Letter of credit are used where the Exporter/Producer are not sure of payments and the Export customer is not sure of the delivery of the goods, Letter of credit protects the interests of both the parties the Producer as well as the Customer. It is also known as documentary credit, where the importer banks promises to pay the sum to the beneficiary up to a stated sum of money within the prescribed time limit, if the Importer fails to pay the desired amount of sum.
Types of Letter of Credit
There are basically two type of Letter of Credit
- Revocable Letter of Credit: A Revocable letter of credit which can be cancelled at any time without prior information to the exporter/producer.
- Irrevocable Letter of Credit: A Irrevocable letter of credit cannot be altered or cannot be cancelled without prior information to the Exporter or Consumer