Letter of Credit

 
The Letter through which the bank on behalf of the importer offers the assurance of repaying the prices of imported products to the exports is called the letter of credit. Through this letter, the bank tacks the responsibility of the outstanding of an importer. So it is regarded as the debt of the bank. Because of the fact if the importer is unable or refuses to pay the charge of the bill, the bank itself is bound to pay money to the exporter. Before receiving the letter of credit from the importer, my exporter does not agree with expert products.

So, the importer at first collects the letter of credit from the bank and sends it to the exporter. Through the letter of credit, the bank basically offers the assurance of the financial solvency of importer. Therefore, it is a very significant document in foreign trade.