Bank guarantees to a client's overseas suppliers paid for purchase order funding.
A letter of credit is a guarantee of payment by a bank (issuing institution)to a third party for a specific amount of money, if certain conditions are met.
(Also known as "Documentary Credit"). A Letter of Credit is a conditional promise issued by a bank requiring the bank receiving it to pay a sum of money to a specified person or company upon fulfilment of the stipulated terms and conditions. See animation about "Letters of Credit" by clicking here.
The most common method of payment in international trade. Irrevocable, confirmed letters of credit only are recommended. Letters of credit involve bank guarantees of payment.
An arrangement whereby an importer arranges with his bank to transfer the amount of the transaction to a Canadian bank for payment to the exporter. This amount is available to the exporter provided the requirements of the letter of credit are met. When the exporter presents his invoices and shipping documents to the bank he receives immediate payment.
A letter of credit is an undertaking, which is irrevocable, by the customer's bank to pay a stated sum of money to the exporter, provided certain specified conditions are met including the receipt of the necessary documentation proving performance of the transaction.