When planning to establish a business, it is imperative to understand and produce all kinds of financial documents that are required for smooth operations. A Letter of Credit is one such document that could come in handy if you are planning to expand your product portfolio and services by adding foreign-sourced products and services.
A Letter of Credit (LC) is a document used by businesses that are engaged in foreign trade. The document acts as a letter of security or guarantee offered by financial institutions to exporters. In other words, a Letter of Credit is a financial instrument that is given by financial institutions to enterprises that deal with international trade, import, and export as a monetary guarantee, in case of late payment or default.
Many enterprises have business operations abroad. These enterprises often deal with unknown suppliers, which necessitates assurance of payment before proceeding with any business transaction. It is a letter of assurance or guarantee to purchasers and suppliers dealing in the sales of products and services. Letter of credit is essential for business loans.
A Letter of Credit is used as a guarantee which is issued by a bank to secure timely payments by the buyer to the seller. The letter is issued to ensure payment of any dues within the said time limit. If the buyer fails to pay the amount to the seller on time, then the bank will pay the seller on behalf of the buyer.
The applicant needs to produce the below-mentioned documents for a Letter of Credit:
Now that you know how to get a Letter of Credit issued from a bank, make sure all the documents required for a Letter of Credit are accurate to get fast approval. As a part of best practices, ensure timely product delivery to all the guarantors mentioned in the letter. With the right kind of Letter of Credit, you can expand your product portfolio and services to far-off locales and grow your small business.
Micro, small, and medium enterprises (MSMEs) are among the largest employment providers in India. The total contribution of MSMEs to the overall employment in the country is 69%.