Letter of Credit - is a means of cashless payment bank customers with contractors.It expresses the obligation of a credit institution to transfer to the account of the supplier established in the contract sum after the shipment of goods or services.The current legislation provides for a unified form of payment.
Letter of Credit - the guarantee of a successful transaction for both sides.After all, the supplier assured that the necessary funds are available to pay for the client, and the buyer is protected from the loss of his own money, as they are on a separate account at the bank serving it until the fulfillment of obligations.
So, we learn more about what a letter of credit, and the essence of the mechanism of its work.When two parties enter into an agreement to provide a service, the question of timely payment.Particularly relevant letter of credit calculation for businesses who collaborate for the first time and are unsure of the integrity of each other.
So, in the bank of the payer is a separate account to which transferred the required amount.The second aspect of the contract can get the money in cash or to require their transfer to the account at his bank only after the document certifying the fact of termination of the transaction.
bank letter of credit can be of several types.
Revocable type presupposes the possibility of cancellation or adjustment of the client issuing bank without prior notice to the other parties to the agreement.In some cases, the credit institution shall decide on its cancellation without acceptance of the client.If conditions remain unchanged, the bank makes the supplier documents confirming fulfillment of obligations, the buyer's bank on the basis of which the latter must immediately transfer the money.
course, revocable letter of credit is not fully guaranteed, so in practice is rarely used.As a rule, it is selected organizations, which have been cooperating for a long time and the degree of trust between them is quite high.
irrevocable letter of credit - is the obligation of the bank, does not tolerate any changes or adjustments.That is, if the supplier has presented the necessary documents proving that the shipment of goods, then the money should be transferred unconditionally.In practice, this type of calculation is used more often, as it gives a clear beneficiary confidence in the conditions of the contract.
There is an unspoken rule: when the letter of credit did not mention a specific form (revocable or not), it is automatically considered irrevocable.
can also select unconfirmed and confirmed form.First you can not cancel or make any adjustments without approval of the second party.Confirmed irrevocable letter of credit is considered to be the most reliable, as the beneficiary bank notifies about taking on obligations for providing documents.In this case, banks are working together to guarantee quality performance requirements.
revolving letter of credit - is a renewable obligation of the bank.Typically, it is used between the parties, is planning further cooperation, such as the supply of certain product lots.In this case, the transaction parties do not have any time to request the bank to open a separate account.It simply reserve a large amount of which are listed after each delivery of funds to the beneficiary's account.This process is repeated as long as the amount is exhausted.Then the next replenishment carried out - and the work continues as usual.
In Europe, a proliferation of letters with a green or red clause.The first type is also called letter of credit with deferred payment, ie cash is transferred after a certain period of time after the presentation of shipping documents to the issuing bank.A form of "red clause" involves the issuance of advances to suppliers prior to submitting documentation.
