‘Letter of Credit’ is a legally binding letter issued by banks or financial institutions representing a buyer as part of an international business deal. For instance, if you are a businessman from the U.S. who is buying some products from a company based in South America, the bank issues a letter of credit guaranteeing payment against the consignment to the seller once they produce proof that the goods have been shipped. A binding letter of credit included a condition that guarantees the payment and the agreement cannot be cancelled.
1. Contact your Bank. Call or meet your business banker personally and tell them that you need to obtain a letter of credit that is binding. You will be asked to provide details like the name, address and contact information of the selling company along with the terms of the agreement.
2. Before the issue of letter of credit, you will be then required to make deposit for the purchase amount in your bank account. Your bank account is held until the shipment proof is received by the Bank and then it releases the payment.
3. Obtain two copies of the letter of credit and send one to the seller. The Bank will ask you sign an agreement or the letter of credit to acknowledge your obligation to pay for the consignment. Keep a copy of the letter of credit for