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letter of credit was an international trade payment method on the revolution of the 19th century, this form of payment is not delivered for the first time buyer and seller at the time of performance of the contract on equal footing in the field, to a certain extent they have rediscovered “ pay, hand delivery ” exchanges have a sense of the scene, addressing the contradictions of the mutual mistrust. We know that using remittances make the expected payment, buyer at a disadvantage, the use of remittances for late payment is the seller at a disadvantage, and collection, even if the immediate cash against documents, the seller, as well as a late payment. Because the seller must after shipment, to produce a complete set of collections of documents. Once the buyer refused payment, even if the title to the goods in the hands of the seller, the seller's loss is inevitable.

in order to enable both buyers and sellers in the same position, way people invented the letter of credit, guaranteed by the banks stepped in, as long as the seller delivered according to the contract, you can get the purchase price, and the buyer is not required before the seller's delivery obligations under the contract to pay the purchase price. Letters of credit are conditional bank guarantees, Bank (the issuing bank) should the buyer (applicant) requests and directives to ensure immediately or some time in the future to pay the seller (beneficiary) a lump sum. The seller (beneficiary) to the banks got the money on the condition that (negotiating bank) to submit documents specified in the letter of credit. For example, commercial, transportation, insurance, government documents and other uses.

analysis of:

1. Applicant (purchaser): the person requesting banks to open letters of credit.

2. Issuing bank: is a bank in the importing country, upon request of the buyer and the opening of letters of credit.

3. Advising bank: is Bank of the exporting country, exports the person issuing notification.

4. The drawer (seller): the sale of goods and the issuing bank or bill issued by the buyer.

5. The drawee (seller): draft bear the payment responsibility.

6. The negotiating bank: payment or acceptance to the seller

7. Reimbursing Bank: itself is usually the opening bank, he to the negotiating bank to pay advance payment for the latter. In some situations, it may be a paid agent of the issuing bank in a third country.

8. Beneficiaries: to artificially rise to open letters of credit, which has the right to issue money orders and receive payment.  
 

 
 
   
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