In today’s modern time, businesses are expanding their transactions internationally. Mostly big enterprises are running on credit basis. All companies mainly use the way of Letter of credit services for international transactions for long distance and international transactions. Letter of credit is a documentary credit form and the banker’s commercial credit for exporter. Letter of credit is a guarantee document which is given by the bank in the guarantee of the buyer to make payment to the exporter. In this, buyers can buy a product at the cheapest rate of interest. It is also the best way of financing a business in an international way or international trade. This document is the Guarantee letter for payment from the side of the importer. A letter of credit was first used in Europe in ancient times. In the later 19th and 20th century a letter of credit was firstly used by travelers to increase the business by circular commerce of credit. Now a recent time the letter of credit is replaced by travelers’ credit, credit cards, and automated teller machines. Benefits of letter of credit There are so many benefits of a letter of credit some of which are given below; 1. Helpful in import and export of goods: Letter of credit is very helpful in doing trading between different countries internationally. It is beneficial for all types of business to do transactions in the best way without taking the cash. 2. Confirmed: In this, the traders can confirm the letter of credit by guarantee by the second bank. They can give a letter of credit if the second bank confirms the letter of credit. 3. Restricted: In the case of a restricted letter of credit, one advising bank can purchase of a bill of exchange from the seller. 4. Safety expands the business internationally: in this, we can get a letter of credit from the bank, which can help them to increase the company at an international level. In this, we can get a loan at a low rate of interest. 5. Seller receives money after fulfilling conditions: In this seller can receive payment after filling all the conditions which are under the letter of credit. 6. Seller is free from credit risk: Seller can make a letter of credit on demand of buyer then he can free to do trading with the buyer. He can use this facility to increase their sale. 7. Timely Payments: Buyer can make payment at small EMIs to do all business and financial transactions. In this, if they make timely payments, then they can get cash flow with full planning. It can also help them to take more credit with a smooth and better way. 8. Work as a credit certificate to the buyer: It is like a certificate which is given by the bank to the seller in this they can take a credit within a short period with easy way or secure mode. It is a better way of financing the business in an ethical and better manner. It is a paper receipt or a paper document, but it works like a letter of credit for all the bank transactions. Why Choose Letter of Credit?There are so many reasons for choosing the Letter of Credit as the mode of payments internationally by the exporter and importer. The seller or export and the buyer or importer both seek the advantages of using Letter of Credit. Benefits of Letter of Credit to the Seller1. It will be the obligation of the buyer’s bank to pay the seller for the shipped goods to the importer. 2. Letter of credit reduces the risk of production in the case is buyer or importer cancels the order for purchasing products. 3. The seller gets the opportunity to get finance the business in the period between the shipment of goods and receiving payment. 4. The seller can count the days on which he will receive the payment from the bank. 5. If the buyer has any complaint about the goods, he cannot refuse to make payment to the exporter. Benefits of Letter of Credit to the Buyer1. The importer’s bank will pay the exporter for the shipment of his goods until he represents all the required documents before the bank, as mentioned in terms of the letter of credit. 2. The importer can control the time of shipment of goods. 3. The buyer can demonstrate his solvency to make payment by using a letter of credit. 4. The seller has to grant credit to the buyer if in case, the letter of credit is being provided for delayed payment. 5. The letter of credit allows the importer to reduce and avoid the pre-payment to exporter for the shipment of goods. ConclusionLetter of credit is a better way of doing all the transactions of business related in a comfortable and better way to expand the business internationally. In this buyer who doesn’t have insufficient funds can get a letter of credit with a proper and better way. It is the best way to do all the transactions in an ethical and better way. Now a time we can expand a business, or we want to do all the transactions in an internationally way then it is the best way to do all the transactions in an ethical and better way.
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