Why do banks issue letters of credit


why do banks issue letters of credit

A Letter of Credit (LC) is an undertaking issued by the Bank (issuing Bank) for the account of the buyer (the applicant) to pay the beneficiary (seller). Once the issuing bank has assessed the buyer's credit risk – i.e. that the Applicant will be able to pay for the goods – it will issue the letter of credit. Like a DC and a bank guarantee, a standby letter of credit is a very stated in the Credit, and the issuing bank isobligated to make the payment.

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Basics of Letters of Credit The Seller gets assured that if documents are presented on time and in the way that they have been requested on the LC the payment will be made and Buyer on the other hand is assured that the bank will thoroughly examine these presented documents and why do banks issue letters of credit sure that they meet the terms and conditions stipulated in the LC. They would then proceed to negotiate the letter of credit with other why do banks issue letters of credit to make good the value of LC that has been paid for. No Any additional feedback? Both companies are doing business with each other for the first time and have agreed to settle payment using a letter of credit. Specifically, a letter of credit is a letter from a bank guaranteeing a seller will receive payment from the buyer in the correct amount and on time.
why do banks issue letters of credit

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