix the process of mutual settlements in an extremely clear contract so as not to lose your own funds.
The use of a letter of credit is also found among individuals. Most often it accompanies large purchases. For example, you. A seller was found, however, for some reason you doubt that he will fulfill his obligations under the contract.
To be sure of his integrity and accurately receive funds from the sale, you should contact the bank and conclude an agreement on the terms of a letter of credit. Most often, scammers immediately disappear with such offers, since the bank will require them to deposit the full amount into the account at.
If the buyer is a decent person, then there are no problems in the process of issuing a letter of credit.
The essence of a letter of credit for different participants in transactions is the same: the fulfillment of obligations under it is insured. The use of this banking service is relevant to any items of sale and purchase: from small goods to expensive real estate.
Letters of credit are a settlement tool used not only for domestic trade.
Based on this, there are two varieties of it:
You can also select letters of credit:
Depending on the terms of the transaction, letters of credit are divided into:
The procedure for writing off funds divides letters of credit into two types:
Also exists letter of credit with a red clause. It implies that an advance payment is transferred to the supplier's account before the start of the execution of the terms of the contract. At the same time, documents for shipment, performance of work or provision of services are also provided after the advance payment has been transferred.
Revolving letter of credit means that only part of the services specified in the contract is paid as they are performed. As soon as the next shipment occurs or other work is performed according to the agreement, the next transfer is carried out. This form of payment is convenient for an agreement concluded on long term and implying regular interaction of its parties.
If the bank has the right to transfer funds in favor of several other beneficiaries, then there is transferable letter of credit. If the funds are transferred to the account of one party to the transaction in violation of the terms of the contract of the other, then we are talking about a standby letter of credit. It is an additional guarantee for the parties to the agreement. This type of settlement is used in countries where it is forbidden to use a bank guarantee.
To apply settlements under a letter of credit between the parties to the transaction, it is necessary to draw up an agreement. It is compiled on a documentary basis and necessarily indicates the form of calculations.
The agreement includes the following items:
In order for the signed contract to come into force, the buyer must contact the bank and write an application indicating the letter of credit form of payment.
The statement also states:
From the moment of signing and registering the application, the letter of credit comes into force. An executed letter of credit can be extended for a new term by mutual agreement of the parties.
Letter of credit payment under an agreement is convenient, despite the high commission rates from banks when registering this service.
Among the advantages of mutual settlements with the help of letters of credit, the following can be distinguished:
Of course, the main advantage of a letter of credit is a guarantee that the supplier will receive money or return it if the buyer fails to fulfill the terms of the transaction. Thanks to this advantage, letters of credit are popular.
Letter of credit is not a simple procedure. But if you use it at least once, then all its rules will become clear to you, and in the future you will easily apply such a system of calculations.
The transaction process based on a letter of credit is built on several stages. We will highlight the most important of them, which are taken as the basis for any type of letter of credit.
So, the steps for concluding a letter of credit agreement:
If the contract between the parties is concluded for a long period and includes several deliveries of goods, each of which is paid separately, then the supplier must go to the bank each time and provide the accompanying documents.
In the future, if the buyer and seller are confident in cooperation, they can refuse the letter of credit and make settlements on their own. While they do not know each other well, a letter of credit is the most preferred payment option for both parties.
