Mitigating Techniques for Commercial Risk/Letter of Credit: Difference between revisions
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The letter of credit process begins after a buyer and seller conclude a sales contract providing for payment by a letter of credit. The buyer then instructs his bank--the issuing bank--to issue a letter of credit in favor of the seller. The sales contract may call for either a | The letter of credit process begins after a buyer and seller conclude a sales contract providing for payment by a letter of credit. The buyer then instructs his bank--the issuing bank--to issue a letter of credit in favor of the seller. The sales contract may call for either a | ||
*sight letter of credit pursuant to which the issuing bank agrees to make payment upon presentation of a sight draft and the required documents, or | *sight letter of credit pursuant to which the issuing bank agrees to make payment upon presentation of a sight draft and the required documents, or | ||
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<div style="float:right;">[[Mitigating Techniques for Commercial Risk/Loans|Prev]] | [[Mitigating Techniques for Commercial Risk/Documentary Draft Collection|Next]] | <div style="float:right;">[[Mitigating Techniques for Commercial Risk/Loans|Prev]] | [[Mitigating Techniques for Commercial Risk/Documentary Draft Collection|Next]] | ||
[[Category:International | [[Category:International business]] | ||
Latest revision as of 19:27, 12 August 2009
The letter of credit process begins after a buyer and seller conclude a sales contract providing for payment by a letter of credit. The buyer then instructs his bank--the issuing bank--to issue a letter of credit in favor of the seller. The sales contract may call for either a
- sight letter of credit pursuant to which the issuing bank agrees to make payment upon presentation of a sight draft and the required documents, or
- time letter of credit pursuant to which the issuing bank agrees to accept a time draft and pay at maturity upon its presentation with confirming documents.
The issuing bank then delivers or transmits the credit to a bank in the seller’s country--the advising bank--that may also be the asked to confirm the credit. The advising/confirming bank notifies the seller that the credit has been issued. Once the seller has been advised that a letter of credit has been issued in his/her favor and is certain that he/she can satisfy the stated terms and conditions, the goods are shipped and required shipping documents assembled.