The letter of credit is a document issued by a bank, which acts as guarantee For a person to obtain financing from other entities that may in turn be banks or suppliers.
is often used in operations export and import ( documentary credit ) when the buyer provides the seller a specific sum for the provision of goods and services; amount the seller receives only under certain conditions agreed at the start and that the bank is the guarantor of control. For the regulation of these operations are referred to the Uniform Customs and Practice .
These documents are generally required to commercial invoices, proof of transport (land waybill, air waybill , railway consignment note, bill naval etc..) Usually supplied by charge of the transport agent, a certificate of insurance , a certificate of origin, a quality certificate, a list of prohibited sent etc.etc. The bank is committed to check the correctness of the documentation provided and, if so, to credit the amount of the letter of credit to the beneficiary.
The validity of the letter of credit is also agreed at the start, both in the timing of delivery of the materials in the duration of its validity. Other features are that it can be "revocable" or "irrevocable", "confirmed" or less from the bank and not be at the vaults of the bank issuing the nation or those in the target nation.
This type of payment method is useful especially in cases where the counterparties are located in different countries or you want to ensure against possible defaults.
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