LETTER OF CREDIT TYPE PAYMENT TERM Bastien Tartu, Antoine Mayer, Baryan Regragui, Fleur Algoud, Rania Nehali, Chloe Fitzgerald The topics for discussion What we’re going to talk about Definiton Process Use Advantages and disadvantages International trade Definiton There are five commonly used types of letter of credit. Each has different features and some are more secure than others. Sometimes a letter of credit may combine two types, such as 'confirmed' ( an additional guarantee to the original letter of credit obtained by a borrower from a second bank) and 'irrevocable'. There are two main types of letters of credit: Revocable Letter of Credit: This type of letter of credit can be cancelled or modified by the issuing bank at any time without prior notice to the beneficiary (seller). However, this type of letter of credit is rare and not widely used. Irrevocable Letter of Credit: This type of letter of credit cannot be cancelled or modified without the agreement of all parties involved, including the beneficiary, the issuing bank, and the buyer. This provides a level of security to the seller that they will be paid for their goods or services, as long as they meet the conditions specified in the letter of credit. Type of letter of credit Standby Back-to-back Description A standby letter of credit is an assurance from a bank that a buyer is able to pay a seller. The seller doesn't expect to have to draw on the letter of credit to get paid. Back-to-back letters of credit may be used when an intermediary is involved but a transferable letter of credit is unsuitable. red-clause Transferable a specific type of letter of credit in which a buyer extends an unsecured loan to a seller. Red Clause Letters of Credit permit documentary credit beneficiaries to receive funds for any merchandise outlined in the letter of credit. These letters are commonly used by beneficiaries who act as purchasing agents for buyers in another country. A transferable letter of credit can be passed from one 'beneficiary' (person receiving payment) to others. They're commonly used when intermediaries are involved in a transaction. LETTER OF CREDIT TYPES Process The process of using a letter of credit typically involves the following steps: Use Letters of credit are used to minimize risk in international trade transactions where the buyer and the seller may not know one another. If you are an importer, using a letter of credit can ensure that your company only pays for goods after the supplier has provided evidence that they have been shipped. Advantages and Disadvantages of a Letter of Credit Advantages: Can create security and build mutual trust for buyers and sellers in trade transactions. Makes it easier to define the specifics of when and how transactions are to be completed between involved parties. Letters of credit can be personalized with terms that are adapted to the circumstances of each transaction. Can make the transfer of funds more efficient and streamlined. Disdvantages: Buyers typically bear the costs of obtaining a letter of credit. Letters of credit may not cover every detail of the transaction, potentially leaving room for error. Establishing a letter of credit may be tedious or timeconsuming for all parties involved. The terms of a letter of credit may not account for unexpected changes in the political or economic landscape. Thank you for listening us
