Letter of credit and Documentary letter of credit
Letter of Credit (LC) Introduction
A letter of credit is one of the oldest and most standard forms of payment for transactions in international trade. Foreign exporters that deal with unfamiliar companies thousands of miles away are naturally uncomfortable investing money to produce goods and ship them without any assurance of payment. Without a letter of credit, exporters generally ask for substantial deposits or other payment guarantees. Letters of credit allow buyers to avoid these undesirable alternatives.
Likewise, importers dealing with foreign suppliers don’t want to pay upfront for goods that may not correspond to purchase order specifications or may arrive late, if ever. Naturally, buyers would prefer to postpone payment until they receive the goods as expected. Letters of credit can prevent buyers from losing deposits when the sellers’ performance is deficient in any way. Without the letter of credit, buyers are left to fend for themselves to recover their deposits if goods are not produced according to spec.
For both buyers and sellers in a given transaction, letters of credit represent a reasonable compromise that protects both sides’ interests by assuring exporters that they will get paid once they produce and ship the goods according to certain documentary requirements that in turn protect importers’ interests. This is akin to an escrow arrangement, ensuring exporters that the goods won’t be released until they get paid and providing buyers with a guarantee that they will get the goods if the exporter is paid.
Remember that Secure Platform Funding offers unsecured letters of credit, something most other financiers do not. Unsecured means you do not have to tie up valuable collateral to open a letter of credit.
IMPORTANT: Letters of Credit (LC) are normally forms of payment security or payment guarantee between a Buyer and Seller of Goods. Therefore the Letters of Credit (LC) we provide clients are NOT MONETIZABLE and are NOT TRANSFERABLE like a Bank Guarantee (BG) would be. A Letter of Credit (LC) is a specialist payment mechanism that is used for a specific buy and sell goods transaction, a LC cannot be monetized by a 3rd party.
Letter of Credit (LC) Benefits
A letter of credit minimizes risk, maximizes control, and optimizes profits associated with international trade by making transactions simpler, smoother and safer for all sides.
• You may not have the necessary collateral requirements or relationship with the bank to get a letter of credit—but we do.
• You don’t have to leave deposits with your suppliers, since your letter of credit will be opened for the full amount of the transaction—so your cash is not tied up or at risk while your supplier can often borrow against a letter of credit.
• You may significantly increase your ability to do business with companies outside the U.S. by bolstering your financial position with your suppliers.
• You can build safeguards into the letter of credit, including inspection of the goods and quality control, and set production and delivery times. This gives you more quality control over your goods.
• Payment is assured as long as you comply with the terms and conditions of the letter of credit.
• The credit risk is transferred from the buyer to the issuing bank, which is obligated to pay even if the buyer goes bankrupt.
• You have easier access to financing and are able to transfer all or part of the letter of credit to another party, e.g., to purchase raw materials.
• Collection time is minimized, as the letter of credit accelerates payment of receivables, and foreign exchange risk is eliminated when it is issued in the currency of your country.
Letter of Credit Procedure
We can assist you in your trade deal by providing Irrevocable Letter of Credit (LC- MT700) on behalf of the buyer & in favor of the seller to conclude your imports & exports.
Below are the simple steps to avail LC or DLC from us:
Client submits their LC or DLC request/application form to AURA LIMITED and Signed Copy of Pro-forma Invoice or Sales & Purchase Agreement of their Trade deal and informs the Face Value & Validity of their required LC or DLC.
AURA LIMITED carries due diligence of their trade transaction and after its assessment informs the client about approval or rejection of their LC or DLC application.
Once the LC application is approved, we will draft a service agreement between client & AURA LIMITED. And also inform the client about the admin charges to begin the client’s LC or DLC transaction.
After both parties sign the service agreement and AURA LIMITED received the admin charges. We will start work on client’s transaction of LC or DLC.
Once AURA LIMITED has received the requested documents, approvals and the LC issuance fee charges. We will instantly request our bank for issuance of the required LC. It will not take more than 2 banking days to conclude the LC or DLC transaction.
Flow Diagram for L/C Document
7 Reasons to choice AURA LIMITED to deliver Letter of Credit (LC) for you:
1. Required limited deposit or no deposit - No deposit or any form of guarantee required upon approved by
basic requirement check.
2. No background check on payment capability
3. 72 Hour Delivery - We normally deliver Letters of Credit (LC) within 72 hours of all documentation and payments being completed.
4. Any Country - We will issue Letters of Credit (LC) for the import/export of goods from ANY country except Austria.
5. Any Currency - We will issue Letters of Credit (LC) in almost any currency except Renminbi.
6. Lower Fees - Our fees for issuing Letters of Credit (LC) are more cost effective than many larger public banks.
7. Less Restrictive - Our required control clauses for a Letter of Credit (LC) are much easier than other banks.
We use the Bank SWIFT Network to have the clients Letters of Credit (LC) delivered Bank to Bank. We operate a reliable, efficient delivery and authentication process to ensure all Letters of Credit (LC) are successfully delivered for our clients.