A letter of credit is an agreement between two parties’ i.e. buyer and seller. The letter is issued from the buyer’s bank guaranteeing that the payment will be made to the seller on time and for the specified amount.
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In the world of business and trade, there are a lot of terms that might seem unfamiliar to you. To fully grasp the knowledge, basic terminology has to be addressed first. The following are some of the most common terms used:
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In the Letter of Credit discounting process, the bank purchases the documents or bills from the seller after the shipment is done and the bill is accepted under LC by the LC issuing bank and in return make him the payment by charging discounting interest.
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Letter of credit is essential for small business owners, they not only help to safeguard the rights and interests of the parties involved but also help to develop and maintain relations with other businesses. Letter of credit helps to assure the supplier that no matter what, payment would be made.
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