Letter Of Credit

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A letter of credit is not cheap, it requires skill in doing this type of documents, it also has a higher cost because of different organisms that operate and get involved in the L/C, plus getting the required documentation.

Letter Of Credit

Required Documentation

Commercial Documents

Inspection Certificate

Packing List

Commercial Invoice

Transport Documentation

Depending on mean of transport ( Air Waybill, Road Transport, Rail Transport...)

Insurance Documents

Insurance policy

Insurance Certificate

Disadvantages

Crrency fluctuations

Based on documentation and not physical verification of goods

It is expensive

Advantages

For Buyer

Solvency is demonstrated once the L/C is done

Shipping time can be controlled by the buyer

For Seller

Opportunity to get financing between shipment and pyment of goods

Buyer cannot refuse to pay shipped goods

Obligation of buyers bank to pay goods

what it is

Payment mechanism used in international trade to provide an economic guarantee to an exporter

Who is the beneficiary

The person who is going to be payed, usually the seller of goods