Advantages of Letter of Credit (LC)
1. Financing Access: LCs can be used by buyers and sellers to obtain financing. While sellers may utilise the LC as security to secure loans or credit lines, buyers can negotiate terms for delayed payments.
2. Trust in Trade: LCs establish mutual trust between parties, which promotes trust in transactions across borders and encourages companies to go into new markets and participate in international trade.
3. Payment Security: The high degree of payment security that LCs offer to the seller is one of their main benefits.
4. Risk Mitigation: LCs assist in reducing a number of the risks connected to global trade, such as fluctuations in currencies, political unpredictability and breach of contract.
5. International Trade Facilitation: LCs let parties to trade with confidence by bridging the trust gap that exists between buyers and sellers in various nations.