In the first place, why Letter of Credit (LC)? What are the other alternatives and why LC is still the highly utilized method to conduct international trade?
In this blog, we hope to explain as much technical detail as possible in layman terms. We hope you can easily grasp the concept and apply the knowledge to your operation.
What is an LC?
A Letter of Credit, which from now onward we shall name its short form - LC, is an undertaking by a bank, called the Issuing Bank - which is a bank appointed by a buyer to a transaction to issue an LC to the benefit of Beneficiary, which is the seller, to make payment to the benefit of the Beneficiary mentioned in the LC upon fulfillment of all the terms and condition stipulated in the LC.
Such undertaking is irrevocable by default, unless stated otherwise. This means, as long as you are confident that you can fulfill all the terms and conditions stated in the LC, you can be pretty much assured of receiving you payment when it's due.