Talk:Letter of credit

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What is Letter of credit?[edit]

Could somebody add some information about Letter of credit to introduction of this article? In plain English? Because "irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit" just doesn't seem to fit my definition of plain English. ;-) —The preceding unsigned comment was added by 83.131.175.214 (talk) 08:57, 2 April 2007 (UTC).[reply]

--Usercreateaacount (talk) 15:46, 9 February 2017 (UTC)Letter of credit is a document created by a bank that gives you assurance that you will be paid by that bank once you perform certain activity already contracted with a third party. In other words, is a document that indicates that you will be paid by a bank, not the third party that you contracted with. Letters of credits are not contracts, and they are not governed by the laws of contracts. end.[reply]

Agreed but I can't think of a better way of saying it. Perhaps "A letter of credit is a contract that is used as payment during the import and export of goods until they are received. They can then be exchanged for cash."- By Paul Albinson. Visit my website 20:05, 4 June 2007 (UTC)

To understand the letter of credit better, we need to go to the basics of it. In international trade, the buyer and seller, located in different countries, do not know each other, are not comfortable about the credit worthiness and business standing of the parties. Add to this, different laws and regulations in different countries make the matter more complicated. Here the letter of credit plays a role. A bank (issuing bank) issues an LC in favour of beneficiary (seller) at the request of applicant (buyer). Thus the issuing bank gives its own credit worthiness to the seller on behalf buyer. It is a conditional payment mechanism where issuing bank promises to make payment to beneficiary provided the documents stipulated in the LC are presented at the counters of the issuing bank in stipulated presentation period. It is irrevocable undertaking meaning, if the beneficiary complies to the terms of the LC, the issuing bank is bound to pay. Suppose there is a dispute between buyer and seller over quality of goods and seller has presented complying documents to issuing bank, buyer cannot stop issuing bank from making payment and the dispute needs to be resolved separately. Thus, the contract between issuing bank and beneficiary is independant of the contract between applicant and beneficiary. Now the question arrives as to why applicant cannot stop issuing bank from making payment? Remeber one thing that the issuing bank is only replacing its credit worthiness to that of applicant and not undertaking to ensure the quality, quantity etc. of the goods and hence precisely article 5 clearly states - Banks deal in documents only.

Sagar ap (talk) 10:23, 18 November 2014 (UTC)— I agree with what has been stated above in "To understand the l..". In the current form of the article, the terms 'beneficiary' and 'applicant' of L/c have not been defined prior to usage. Moreover, "... provided certain documents have been presented to the bank.[1] "Letters of Credit" are documents that prove the seller has performed the duties specified by an underlying contract ... " equates documents necessary for an L/C (Bill of Lading, Certificate of Origin etc) to the L/C itself.[reply]

Also, the article doesn't explain the mechanism by which reciept of goods or payment is confirmed. ie: Assume I am a seller of goods and I have an L/C from the buyers bank, and a clean bill of lading; Does this assure me of payment from my bank? Who will sign off on my payment? This is the most important aspect of an L/C and should be included. Sagar ap (talk) 10:23, 18 November 2014 (UTC)[reply]

Agree with "Cleanup" tag[edit]

Someone put a "Cleanup" tag on this article, and boy does it need it. It's confusing, unreadable, full of semi-promotional links, and has obscure legal citations. Help! --John Nagle (talk) 19:54, 7 December 2012 (UTC)[reply]

MansourJE (talk) 03:32, 2 December 2015 (UTC)[reply]

Gold as Payment[edit]

The government of Iran has been on sanctions by the government of United States of America. It has created many problems for the banking system of Iran. Normally, when the country's oil is sold, the money goes to the accounts of central bank of that country. By not using the bank accounts of the USA government and getting gold as payment has made Iran more defiant and it solves country's problems. It made Iran more powerful and gave more profits by not using Dollars as payment transactions.

Risk situations[edit]

"Credit itself may be funded." I don't know a great deal about the financial world, but shouldn't that be "Credit itself may NOT be funded", as in the issuing bank doesn't have the funds to pay up? Concrete Cloverleaf (talk) 01:23, 6 May 2016 (UTC)[reply]

Definition[edit]

I undid a recent addition to the L/C definition - A Letter of Credit can be used to pay any amount of money up to the value of the credit, and at any time up to and after the expiry of the credit (depending on the payment terms mentioned in the credit). Tightening the definition in the way that the change did doesn't aid clarity, and in my opinion could add to a misunderstanding of this method of payment. It's important that those points are made in the article, but given that there is a lot of confusion over letters of credit in the business world I think it's important to make the opening definition as simple as possible. Davepoth (talk) 20:56, 6 April 2017 (UTC)[reply]