A letter of credit is a financial instrument that is used by businesses all over the world to make their international trading operations more secure. In case the importer fails to make the payment to the exporter then the entire trading operation might halt and the importer will not receive the goods. In such a condition, a letter of credit can be very helpful and can make payments on behalf of the importer to the exporter. Thus, the trading operations will go on smoothly and will not halt due to a lack of payment.
If the importer applies for the letter of credit then it is termed as an import letter of credit. The financial institution will offer to pay the exporter on behalf of the importer in case the importer is facing a shortage of liquid cash. This will assure that the importer gets the goods transported to them without any kind of delay.
There are various features of import letters of credit that make them so trustworthy amongst both importers and exporters. Some of the most noteworthy features of an import letter of credit include :
Negotiable
The importer can negotiate the terms and conditions of the letter of credit with the exporter. Thanks to this key feature, an importer can get a letter of credit at more favorable terms and conditions. There are many other similar financial instruments that have fixed terms and conditions, and if an importer wants to take advantage of those financial instruments then they must satisfy the terms and conditions no matter how unfavorable they are.
Online processing
With the advent of technology, various things are moving online and making the life of people easier. There are many financial institutions that offer letters of credit digitally. This means that if you opt for one such letter of credit then you would not have to travel to any physical office and can conveniently complete all the processing via the internet.
Maybe transferred to a third party
The letter of credit can be transferred to a third party very easily, and this makes the letter of credit much more flexible compared to most other financial instruments.