Letters of credit, irrespective of the name or description, are irrevocable arrangements that constitute the issuing bank’s firm commitment to honor complying presentation.
- Letters of credit symbolize bank credit and the primary responsibility for issuing banks to honor consistent documents with beneficiaries;
- Letters of credit, regardless of whether they contain any invocation of contracts, are separate and free from purchase or sales contracts;
- Letters of credit are documents prepared to handle documents rather than goods, services or other acts.
- Improving negotiation status. Issuing letters of credit means to provide exporters with a conditional payment commitment other than commercial credit. It increases importer’s credit and helps them obtain reasonable trade prices;
- A guarantee for goods. Commercial credit will be changed to bank credit. The intervention of banks provides trades with a guarantee and effective control over shipment date and the quality of and title to goods through documents and contractual terms;
- Funds tied up will be decreased. For importers adopting the payment method of authorized issuing of L/Cs, the occupation rate of self-owned capitals will be reduced after issuance of L/Cs and before payment.
- Both of the importer and exporter expect certain commitments on each other''''s actions to enhance the credibility of trades.
- Importers in the seller''''s market and exporters insisting on using letters of credit for settlement;
- Both sides intend to seek trade financing due to insufficient current capital.