The commercial letter of credit is perhaps one of the most coveted and secure documents when it comes to international trading. It ensures conditional payment to the seller and buyer as per the terms of the contract. It is also a legally binding document that holds the bank or financial creditor responsible for the transaction and the ultimate repayment. Here are 6 interest facts about this certificate that you should know about.
Conditional Security of Payment
First and foremost, the letter of credit has a global appeal, it can be issues in both local and international transactions. Also, the document is legally binding and offers ample security for both the buyer and the seller. It promises conditional repayment to the seller. Similarly, it also educates the buyer about the terms of the contract and the sellers trade activities.
Involves Various Parties
The letter of credit doesn’t just involve two parties- the buyer and the seller. They are but two of the main players in this transaction. You have other aspects of international trade as well such as banks, financial creditors, insurance agents, export and import middlemen and more.
Can Be Issued by Banks
The letter of credit can be issues by global banks and state financial institutions alike. These documents are usually designed under the supervision of the government and can be easily accessed. It also gives an extra credibility to your activities.
Governed by the ICC
The letters of credit are ultimately governed by ICC or the International Chamber of Commerce and issued by global banks. Also, there are multiple types of payment options and credit plans that you can pick from. The interest rates fluctuate as per the current market scenario. In UAE the market is stable for trade and hence favorable to get financial credit.
Issued on Instant and Future Payments
It is interesting to note that the commercial letters of credit are issued on both present and future payments. The interest can be pre-decided or be as per the current market rate at the time of repayment.
Improves Credibility
With letter of credit, buyers, sellers and businesses in general are more assured and satisfied. This is because the risk of fraud and losses are significantly reduced. This certification also adds on to the credibility of the deal. Ensure that you pick a licensed, certified and authentic platform to help you with your financial credit. That will make the entire process smooth, hassle-free, and unique for you!