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LETTER OF CREDIT

A letter of credit (LC) serves as a crucial payment instrument in international business, especially for enterprises involved in the export and import of goods. Aura Vision Advisors, a trusted letter of credit provider in Dubai, facilitates trade deals by offering reliable letters of credit for both import and export transactions.

Businesses operating globally often encounter unknown suppliers, necessitating payment assurance before initiating transactions. The letter of credit becomes crucial in providing payment assurance to suppliers, establishing trust in international trade.

TYPES OF LETTERS OF CREDIT (LC):

Sight Credit: Involves documents payable upon presentation, offering immediate funds for the beneficiary.

Acceptance Credit/Time Credit: Deals with bills of exchange payable after a specified time, providing flexibility for payment.

Revocable and Irrevocable Credit: The former allows modification or cancellation by the issuing bank, while the latter’s terms are binding.

Confirmed Credit: Involves a second bank guaranteeing the letter of credit, adding an additional layer of assurance.

 

How a Letter of Credit Works:

Seller Protection: The bank issuing the letter of credit ensures payment to the seller if the buyer fails to fulfil the payment, provided the seller complies with outlined conditions.

Buyer Protection: A letter of credit can protect buyers, ensuring payment only upon the successful delivery of goods or services.

Advantages of a Letter of Credit:

  • Enables transactions with unknown partners or in new business setups, facilitating business expansion.
  • Secures the seller/exporter in the event of buyer/importer bankruptcy, transferring the credit risk to the issuing bank.
  • Allows customization of terms and conditions between business partners for each transaction.
  • Resolves disputes by allowing the exporter to withdraw funds as agreed in the letter of credit.
  • Provides certainty in payment terms with the phrase ‘pay later, go ahead.’

How We Can Help You:

Aura Vision Advisors, a leading letter of credit provider in Dubai, offers a wide range of services and assists in preparing necessary documents, making the process seamless and trouble-free. With extensive experience, our professionals provide expert consultancy and tailor letters of credit to meet your specific funding requirements efficiently.

Q.1: What is a Letter of Credit in the UAE?
A: A Letter of Credit (LC) is a financial document issued by a bank that guarantees the payment of a buyer’s obligations to a seller. It is commonly used in international trade to ensure that payment will be received, provided that the terms and conditions outlined in the LC are met.

Q.2: How does a Letter of Credit work in the UAE?
A: The process of a Letter of Credit in the UAE typically involves the following steps:
1. Agreement: The buyer and seller agree on the terms of the sale, including the use of an LC.
2. Application: The buyer applies for an LC through their bank, providing the required details and documentation.
3. Issuance: The issuing bank creates the LC and sends it to the seller’s bank.
4. Notification: The seller’s bank notifies the seller of the LC’s issuance.
5. Shipment: The seller ships the goods and provides the required documents to their bank.
6. Verification: The seller’s bank verifies the documents and sends them to the issuing bank.
7. Payment: Once the issuing bank confirms that the documents comply with the LC terms, payment is made to the seller.

Q.3: What are the types of Letters of Credit available in the UAE?
A: The main types of Letters of Credit available in the UAE include:
• Revocable LC: Can be altered or canceled by the issuing bank without the consent of the beneficiary.
• Irrevocable LC: Cannot be changed or canceled without the agreement of all parties involved.
• Confirmed LC: Involves a second bank guaranteeing payment, in addition to the issuing bank.
• Unconfirmed LC: Only the issuing bank guarantees payment.
• Sight LC: Payment is made upon presentation and verification of the required documents.