A letter of credit is a financial document that helps international and domestic commerce. It substitutes the bank credit for the credit of the customer. There are two basic types of letters of credit – commercial and standby. The commercial LC is the primary payment mechanism, while the standby LC is a secondary mechanism.
A letter of credit is a written undertaking from a bank to pay or incur a deferred payment undertaking to a seller against the delivery of a specified set of documents provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe.
LC reduces the risk of payment and provides assurance to the buyer this helps manufacturers to sell their products all around the world. With it, the payment is assured. In case, a seller is unable to pay due to uncertain reasons the issuing bank will pay the agreed amount to the seller. It gives authentication to both buyer and seller and also makes both parties more credible. It is flexible to customization in between buyer and seller with consent and can add mutual clauses as per requirement.
The LC is usually considered a negotiable instrument and can be passed at will as money among numerous parties. It forces the issuing bank to pay the money to the beneficiary and any other bank nominated by him.
The letter of credit demands payment through two features: sight or time draft. A sight draft is paid when the LC is presented, and the time draft is paid after a certain duration of time. The bank will review the LC to ensure that it is valid in both cases.
The letter of credit is a helpful tool to ensure smooth trade transactions. However, it is in the interest of the parties to be fully aware of the technicalities, advantages, and disadvantages of the letter of credit. The rules of the LC are not intuitive and need careful understanding before making further commitments.
Bayan Emrooz Law Firm renders services to foreign and Iranian natural and legal persons in the field of corporate and financial law, including consulting and registration of a company, branch and representative office. Having an experienced and specialized legal staff, Bayan Emrooz is ready to provide the needed legal services in respect to financial matters in Iran.
LC
A letter of credit is a financial document that helps international and domestic commerce. It substitutes the bank credit for the credit of the customer. There are two basic types of letters of credit – commercial and standby. The commercial LC is the primary payment mechanism, while the standby LC is a secondary mechanism.
A letter of credit is a written undertaking from a bank to pay or incur a deferred payment undertaking to a seller against the delivery of a specified set of documents provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe.
LC reduces the risk of payment and provides assurance to the buyer this helps manufacturers to sell their products all around the world. With it, the payment is assured. In case, a seller is unable to pay due to uncertain reasons the issuing bank will pay the agreed amount to the seller. It gives authentication to both buyer and seller and also makes both parties more credible. It is flexible to customization in between buyer and seller with consent and can add mutual clauses as per requirement.
The LC is usually considered a negotiable instrument and can be passed at will as money among numerous parties. It forces the issuing bank to pay the money to the beneficiary and any other bank nominated by him.
The letter of credit demands payment through two features: sight or time draft. A sight draft is paid when the LC is presented, and the time draft is paid after a certain duration of time. The bank will review the LC to ensure that it is valid in both cases.
The letter of credit is a helpful tool to ensure smooth trade transactions. However, it is in the interest of the parties to be fully aware of the technicalities, advantages, and disadvantages of the letter of credit. The rules of the LC are not intuitive and need careful understanding before making further commitments.
Bayan Emrooz Law Firm renders services to foreign and Iranian natural and legal persons in the field of corporate and financial law, including consulting and registration of a company, branch and representative office. Having an experienced and specialized legal staff, Bayan Emrooz is ready to provide the needed legal services in respect to financial matters in Iran.
