Letter Of Credit Vs Line Of Credit. There are a few types of letters of credit which include documentary credit and standby letters of credit. A supplier or seller grants you open credit to order its products.
After these terms are completed and confirmed, the bank will transfer the funds. By contrast, a line of credit allows you to buy goods and services from a variety of providers, but your payments go to a single lender, such as a bank or finance company.lines of credit can also finance your operating costs and provide cash to keep you afloat in lean times. It is issued by a bank in a particular format which assures payment of goods and services when the seller provides authentic documents.
A line of credit is different from a letter of credit.
There are a number of payment mechanisms that are used when conducting international business. If a buyer fails to pay a seller, the bank that issued a letter of credit must pay the seller as long as the seller meets all of the requirements in the letter. Letter of credit is a prominent payment method used, particularly for import and export activities. However, a standby letter of credit is a standby payment mode that can only be used by the beneficiary when the purchaser fails to make the payment for any reason.