Different advantages of Letter of Credit

2. ADVANTAGES OF LETTER OF CREDIT TO
IMPPORTERS.
• DOCUMENTARY PROOF AND SECURITY TO
BUYER FOR FUTURE PLANS.
•LETTER OF CREDIT REDUCES RISK FOR THE
BUYER .
•Since buyer is the holder of Letter of credit,
Bank acts on behalf of buyer. This arrangement
protects importer and minimize time, as bank
acts on behalf of him.
•A letter of credit transaction reduces the risk of
non performance by the supplier.

3. •exporter/seller receives payment of exported
goods only after shipment and meeting of all
necessary requirements under LC terms and
conditions with presentation of documentary
proof including evidence of shipment.
•easier planning for the importers
•Smooth and efficient execution of the business
plan

4. ADVANTAGES OF LETTER OF CREDIT TO
EXPORTERS.
•The major advantage of Letter of credit to a
supplier is minimizing of credit risk.
•PAYMENT GUARANTEE BY THE BUYERS BANK.
•Buyer can not deny payment by raising dispute
on quality of goods, as letter of credit terms and
conditions are based on documentation.
•In a letter of credit, any dispute in transaction
can be settled easily, as LC terms and conditions
are under the guidelines of uniform customs and
practice of documentary credit.

5. • SECURITY TO THE EXPORTER.
• all required documents have been mentioned
well in advance of shipment and there is no
confusion or misunderstanding to the
importer (buyer) to inform supplier to act in
between.
• exporter receives money on time.
• Meeting delivery schedule by proper
production plan is one of the major
advantages under a letter of credit terms of
business

6. DISADVANTAGES OF LETTER OF CREDIT TO
IMPORTERS.
• Based on documentation and not on physical
verification of goods.
• cost of operating letter of credit procedures is
more compared to other payment modes.
• Currency fluctuation is another disadvantage of
Letter of credit.
• Currency fluctuations may also effect on price
variation in local market. The demand of
imported goods may reduce due to such
fluctuation of foreign currency.

7. DISADVANTAGES OF LETTER OF CREDIT TO
EXPORTERS.
• liability of meeting all required parameters are
with supplier failing which bank may not accept
documents under such transaction.
• Additional expenses has to be met by the seller
if buyer insists on doing so.
• Compared to other modes of payment, the
expenses for opening, negotiating and other
procedures of letter of credit is high. This is
another disadvantage of Letter of credit for an
exporter.

8. • If a cold ware is being continued between
two countries, due to political reason, the
trade bilateral agreement between such
countries may become void, resulting to
effect the guidelines of uniform customs and
practice of documentary credit. This is
another demerit of LC for a seller.