What is a letter of credit? If you are looking for trade finance or deal in import-export services in the different corners of the world, you might hear the term but not completely aware of it. In this blog, we are explaining what it is and trying to figure out its pros and cons that you need to keep in mind before considering them. So, let’s start by its definition. What Is A Letter Of Credit? A letter of credit or a credit letter is a promise made by a bank in terms of full-fledged payment of the correct amount on-time to the seller in case the buyer is not capable of doing so. In simple words, it is a legal document issued by a bank or a financial institution on the behalf of the buyer that guarantees to make the full payment to the seller in the event of a buyer’s incapability to do the same after verifying the certain conditions. Pros and Cons of Letter of Credit: Import-export or international trade finance brings several risks including the non-payment by the foreign buyer. This letter of credit is just a way to mitigate these risks where the foreign buyer gives the payment to the bank and the bank holds that payment under a contract until the terms and conditions stated in the contract are fulfilled. Here are some of the pros and cons of a letter of credit which you need to keep in mind: Pros of Letter of Credit:
Cons of Letter of Credit:
Axios Credit Bank Ltd is offering a high-standard, safe, and reliable international letter of credit services. Their knowledge of the team on the letter of credit is broad and they are experienced in dealing with many inquiries on the pros and cons of letter of credit.
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