What is a letter of credit? Letter of credit review

origin

The name "letter of credit" comes from the French word "accréditation", which is the power to do something, and comes from the Latin "accreditivus", which means trust. http://heinonline.org/HOL/LandingPage?handle=hein.journals/curritlj10&div=10&id=&page=

Role of Letter of Credit

1. Effect on exporters:

Guarantee that the exporter obtains payment based on documents that comply with the provisions of the letter of credit.

Exporters can collect payment on time.

Exporters can obtain financing through package loans or documentary credits based on letters of credit.

2. Effect on importers:

It ensures that the importer obtains the documents representing the goods.

Ensure that importers can receive goods on time, in quality and quantity.

Importers can obtain financing by paying less or no deposit based on their own credit and the issuing bank's trust in them.

3. Effect on banks:

The deposit or collateral paid by the importer when applying for a letter of credit can be used to facilitate the bank's use of funds.

In the letter of credit business, banks can obtain various income for each service they provide, such as issuance fees, notification fees, negotiation fees, confirmation fees, amendment fees and other fees.

Features of Letter of Credit

1. The letter of credit is not attached to the sales contract. When reviewing the documents, the bank emphasizes the written certification that the letter of credit is separate from the underlying trade.

2. Letter of credit is payment based on documents, not goods. As long as the documents are consistent, the issuing bank should pay unconditionally.

3. A letter of credit is a kind of bank credit, which is a guarantee document of the bank.

Letter of Credit Issuance Process

Letter of credit fraud

The definition of "fraud" in Chinese law is reflected in Article 195 of the Criminal Law, which provides the following definition of letter of credit fraud:

Using forged or altered letters of credit or accompanying documents or files;

Using a voided letter of credit;

Obtaining letters of credit by fraud;

Committing letter of credit fraud by other means.

In international trade activities, there are various forms of letter of credit fraud. According to the different subjects of fraud, it can be divided into fraud committed by the beneficiary, fraud committed by the applicant, and fraud committed by both the beneficiary and the applicant. According to the different means of fraud, it can be divided into counterfeit letters of credit, soft-term letters of credit, forged letter of credit documents, etc.

References

• 1. The role and risks of letters of credit: Baidu Encyclopedia [cited on 2015-02-01]