Letter of credit – small things that make big ones possible

Modern technologies have made so many new things and processes possible and today, we cannot even imagine living without them. We are sure, you have read many articles about advantages and the benefits technological development brings, but for using its full potential, understanding what it has made possible is crucial. Fast and effective international trade is one of the offspring of the development we mentioned above. International trade has been the milestone of global economy since the day of its existence. But all of these good things does not come this easy, there are many small details that make it possible. Sometimes we might not even be able to see that they exist, but impact is huge. Take trade documentation as an example and one particular document especially – letter of credit.

Without letters of credit trade would have been practically impossible. Here, in this list you will find everything you need to know about them – why do they play such a big role and how is it used.

· Purpose : when we say, trade would not be this effective without this piece of paper, this is what we mean: any type of trade is based on trust between the supplier or seller and the customer or buyer. As you may have noticed, people do not just trust each other, because words have no guarantee. And that’s when letter of credit comes to action – it guarantees. In this particular case, the document is provided by the bank and serves as a guarantee that payment will be received for the right amount and on time.

· Types : there are two major types of it – commercial and standby. The first one is the primary transaction mechanism and the second one is a secondary one.

· Unities in charge : as we have stated above, letter of statement is like a contract between two banks on the behalf of their customers and a seller and buyer. This is for domestic trade, but for the international Chamber of Commerce is what you will be needing.

· Some questions : before you request the letter of credit, there are some details you need to provide. Firstly, and most importantly, the amount of the payment made. This cannot be an approximate number; you have to indicate the exact amount in numbers. Also, you will have to provide information such as the name and address of the beneficiary, the date of shipment and the way of transportation. These pieces of information will be requested anywhere you go, but other than this, some places and banks might have specific forms, but the procedure is usually fairly easy.

This is just one of the essential element of a big system that we call trade, whether it’s domestic or international. All these small things can barely be seen, but bigger things are built up on them.

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