Common Questions People Ask About Letters Of Credit

Export and import letter of credit are financial instruments that can be very helpful for traders who are involved in the transportation of goods from one country to another. If you are also involved in international trading then you should also consider opting for a letter of credit. 

However, plenty of people have numerous questions regarding letters of credit. Some of the most common questions about letters of credit are as follows:

Where can you get a letter of credit? 

The first question that people ask about letters of credit is where to get them. You can get a letter of credit from a bank or any other financial institution. However, if the bank or financial institution is very small, then they might not offer a letter of credit. Sometimes, due to poor credit scores, you might not be able to get a letter of credit from a bank or financial institution. In such a case, you can contact a trade finance company that can help you to get a letter of credit in relatively favorable conditions. 

How much does a letter of credit cost? 

The cost of a letter of credit generally depends on the financial institution you are getting it from. Different financial institutions might charge different amounts of money for giving a letter of credit. Most financial institutions generally charge from around 0.75% to 1.5% of the transaction value. However, your credit history can also significantly impact the cost of the letter of credit. Other than this, there are also different types of letter of credit, and each type of letter of credit will cost differently. 

Which are the parties involved in the letter of credit? 

A letter of credit can involve a lot of parties, and the number of parties involved can depend on the type of letter of credit. Most of the noteworthy parties involved in a letter of credit are buyers who purchase the goods or services, the issuing bank, and the seller who will benefit from the LC. Other than this, some other parties that might get involved in the letter of credit are advising banks, nominated banks, confirming banks, reimbursing banks, and second beneficiaries.