How Does A Letter Of Credit Work. A revocable letter of credit may be cancelled or modified by the issuing bank after its date of issue. A letter of credit (lc), also known as a documentary credit or bankers commercial credit, or letter of undertaking (lou), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.
If an exporter does not trust the bank that issues the letter of credit for the buyer, they might require that a bank in their own country confirms the lc. How does a negotiable letter of credit work? A letter of credit provides protection for sellers (or buyers).
A document required by the letter of credit is not included in the documents presented;
Importer contacts to the issuing bank. A letter of credit represents an obligation taken on by a bank to make a payment once certain criteria are met. Firstly the seller of an item verifies by his/her bank that the letter of credit is valid and then ready the order of a buyer to ship. Standby letter of credit and how does it work when you carry a business, you certainly know the risks and things can go wrong anytime.