What Is a Commercial Letter of Credit?
A commercial letter of credit is a document that a commercial bank provides credit to customers to obtain funds to purchase goods. In domestic trade, after the purchaser purchases the goods, the seller can withdraw the payment within the amount stipulated in the credit. In international trade, a guarantee document issued by a bank to an exporter at the request of an importer, with the bank responsible for payment. A commercial letter of credit is an independent document that is not attached to a trade contract, and business processing is based on documents rather than goods. There are many types of commercial letters of credit. Depending on their use and usage, they can be divided into documentary letters of credit, bare letters of credit, revocable and irrevocable letters of credit, confirmed and unconfirmed letters of credit, spot and long Letter of credit, etc. [1]
Business letter of credit
- Banks Doing Business
- business
- The difference between standby letters of credit and commercial letters of credit is that the latter is usually used in trade transactions, while standby letters of credit are generally used in financing activities. In addition, in the commercial letter of credit business, the bank assumes the responsibility of the first payer, while in the standby credit business, the bank assumes the responsibility of the second payer. Nevertheless, the standby letter of credit is more risky than the commercial letter of credit business because it provides payment guarantees for customers' financing activities.