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Letter of Credit

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Letter of Credit

A letter of credit is a payment instrument used predominantly in international business in which a bank offers monetary guarantees to enterprises that deal in the export and import of goods. Letter of credit can be used for import and export. We are one of the most reliable letters of credit providers in Dubai, helping you in your trade deal by offering letters of credit.

Enterprises doing business abroad have to deal with unknown suppliers and they require payment assurance before undertaking any transaction. Therefore, the letter of credit is important to offer assurance of payment to the suppliers.

Types of Letter of Credit (LC)

  1. Sight credit– Sight credit- under this letter of credit, the documents are payable at the view / on presentation of the right document. For instance, a businessman may present a bill of exchange with a sight letter of credit to the lender and take the essential funds immediately. A vision letter of credit is more immediate than other types of letters of credit.
  2. Acceptance Credit/ time Credit– Acceptance Credit/ time Credit- bills of exchange that are drawn and payable after a time are called utilization bills. Under the acceptance credit, these usage bills are accepted on presentation and finally awarded on their respective dates. For instance, a company purchases materials from a supplier and gets goods on the same day. The bill will be paid with the shipment of the goods, but the company may take up to 30 days to pay it. This 30-day time marks the use for sale.
  3. Revocable and Irrevocable credit– Revocable and Irrevocable credit- revocable letter of credit is a credit, whose terms and conditions can be modified or canceled by the issuing bank. This can be done without any prior notice to the canceled beneficiaries. An irrevocable credit is a credit, whose terms and conditions can neither be modified nor canceled. Therefore, the opening bank is tied by the commitments made in the letter of credit.
  4. Confirmed Credit–  A confirmed letter of credit includes a bank other than the issuing bank that guarantees the letter of credit. The second bank is the confirmation bank, usually the bank of the seller. If the holder and the issuing bank default, the confirming bank makes sure the payment is under the letter of credit. In international transactions, the issuing bank usually requests this arrangement.

How Does a Letter of Credit (LC) Work

  • Seller protection: Using a Letter of Credit provides protection for both buyers and sellers. The Bank, as the one who issued the letter of credit, shall pay the transaction to the seller in the event that the buyer is unable to pay the seller. This is legitimate as long as the seller complies with all conditions outlined in the Letter of Credit document.
  • Buyer protection: A letter of credit can also secure clients. If you pay someone to offer you goods or services, but they abandon to deliver the product or service, then you may be able to pay using the standby letter of credit. That payment could be a penalty for a company that was inadequate to display their activity, and it is the same as a refund. From the money you get, you can pay to provide a product or service to someone else.

Basic Document required for Letter of Credit

The main principle of letters of credit is that banks deal only in documents and not in goods. The decision to make payment under a letter of credit will be depends solely on whether the documents presented to the bank are on their face according to the terms and conditions of the letter of credit.

  • A transport document covering at least two different modes of transport (multimedia or combined transport document)
  • Bill of Lading
  • Non-Negotiable Sea Waybill
  • Charter Party Bill of Lading
  • Insurance Certificate
  • Bill of Exchange
  • Commercial Invoice
  • Certificate of Origin
  • Health Certificate
  • Consular Invoice, Legalized Invoice

We are leading letter of credit provider in Dubai helps you in preparing all the necessary documents and makes this process easy and trouble-free.

Advantages of a letter of credit

  • A letter of credit provides you the business partner capability to transact with unknown partners or in a newly set up business. this helps them to expand their business faster into new geographies.
  • In the event of a buyer or importer bankruptcy, a letter of credit is secured to the seller or exporter. Since the credit of the importer is transferred to the issuing bank, the bank should pay the amount as agreed in the letter of credit. Thus, a letter of credit motivates the exporter from the business importer.
  • A letter of credit is excessive. Both business partners can place in terms and conditions according to their needs and arrive at a reciprocal list of clauses. It can also be adapted from one transaction to another with the same business partners.
  • In the case of a dispute between the trading partners, the exporter from a letter of credit accounting allows the withdrawal of the fund as agreed in the letter of credit and subsequently resolves the disputes in the beneficiary.
  • The right to the full costs is described by the courts in the phrase ‘pay later, go ahead’.

How we can help you

We are of the best letter of credit providers in Dubai. We provide a wide range of services in Dubai and also help to save your precious time.

We have extensive experience in issuing letters of credit from financial institutions. Our professionals are very skilled in providing the letter of credit consultancy and can prepare this versatile financial instrument to meet your current funding requirements the company.

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