Note on Letter of Credit. (Business Studies)
Before sending the goods to the importer, the exporter seeks to know the creditworthiness of the importer. For this purpose, he asks the importer to arrange letters of credit form a bank. A letter of credit is an advice issued by a bank undertaking to honour the bills given by the exporter as per terms and conditions stated therein. IT is generally issued by the bank in favour of the exporter at the request of the importer. It facilitates exporter to obtain payment from the bank without any problems. The exporter can also export goods without asking for a letter of credit. In such case, he can demand 25 percent of the value of the goods as advance. If the importer is an unquestionable man of credit, the exporter may export the goods demanding a mere bank reference. The details with regard to selection of the ship, insurance and cargo are prescribed by the seller. This type of indent is otherwise known as closed indent. When all the rights of the indent with regard to selection of the ship, insurance and cargo are left to the discretion of the agent, it is called an open indent.