What is L/C?

LC is a fairly common concept in import and export, this is considered a fairly common form of payment in logistics. In the article below, Giaiphapdonggoi.net will provide you with information about this form of LC payment!

1. What is LC?

English is Letter of Credit, Is a letter of credit issued by a bank at the request of the importer of goods or services assuring the seller that they will pay or pay the full amount owed within a specified period of time. determined if the seller can present the correct documents and is included in the LC or in short, the LC is a letter of commitment from the bank to pay the seller in full.
In addition, the contracting offices can be located all over the world, they are far apart from each other, so the trust between them may not be high, but thanks to LC, trust between businesses is increased. .
Here is a sample LC for your reference:

LC-la-gi

2. LC . classification

Here are a few of the most common types of LCs used today:

Revocable L/C (Revocable L/C)

Irrevocable Letter of Credit (Irrevocable L/C)

Confirmed Letter of Credit (Confirmed L/C)

Transferable L/C

Revolving Letter of Credit

Standby Letter of Credit

Red Clause L/C

What is included in an LC?
The first is the number, date of LC creation, location, agency creating LC
Next is the type of LC, names and addresses of the parties involved: the person requesting the opening of the LC,... In addition, the amount and currency (VND, USD) plus the effective time, time is also required. must pay and delivery date in addition to other terms of delivery such as place of delivery, delivery date, etc. Content of goods such as name, quantity, weight,... Next need There are types of documents the buyer must present when being inspected such as invoices, insurance, certificates of origin of goods, ... and finally a commitment from the bank that created the LC. Additional information may also be included...
How to pay by LC
Above, we must understand what LC is, so here we can know how to pay by LC or not. Definitely not right, stay tuned to see how we pay with LC card
Before learning about the process of payment by LC, it is necessary to know the 4 subjects involved in the process which are:
The first is the buyer aka the importer:
The second is the exporter or seller.
The third is the LC issuing bank, which is the representative bank for the importer
Finally, the advising bank LC
Observe the following diagram to understand how the payment by LC works!
The diagram below shows the 10 steps of an LC . card payment process

cach-tao-ra-mot-lc

3. Pros and cons of paying by LC

Advantages:
Firstly, for the seller, the payment will be received on time regardless of whether the buyer has paid or not, without delay in the delivery of documents.
For banks, it is possible to collect fees from this amount and in addition, it can expand cooperation with many domestic and foreign partners.
For the buyer, Will receive the goods, the buyer will pay. Ensure the credibility of the partner
Defect:
For the seller, if the documents cannot be presented as prescribed and according to what has been agreed in the LC, the payment will not be made.
For the buyer, if the exporter presents the right documents, the bank must pay, regardless of whether the actual goods are properly delivered or not, even if the goods are not delivered.
However, a special feature of LC operates independently from foreign trade contracts, so it will not bind many parties. However, banks work with each other on the basis of documents, not goods.
Above Giaiphapdonggoi.net has provided you with all useful information about LC. After reading the article, surely all your questions have been answered, right? It's great, don't forget to follow us in the following articles for more information!

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